Cashless Society – Digital Payments, Demonetization, etc.

Cashless Society – Digital Payments, Demonetization, etc.

The billion standardop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- How UPI is transforming payment and settlement, what makes UPI a success.


India has crossed the target of a billion monthly digital payments. Now, to a billion transactions a day.

The story of payment revolution and financial inclusion in India

  • Progress on the financial inclusion: India was long a financially excluded nation –only 17 per cent of Indians had a bank account in 2011.
    • 50 more years estimate: The World Bank suggests it would have taken 50 more years for 80 per cent of Indians to get a bank account at the pre-2011 speed.
    • Yet, we reached that milestone in 2018.
    • How? A magical combination of
    • Political will (Jan Dhana Yojana and Aadhaar embedding).
    • A proactive central bank (creating a non-profit market participant entity and levelling the playing field between non-banks and banks).
    • And a technology stack with three layers (identity, payments, and data).
  • The rise of UPI
    • The swift rise in use: The digital payment transactions on the Universal Payment Interface (UPI) platform rising from 0.1 million in October 2016 to 1.3 billion in January 2020.
    • Result of working together: This represents the magic of entrepreneurs, nonprofits and policymakers working together.
    • And gives us a new target — a billion transactions a day.
  • India’s Payment revolution
    • What are the components of the payment revolution: India’s payment revolution comes from-
    • A clear vision: Shifting the system from low volume, high value, and high cost to high volume, low value, low cost.
    • A clear strategy: Regulated and unregulated private players innovating on top of public infrastructure.
    • And trade-offs balanced by design: Regulation vs innovation, privacy vs personalisation, and ease-of-use vs fraud prevention.
  • What consumers wanted?
    • Consumers wanted a payment experience that was mobile-first, low-cost, 24/7, instant, convenient, interoperable, fintech friendly, inside banking, and safe.
  • Answers lies in UPI.
    • What did UPI achieve?
    • Interoperability: UPI created interoperability between all sources and recipients of funds -consumers, businesses, fintechs, wallets, 140 member banks.
    • Instant settlement: UPI settles instantly inside the central bank in fiat money -state-issued money declared by the sovereign to be legal tender.
    • Blunted data monopolies: Big tech firms have strong autonomy but weak fiduciary responsibilities over customer data, it was taken care of by UPI.

5 Policy lessons from the success of UPI

  • First- how the India stack: Interconnected yet independent platforms or open APIs — are a public good that-
    • Lowers costs, spur innovation and blunts the natural digital winner-takes-all.
    • Replication in other areas: Replicating this in education, healthcare, and government services are likely to be a harbinger of large scale multi-domain collaborative innovation.
  • Second-collaboration: Collaboration can create ecosystems that overcome the birth defects of its constituents
    • The execution deficit of government, the trust deficit of private companies, and the scale deficit of nonprofits.
  • Third-policy intervention: Complementary policy interventions are important.
    • Demonetisation and GST are changing the stories that firms and individuals tell themselves around cash and informality.
  • Fourth-human capital and diversity matter: This revolution needed career bureaucrats to partner with academics, tech entrepreneurs, venture capitalists, global giants and private firms.
  • The final lesson-Western model is not needed always: India doesn’t need to be Western or Chinese to be modern. If our policymakers had copied Alipay or US banks, we wouldn’t have leapfrogged their birth defects.

Way forward

  • Fix the deadline: The central government must deadline digitising all its payments.
  • RBI implement 100+ action items: The RBI must implement the 100-plus action items arising from its own Vision 2021 document and the Nandan Nilekani Committee for Deepening Digital Payments.
  • UPI for inward remittances: RBI must also make UPI and RuPay fit for use in our $70 billion inward remittances that currently come through exploitative financial institutions which don’t have clients but hostages.
  • Replication of UPI in bank credit: The RBI must replicate the core design of UPI — fierce but sustainable private and public competition in bank credit-
    • Our 50 per cent credit-to -GDP ratio is one of the reasons India is poor.
    • China’s 300 per cent is the wrong number, but reaching the OECD average of 100 per cent needs the RBI to do many things-
    • Raising its human capital and technology game in regulation and supervision.
    • Catalysing an ecosystem for lending against the rapidly expanding digital exhaust of small firms and individuals.
    • Issuing more private bank licences, facilitating management changes in old private banks with market caps that signal questions about book value, and shepherding governance and human capital revolution at PSU banks.


Converting the collective independence our citizens got in 1947 to individual freedom surely involved universal financial inclusion. The gap between this aspiration and reality was not a lie but a disappointment because our capital got handicapped without labour and our labour got handicapped without capital. Change has begun -the RBI, the finance ministry, and many individuals deserve our gratitude and dues for a billion digital payments a month. We now ask you for a billion digital payments a day.

Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] Cybersecurity a critical challenge for India’s digital payments ecosysop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Digital payments in India, growth potential, various security challenges and how to tackle it.


Digital payments in India are witnessing consistent growth at a compound annual growth rate (CAGR) of 12.7%.

Growth potential and challenges involved in digital payments

  • Expected growth in mobile wallet payment: The mobile wallet market is expected to continuously grow at a CAGR of 52.2% by volume between 2019-23, according to a recent report by KPMG.
    • This digital explosion can be seen in the accelerating rise in the download and use of electronic wallets as well as an unprecedented increase in digital transactions/payments.
    • UPI/IMPS use growth: Payment systems such as UPI/IMPS are likely to register average annualised growth of over 100%, according to RBI’s 2021 vision document.
  • Challenge of Cybersecurity: Cybersecurity is one of the most critical challenges faced by stakeholders of the digital payment ecosystem.
    • Types of risks involved: With more and more users preferring digital payments, the chances of getting exposed to cybersecurity risks such as-
    • Online fraud
    • Information theft.
    • Malware or virus attacks are also increasing.
    • Digital payment frauds account for about half of all bank frauds in India.

Steps taken by the RBI

  • Guidelines issued: In view of risks, the Reserve Bank of India (RBI) has also issued some guidelines as security and risk mitigation measures for digital payments.
    • It has also issued guidelines that limit the liability of customers on unauthorised electronic banking transactions
  • Steps taken: The central bank has taken steps for securing card transactions, internet banking, electronic payments, ATM transactions, and prepaid payment instruments (PPIs).

Securing the fintech revolution

  • Fraudsters building advanced technologies: The changing nature of cybersecurity attacks such as-
    • Web application attack.
    • Ransomware.
    • Reconnaissance.
    • The DDoS attack clearly establishes cyber-risk as a new reality.
  • What needs to be done to secure the fintech revolution?
    • A robust regulatory framework.
    • An effective customer redressal framework.
    • Foolproof security measures to enable confidence and trust.
    • Incentives for larger participation and benefits similar to cash transactions- are some measures that can help ensure long-term success for digital payments.
  • Leveraging technology: Technology can be leveraged for making popular methods of cashless payments secure.
    • Biometric authentication-enabled cards can provide a greater layer of security by enabling replacement of the traditional PIN.
    • Through biometric authentication, consumers can authenticate transactions by placing their finger on a fingerprint sensor embedded in the card.
    • Ensuring security: Safety is ensured as the consumer’s fingerprint is stored only in the secure chip within the card and the same chip is used to match the scanned fingerprint with the stored one.
    • The biggest advantage: The biggest advantage is that the bank or merchant cannot access the consumer’s biometric data, which also counters potential privacy concerns.


To reap the advantages of the promising fintech revolution steps must be taken to secure the digital environment.




Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] The great disruption of 2016op-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Demonetisation - Impact


India’s overnight ban on high-value currency notes in 2016 was a shock. 


  • According to a study published recently by the US National Bureau of Economic Research, demonetization reduced jobs by up to 3%.
  • It also hurt economic activity by a similar magnitude in the first two months after it took effect. 
  • Research has also found that the exercise—aimed at spiking black money, curbing corruption and depriving terrorists of funds—led to a 2% decline in bank lending in that period.
  • The research paper examines the impact of demonetization across the country at the district level to make national-effect estimates.
  • The paper concludes that figures put out earlier had underestimated the economic impact of the move.


  • The research method employed reveals that the note ban’s shock was felt unevenly across the country.
  • Some regions were hit harder than others because they had a higher proportion of high-value notes in circulation. 
  • The study’s period of analysis has not captured the secondary effects of the ban which are still being felt. 
  • Late 2016 disrupted a recovery of India’s economy and sent it into a prolonged slump from which it is yet to emerge.
Cashless Society – Digital Payments, Demonetization, etc.

Bharat Bill Payment System (BBPS)Priority 1


From UPSC perspective, the following things are important :

Prelims level : BBPS

Mains level : Promoting cashless transactions in India

  • The RBI has expanded the scope of the Bharat Bill Payment System (BBPS) by adding other categories of recurring payments through the portal.

Why in news?

  • With the expansion of the scope of the payment facility, other recurring payments such as school fees, municipal taxes, insurance premiums can also be paid via BBPS.
  • Till now, the Bharat Bill Payment System used to cater to just five segments — direct to home (DTH), electricity, gas, telecom and water.

About BBPS

  • The Bharat Bill Payment System was launched by the National Payment Corporation of India on 31 August 2016 under the recommendation of RBI executive director G. Padmanabhan committee.
  • The platform allows customers across the country to use one single website or outlet to pay all their bills with reliability and safety of transactions.
  • According to a report, a total of 338 million transactions took place on the BBPS network over the course of 2018-19.
  • BBPS payments can be made using cash, cheques as well as through digital methods such as internet banking, debit, credit card, among others.
  • The payment service is provided to customers through a network of agents, enabling multiple payment modes, including cash, and an instant confirmation of payment is provided after the transaction.
  • It even has a standardized system to handle grievances for both online and offline transactions.
Cashless Society – Digital Payments, Demonetization, etc.

VG Kannan committee to review ATM pricingPrelims Only


From UPSC perspective, the following things are important :

Prelims level : VG Kannan committee

Mains level : Read the attached story

VG Kannan committee

  • The RBI has set up a six-member committee, headed by VG Kannan, Chief Executive, Indian Banks’ Association, to review the ATM interchange fee structure.
  • It aims for giving a fillip to ATM deployment in unbanked areas.

Terms of reference

  • The committee will review the existing structures and patterns of costs, charges and interchange fees for ATM transactions.
  • It will also review the overall patterns of usage of ATMs by cardholders and assess the impact, if any, on charges and interchange fees.
  • It will assess the entire gamut of costs in respect of the ATM ecosystem and make recommendations on the optimal charge/interchange fee structure and pattern.

Why appoint such committee?

  • When a customer transacts at another bank’s ATM, his bank has to pay an interchange fee to the other bank.
  • The cost of operating ATMs has steadfastly increased.
  • Hence, Banks and white-label ATM operators (WLAOs) want the RBI to raise ATM interchange fee from ₹15 to ₹18 for cash withdrawals and card-to-card fund transfers, and from ₹5 to ₹8 for other non-financial transactions.


White Label ATM

Cashless Society – Digital Payments, Demonetization, etc.

Farmers badly hit by demonetization, admits Agriculture MinistryPriority 1


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: Lessons from Demonetization


Loss: Now officially acknowledged

  1. India’s 263 million farmers live mostly in the cash economy and millions of them were unable to get enough cash to buy seeds and fertilizers for their winter crops.
  2. The report said that demonetization came at a time when farmers were engaged in either selling their Kharif crops or sowing the Rabi crops.
  3. Both these operations needed huge amounts of cash, which demonetization removed from the market.
  4. Even bigger landlords faced a problem such as paying daily wages to the farmers and purchasing agriculture needs for growing crops.

Failed to pick up

  1. Even the National Seeds Corporation (NSC) failed to sell nearly 1.38 lakh quintals of wheat seeds because of the cash crunch.
  2. The sale failed to pick up even after the government, subsequently, allowed the use of old currency notes of ₹500 and ₹1,000 for wheat seed sales.
Cashless Society – Digital Payments, Demonetization, etc.

UPI to facilitate interoperability among prepaid payment instrumentsPriority 1


Mains Paper 3: Economy | Mobilization of resources, Banking

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Benefits of using prepaid payment instruments


RBI to allow interoperability of payments

  1. The Reserve Bank of India has released the guidelines for interoperability between prepaid payment instruments (PPIs) such as wallets and cards.
  2. This will effectively allow users of popular payment wallets such as Paytm, Freecharge, Mobikwik, PhonePe and PayZapp to transfer money from one wallet to another.
  3. These wallets could implement interoperability through the Unified Payment Interface (UPI).

PPI’s to issue cards

  1. The RBI has allowed PPIs to issue cards using authorised card networks such as Mastercard, Visa or Rupay.
  2. PPI issuers shall adhere to all the requirements of card networks/UPI, including membership type and criteria, merchant on-boarding.
  3. It has mandated for adherence to various standards, rules and regulations applicable to the specific payment system such as technical requirements, certifications and audit requirements, governance, etc.

Benefits of the move

  1. The RBI guidelines while boosting the e-wallet segment, would also ensure the safety and accuracy of the transfer of money by individuals from one wallet to another.
  2. The transaction from one e-wallet app to another need to be speedy and accurate for the interoperability to be effective and efficient.
  3. It is a progressive move for non-bank players and would lay the foundation to reach the under-banked and unbanked segment with a powerful payment product.
Cashless Society – Digital Payments, Demonetization, etc.

NPCI launches UPI 2.0 with overdraft facilityPrelims OnlyPriority 1


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: UPI 2.0

Mains level: Measures for facilitating cashless transactions.


Unified Payments Interface (UPI) 2.0

  1. National Payments Corporation of India (NPCI) has upgraded unified payments interface (UPI) with enhanced security features and overdraft facilities.
  2. In addition to current and savings accounts, customers can link their overdraft account to UPI.
  3. The UPI mandate could be used in a scenario where money is to be transferred later by providing commitment at present.


National Payments Corporation of India (NPCI)

  1. NPCI is the umbrella organisation for all retail payment systems in India which aims to allow all Indian citizens to have unrestricted access to e-payment services.
  2. Founded in 2008, NPCI is a not-for-profit organisation registered under section 8 of the Companies Act 2013.
  3. The organisation is owned by a consortium of major banks, and has been promoted by the country’s central bank, the Reserve Bank of India.
  4. Its recent work of developing Unified Payments Interface aims to move India to a cashless society with only digital transactions.
  5. It has successfully completed the development of a domestic card payment network called RuPay, reducing the dependency on international card schemes.
  6. The RuPay card is now accepted at all the ATMs, Point-of-Sale terminals and most of the online merchants in the country.
  7. UPI is a path breaking innovation that is unprecedented globally. Its high volume, low cost and highly scalable architecture built on an open source platform is key to India’s transformation to a digital payment economy.
  8. The first version of UPI was launched on April 11, 2016 and in the last two years the platform has emerged as a popular choice among users for sending and receiving money.
Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] Demonetisation failed to make India a ‘less cash’ societyop-ed snap


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Measures of Money Supply (M0, M1, M2, M3, M4)

Mains level: Lessons from demonetisation


Evaluationg impact of demonetization

  1. On 8 November 2016, PM announced the “demonetization” of high-value currency notes.
  2. Now that sufficient time has elapsed since demonetisation, it is possible to bring data to bear on the specific question: Has demonetisation succeeded in making India a “less cash” society?
  3. Numerous commentators argued that one such goal would be to push the economy towards greater formalisation, and, relatedly, to push the financial sector towards greater digitisation and a reduced reliance on cash.
  4. But Demonetisation did not trigger any long-lasting behavioural change in the preference for currency, thus striking off one possible long-run gain induced by the short-run pain of the cash crunch.

Look at the chart

  1. The Chart plots currency in circulation (CIC) as a share of broad money (M3) —henceforth, CIC/M3. All data are sourced from the Reserve Bank of India (RBI).
  2. The demonetisation shock in November 2016 saw CIC/M3 plunge to as low as about 0.08 within a month, not surprising when fully 86% of the currency stock was invalidated.
  3. It is not hard to see the trend: CIC/M3 is clearly converging back to its pre-demonetisation level—indeed, it is just about already back to that earlier level.

The Way Forward

  1. It should be added that the failure of demonetisation to make India a less-cash society does not necessarily imply a complete failure of the larger digitization drive.
  2. Data suggest that some components of digital payments are up after November 2016, although it is not clear if this is merely a continuation of pre-demonetisation trends or an effect wrought by demonetisation.
  3. Nor can one conclude, on the basis of the analysis, that demonetisation has failed, although such data as shown have question remain open to contestation and interpretation.


Measures of Money Supply

As we move from M1 to M4, Liquidity of the money goes on decreasing

  • Reserve Money (M0): Currency in Circulation + Bankers deposit with RBI + Other deposits with RBI
  • Narrow Money (M1): Currency with Public + Demand Deposits with banking System + Other deposits with RBI
  • M2: M1 + Savings Deposit with Post Office
  • Broad Money (M3): M1 + Time Deposits with Banking System
  • M4 : M3 + total post office deposits* (Excluding National Savings Certificate)
Cashless Society – Digital Payments, Demonetization, etc.

[pib] Cashless Ticketing through ‘UTSonMobile’ App developed by CRISPIB


From UPSC perspective, the following things are important :

Prelims level : Features of the App

Mains level : Measure towards cashless and paper-less ticketing


From UPSC perspective, the following things are important:

Prelims level: Features of the App

Mains level: Measure towards cashless and paper-less ticketing


A wallet for daily commuters

  1. Centre for Railway Information System (CRIS) has developed a mobile application for Unreserved Ticketing.
  2. This app will help daily commuters by reducing time spent in queues.

Features of “UTS on Mobile App”

  1. The ‘utsonmobile’ application enables booking and cancellation of unreserved tickets, issue and renewal of season and platform tickets, check and load R-wallet balance and helps maintain user profile management and booking history.
  2. The app is very handy, free and is available for both Android and Windows smart phone. Users can download this app from Google Play Store or Windows store free of cost.
  3. Upon successful registration, Railway Wallet (R-Wallet) will be created automatically with zero balance to the passenger. There will be no extra cost for creating R-Wallet.
  4. The R-Wallet can be recharged either at any of the UTS counter or through recharge option available in the website.
  5. No advance ticket booking is allowed. (i.e.) the journey date will always be current date.
Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] Perils of going cashlessop-ed snap


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Financial Resolution and Deposit Insurance Bill (FRDI), cashless society

Mains level: Government moves to reduce cash usage and its effects on depositors


Financial Resolution and Deposit Insurance Bill (FRDI)

  1. The “bail-in” clause of the Financial Resolution and Deposit Insurance Bill (FRDI) has led to worries about the safety of bank deposits
  2. The Bill enables the government to confiscate the deposits of ordinary citizens in order to save troubled public sector banks

Cashless push a bigger threat?

  1. The push by government towards a cashless society is a bigger threat than the FRDI bill

How will this affect depositors? 

  1. Presently, depositors can promptly withdraw their money from the bank by demanding cash
  2. Such an event can lead to severe bank runs and destabilise the banking system because bank deposits are only fractionally backed by actual cash
  3. Such rapid withdrawal of cash deposits, however, may slowly cease to be an option for depositors as the world increasingly turns away from cash and towards digital money
  4. When all, or even a predominant share, of money in the world is digital, there is no question of banks having to meet depositors’ demand for cash
  5. It would also strip depositors of the power to withdraw their deposits in the form of cash to escape any tax or other forms of confiscation by the government

Why more emphasis on ‘cashless’?

  1. Banks have been a major source of funding for governments and their economies across the world
  2. Most of such lending happens through loans which are not backed by savings but instead through fresh money creation
  3. This, in turn, leads to economic crises and bank runs led by depositors
  4. A cashless world makes it easier for banks to carry out their business of credit creation without the risk of having to satisfy the demand for cash from depositors
  5. It also prevents recurrent crises of liquidity that are faced by banks

Other reasons

  1. Policies like negative interest rates, which would otherwise push depositors to rush out of banks to escape the tax imposed on their deposits, become more feasible under a cashless banking system
  2. Under cashless system, depositors are essentially locked in by banks
  3. Depositors in such cases will have no other option but to spend their money to escape a penalty on it
Cashless Society – Digital Payments, Demonetization, etc.

Micro-finance institutions yet to recover from demonetisation shock


Mains Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth.

Prelims: RBI, Demonetization.

Mains level: The news card discusses RBI’s study titled ‘The impact of demonetization on financial sector’ which further highlights that MFIs, NBFCs are yet to recover from the impact of demonetization.


The RBI’s study on ‘The impact of demonetisation on financial sector’.

  1. Disbursals by micro-finance institutions (MFIs), which plunged by over 71 per cent after demonetisation of Rs 500 and Rs 1000 notes, are yet to bounce back into the positive territory, a Reserve Bank of India study has said.
  2. However, the study attributed the decline to farm loan waivers by various state governments.
  3. In the case of MFIs, however, disbursals continued to contract in comparison with the monthly average of disbursals during April-October 2016 in view of the uncertainty surrounding loan waivers by state governments.
  4. While the average monthly disbursals by MFIs declined by 71.4 per cent in December.
  5. Disbursals gradually improved but stayed down in June 2017, the study said.
  6. However, collections by MFIs fell during November 2016-February 2017 vis-a-vis April-October 2016, but witnessed an improvement in March, May and June 2017.
  7. Growth in collections (i.e., repayments of loans) of asset finance firms and loan firms during November 2016-June 2017 increased over the monthly average collections during April-October 2016.

Trend of Bank Credit to NBFCs

  1. Bank credit to NBFCs decelerated from 5.1 per cent (y-o-y) in October 2016 to 1.3 per cent in November 2016.
  2. However, it improved to 10.9 per cent in March 2017.
  3. In terms of the returns submitted by the reporting NBFCs, loans and advances by NBFCs rose broadly at the same rate in the year ending March 2017 (16.4 per cent) against FY16 (16.6 per cent), the RBI study said.
  4. During demonetisation and the subsequent period, there has been a distinct rise in saving flows into equity/debt oriented mutual funds and life insurance policies.
  5. Apart from this, NBFCs seem to have recorded improvement in collections and disbursals.
  6. Demonetisation-led increase in CASA deposits also led to significant improvement in transmission to bank lending rates during the post-demonetisation period.


  1. The challenge, going forward, would be to channel these funds into productive segments of the economy and expand the footprints of the digital economy, which has undergone a sharp increase, another important consequence of demonetisation.
  2. Fake notes detected per million pieces of notes processed at the currency chest level was 7 pieces for Rs 500 denomination and 19 pieces for Rs 1000 denomination.
  3. At the RBI’s currency verification and processing system, there were 2 fake Rs 500 notes and 6 fake Rs 1000 notes for every million pieces processed during 2015-16. These rose to 6 pieces and 12 pieces, respectively, during the post-demonetisation period.
  4. As compared to 2015- 16, 12 clusters for Rs 500 denomination and 14 clusters for Rs 1000 denomination showed a statistically significant higher rate of fake note detection during the post-demonetisation period.
  5. These findings imply a significant pick-up in the rate of fake notes detection at the Reserve Bank level in the post-demonetisation period as compared to a year ago.
Cashless Society – Digital Payments, Demonetization, etc.

Between January-August 2017: 2 million jobs lost sequentially, 6 million added on year-on-year basis

Mains Paper 3: Indian Economy: Indian Economy and issues relating to planning,mobilization of resources, growth, development and employment
From UPSC perspective, the following things are important:
Prelims level: The trends in labour participation rate and unemployment rate
Mains level: Challenges of Development and Employment

1. The article talks about the fall in labour participation rate post-demonetisation as per the Centre for Monitoring Indian Economy(CMIE)
2. The central idea of the article is follows: A comparitive approach of the labour participation rate, unemployment rate and volatility of unemployment in the 10 months preceding and post demonetization.
Key trends in labour market post demonetization-
1. About 2 million jobs were lost between January and August 2017
2. The average labour participation rate during the 10 months preceding demonetisation was 47% which decreased to 44% during the 10 months following demonetisation
3. The immediate impact of GST has been less severe compared to demonetisation.
4. Labour participation was at its lowest in July 2017 but increased in the following months.
5. Demonetisation had a wealth distribution element which cushioned the impact of demonetisation on job losses
6. Monthly overall unemployment rate has been increasing steadily since August 2017 from 4.11% to 5.68% in October 2017
7. Overall employment rate showed a decline from September 2016 to April 2017. However it picked up from May 2017
8. Urban unemployment rate was 8.2% which was the highest recorded employment rate in the past 11 months
9. The rise in labour participation and unemployment rates indicate that although labour is entering the market, they are unable to find jobs.
10. The volatility of unemployment rate measured through the coefficient of variation increased from 8.8% in Jan-Oct 2016 to 23.5% in Nov 2016-August 2017
11. The volatility of unemployment in India was 8.3 times higher than in OECD countries in the overall 20-month period
For Prelims
1. Organisation for Economic Cooperation and Development(OECD)
– It is an intergovernmental economic organisation to stimulate economic progress and world trade
– Its headquarters are located in Paris, France
– India is not a member

1. Demonetisation: It is the act of stripping a currency unit of its status as legal tender
2. Labour Participation Rate: It refers to the number of people who are either employed or actively looking for employment
3. Unemployment Rate: It is the number of unemployed people as a percentage of the labour force
Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] For a long-term view of less cash costs


  1. To achieve the trinity of Jan Dhan, Aadhaar and a more or less cashless economy that the government promises, it is essential for the commercial banking system to fall in line Cutting down the extra charges.
  2. Commercial banking system falling in line means abolishing or reducing many of the extra charges that banks impose on customers and merchants for transactions.
  3. These charges are mostly arbitrary, opaque to even educated customers, and wholly incomprehensible to most consumers, small merchants and traders who are supposed to migrate to the new system
  4. If cashless is the goal, then what sense does it make to charge customers to issue a debit card? Facilitate cashless transactions, instead

Way ahead:

  1. Yet, there is a cost to implementing all the infrastructure and connectivity, which has to be recovered
  2. It cannot be done through taxes or high transaction fees
  3. Either would hurt the government’s monetary trinity goals
  4. The solution is to balance volume with immediate value
  5. Instead, if their managements look further ahead, it is apparent that short-term losses might lead to big midterm gains
Cashless Society – Digital Payments, Demonetization, etc.

Cashless push: State misses language angle

  1. What: Andhra Pradesh Chief Minister N. Chandrababu Naidu announced free phones and an application called ‘AP Purse’ last week.
  2. Context: This is aimed at promoting the use of digital wallets and thereby moving towards a cashless society following the cash crunch.
  3. Challenges: Unavailability of user interface in regional languages across devices that support cashless payments.
  4. International Experience: Chinese and people of many other technologically developed countries have mobile interfaces in their own languages and not English.
  5. Related developments: Introduction of Hindi Voice Search on mobile OS, and Hindi and other regional language keyboards by Google last year.
  6. Also, some Indian mobile phone brands like Micromax offer operating systems in local languages.
  7. ATMs offer Hindi and regional language user interface.
  8. The way ahead: The government should ensure that the developers of e-wallets, bankers and others involved release versions of local languages to ensure that even a layman with little education background can use them.


In the context of the demonetisation drive and consequent push for a cashless society, make a note of these specific practical challenges. Language issue is a major obstacle as you can see.

Cashless Society – Digital Payments, Demonetization, etc.

Govt forms panel of CM’s to promote cashless economy

  1. What: The govt constituted a committee of chief ministers representing different political parties
  2. Purpose: To promote a cashless or at least a “less cash” economy to ensure that digital fingerprints of most transactions are available
  3. The main mandate of the committee is to “examine and implement measures to execute digital payment systems to promote transparency, financial inclusion and ensure a healthy financial ecosystem”
  4. It is led by the Andhra Pradesh CM and also includes CMs of Odisha, Maharashtra, Puducherry, and Sikkim
  5. There are also other members such as the Vice-chairman of NITI Aayog
  6. Terms of reference: Identifying global best practices for implementing an economy primarily based on digital payment
  7. Examine the possibility of adoption of these global standards in the Indian context
  8. It will also identify measures for rapid expansion and adoption of the system of digital payments
  9. These include cards (Debit, Credit and pre-paid), Digital-wallets/E-wallets, internet banking, Unified Payments Interface (UPI), banking apps etc.
  10. It shall broadly indicate the roadmap to be implemented in one year


How different is the Unified Payment Interface(UPI) from mobile wallets?

  1. UPI do direct bank to bank money transfer but wallets acts as an intermediary between two bank accounts i.e. you recharge your wallet from your bank account to use any services that a wallet provides.
  2. UPI allows you to transact upto Rs. 1,00,000/- and in the case of wallets you can only store upto Rs. 10,000 (For non KYC customer).
  3. UPI is interoperable but wallets are not.

Unified Payment Interface (UPI) is a payment technology developed by National Payment Corporation of India (NPCI) under guidance of Reserve Bank of India.


All govt. committees are important for both prelims and mains perspective.

Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] Reality of Cashless societyop-ed snap

  1. Current cash flow deficit force people to make digital payments
  2. Without proper precautions and security policies, the highly reactive nature of cyber security leaves us vulnerable to cyber attacks
  3. Past records: Financial data breaches in India, exposed late October, had compromised the financial data of over three million users and victimised major banking companies
  4. Breach occurred when a network of Hitachi ATMs infected with malware enabled hackers to steal users’ login credentials and make illegal transactions
  5. Hackers breached a British mobile company, Three Mobile’s database
  6. This put at risk the private information of six million users, which was later used to purchase mobile accessories at the users’ expense
  7. Security of online transacting companies: PayTM, is certified under the Payment Card Industry Data Security Standard (PCI DSS) 2.0 certification
  8. PCI DSS is current industry security standard set by American Express, Visa International, MasterCard Worldwide – an essential certification
  9. These companies use 128-bit encryption technology to crypt any information transfer between two systems
  10. It takes more than hundred trillion years to crack a password under 128-bit encryption!
  11. Cyber threats: Other uses for stolen data include underground sales, identity theft, or targeted personal attacks such as extortion
  12. Creating fake mobile applications and spyware that steal information, or social engineering tactics that make you reveal your login credentials
  13. Forums on Internet are flush with step-by-step instructions on how to create fake websites that imitate digital payment platforms
  14. Steps to control cyber theft: Companies that offer digital platforms should increase awareness among their customers of the risks, and educate them on ways to secure themselves
  15. They must be proactive in looking out for any fake applications or websites that masquerade their service
  16. Government should check if the current policies regulating these platforms are adequate and update them regularly
  17. Customers must check the Website’s authenticity by searching for proper spelling of the Web address
  18. Check if the Website is secure by looking out for a green padlock symbol on the left side of the Web address, and keep Web browsers updated so they can recognise illegitimate sites easily


We have summarised this op-ed in 4 major buckets – threat, new security measures, intro to cyber threat and steps to control. Most of this would now seem intuitive to you. Make note on the PCI DSS certification. What do you know about RUPAY’s security? What is NPCIL doing about Cyber threats?

Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] Debate over cashless economyop-ed snap

  1. Benefits of cashless economy: Kenneth Rogoff, a Harvard economist, argues that most of the cash in advanced economies is floating around in the “world underground economy”
  2. Cash facilitates drug trafficking, human trafficking, extortion, money laundering and illegal immigration
  3. In a cashless society, people would be forced to remove savings from under their mattresses and keep them in the bank
  4. No cash means safety from burglars
  5. More electronic transactions would be good for hygiene (banknotes carry an assortment of germs)
  6. Disadvantages: Cash is empowering for millions of unbanked families
  7. It is an intuitive method of exchange and acts as a store of value
  8. It doesn’t come with the transaction fees of electronic payment methods
  9. Possibility of a Big Brother government getting hold of consumer data and using it for political agenda
  10. Hackers continuously test security systems, therefore, entrusting savings to financial institutions is not an easy decision
Cashless Society – Digital Payments, Demonetization, etc.

[op-ed snap] The perils of plastic cards and e-bankingop-ed snap

  1. Context: The data breach at 19 Indian banks that has led to more than 32 lakh debit cards being blocked or recalled is a wake-up call for the banking industry
  2. For the government and the banking regulator, much is at stake as the two have sought to move in concert to harness the digital revolution to advance socio-economic policy objectives
  3. Initiatives at stake: Better targeting of subsidies through the direct benefit payments model, improving economic efficiency by lowering transaction costs, and moving toward a cashless economy
  4. Way forward: With banks in India having embraced technological change, the onus is on them to integrate inter-generational legacy systems across branches, ATMs and online banking networks into one seamless and secure whole
Cashless Society – Digital Payments, Demonetization, etc.

Govt panel to suggest ways to step up card transactions

  1. News: The finance ministry has set up a panel, led by former finance secretary Ratan Watal
  2. Purpose: To suggest steps to reduce cash transactions to promote card payments through incentives such as tax rebates and cash back schemes
  3. Panel has been tasked with reviewing the payment system in the country and suggest measures for encouraging digital payments
Cashless Society – Digital Payments, Demonetization, etc.

Upcoming e-payment method- UPI

  1. Unified Payment Interface (UPI): An improved version of IMPS with only requirements being a bank account and a smartphone
  2. Once a person registers for UPI with their bank, a unique ‘virtual address’ will be created, which is mapped with their mobile phone
  3. To initiate the payment, UPI invokes this virtual identity of the beneficiary and transfers money in real-time
  4. UPI will allow a customer to have multiple virtual addresses for multiple accounts in various banks
  5. In order to ensure privacy of customer’s data, there is no account number mapper anywhere other than the customer’s own bank
  6. UPI can potentially eliminate the need for maintaining a mobile wallet, as this ‘virtual address’ is not limited only to individuals
  7. This is a significant step towards moving into a cashless economy
Cashless Society – Digital Payments, Demonetization, etc.

Unified Payments Interface goes live

  1. News: Unified Payment Interface has been made operational following final approval from the RBI
  2. Banks will install the UPI app on the Google Play Store over the next two-three days
  3. UPI: A payment application by which a recipient can initiate the payment request from a smart-phone
  4. Unprecedented: Real-time sending and receiving money through a mobile application at such a scale on interoperable basis had not been attempted anywhere else in the world
  5. Most leading banks such as ICICI Bank, Axis Bank, Punjab National Bank, Union Bank of India have tied up with NPCI for the service
Cashless Society – Digital Payments, Demonetization, etc.

Digital payments to be $500-bn industry by 2020

  1. Increasing smartphone penetration and progressive regulatory policy structures have been cited as major driving force
  2. India is expected to have 520 million smartphone users by 2020
  3. What more? Next-gen technologies like voice-based payments, biometrics and iris authentication through mobiles, QR codes will play a part in extending coverage
  4. Key barriers: Lack of reach and complexity of using digital payments systems
Cashless Society – Digital Payments, Demonetization, etc.

Existing e-payment methods – RTGS and IMPS

  1. Time Gross Settlement (RTGS): Fund transfers handled on one-to-one basis
  2. They are large value transactions, typically over Rs 2 lakhs and are also done during working hours
  3. Immediate Payment Service (IMPS): More recent form of fund transfer that is gaining popularity
  4. A user is given a 7-digit Mobile Money Identifier (MMID) Code
  5. The sender initiates payment using mobile bank by giving the MMID code and registered mobile number of the beneficiary
  6. Most banks offer this service free-of-cost now and is a round-the-clock immediate payment service
Cashless Society – Digital Payments, Demonetization, etc.

Existing e-payment methods – NEFT

  1. Electronic Funds Transfer (NEFT): Money transfers are made via electronic messages
  2. The bank details of the sender and the beneficiary are linked using bank branch name and IFSC code
  3. When a payment is initiated, the payer’s bank sends a ‘message’ to its NEFT service centre
  4. All such messages are pooled every hour and the bank’s NEFT centre sends it to the RBI, which initiates the transfer
  5. The process typically takes a little more than an hour and is available only during the bank’s working hours
Cashless Society – Digital Payments, Demonetization, etc.

Unified Payment Interface to become operational soon

  1. News: A Unified Payment Interface (UPI) to address the last mile problem in the banking industry will become operational this month
  2. National Payments Corporation of India is developing the Unified Payment Interface
  3. Importance: UPI, an improved version of existing Immediate Payment Service (IMPS) is expected to help improve access to banking
  4. Money could be transferred, using the mobile app, to another account, without divulging any bank details – only virtual identity given by their banks need to be shared
  5. UPI would help save a villager the trouble of having to visit the bank to withdraw money and allow shopkeepers, not having a point of sale device, to receive payment
Cashless Society – Digital Payments, Demonetization, etc.

Start-ups find fuel in digital banking project


  1. Unified Payment Interface (UPI) is the National Payments Corporation of India’s (NPCI) most ambitious project
  2. Aim: To bring digital banking to 1.2 billion people in the country
  3. Transfer: Also to allow anyone with a bank account to quickly create a virtual payment address
  4. The money can be transferred using just the phone number or the Aadhaar number
  5. Charges: It is built on Immediate Payment Service (IMPS) which has lesser charges as compared to Credit and debit cards
  6. Security: End-to-end security and data protection on UPI is one of the key areas of concern among customers
Cashless Society – Digital Payments, Demonetization, etc.

RuPay gains market share, still long way to go

  1. Context: A recent survey on electronic & card usage in transactions
  2. Findings: India remains a potentially large market for electronic payments, but a strong push to expand acceptance infrastructure is needed
  3. Usage of digital payments is increasing all across India but that has not led to a decrease in card usage
  4. Use of electronic channels for accessing banking and payment services is on the rise
  5. India is still a cash intensive economy with cash-to-GDP ratio of over 12%
Cashless Society – Digital Payments, Demonetization, etc.

Tech-savvy Indians shop with ‘cashless’ wallets

  1. Context: Growing popularity of e-payments and mobile wallets among the youth in the country
  2. Background: Recently, govt. cleared the implementation of a few measures to promote digital and card-based payments to curb cash use in the system
  3. Measures: It includes withdrawal of surcharge, service charge or convenience fee on card and other digital transactions
  4. Impact: This makes RBI’s work easy to bring in accountability and transparency in each financial transaction
  5. Future: Country is heading for a cashless economy with a change in the way netizens make their day-to-day transactions
Cashless Society – Digital Payments, Demonetization, etc.

Boost to cashless payments

  1. Context: Cabinet approved measures to promote payments through cards and other electronic means
  2. Aim: to check tax evasion and transition towards a cashless economy
  3. Steps: withdrawal of surcharge, service charge, convenience fee on cards and digital payments
  4. Also no extra charges on tickets booked on IRCTC website or on payment of water, telephone, electricity bills
Cashless Society – Digital Payments, Demonetization, etc.

Cabinet nod to incentivise cashless transactions

  1. Context: Govt. measures to curb the flow of black money in the domestic economy
  2. News: The Union Cabinet approved several steps to promote cashless transactions
  3. Reason: To reduce tax avoidance, migration of govt payments and collections to cashless mode, discourage transactions in cash
  4. Measures: Mandatory card-based or electronic payments beyond a prescribed threshold
  5. The withdrawal of any additional charge currently imposed on card or digital payments by various govt entities
  6. The introduction of the required infrastructure for digital payments in all govt offices
  7. The rationalisation of the merchant discount rate on card transactions
Cashless Society – Digital Payments, Demonetization, etc.

Sweden’s remarkable tilt towards a cashless future

  1. Sweden has been lured by the innovations that make digital payments easier.
  2. It is also a practical matter, as many of the country’s banks no longer accept or dispense cash.
  3. However, consumer organisations and critics warn of a rising threat to privacy and increased vulnerability to sophisticated Internet crimes.
  4. In Sweden, cash represents just 2% of the economy, compared with 7.7% in the U.S.
Cashless Society – Digital Payments, Demonetization, etc.

RBI backs move to encourage e-deals

Earlier this month, the government released a draft proposal that, if accepted, will see income tax benefits for consumers, who predominantly use electronic transactions for payments.

What else? Key Issues to be addressed: 

  1. The advances-related frauds continue to be the major concern for banks, especially because of their size and far reaching implications to their financial soundness and integrity.
  2. A special variety of frauds, which are increasing in number and in terms of speed, are the cyber frauds.


Banks should make an effort to really know their customers — their backgrounds, stated activities or profession, their signature style of operation and digital footprint in the case of online transactions, etc.

This would allow a bank to draw up a robust customer profile and put up a red flag if there is any exception to the norm.

In this article we will explain what Cashless economy is, what are the major advantages of cashless economy and what challenges India will face in moving towards a cashless economy.

  • What is a cashless economy?
  • Benefits of Cashless economy
  • Challenges in making India a cashless economy
  • Steps taken by RBI and Government to discourage use of cash
  • What else needs to be done?


India continues to be driven by the use of cash; less than 5% of all payments happen electronically however the finance minister, in 2016 budget speech, talked about the idea of making India a cashless society, with the aim of curbing the flow of black money.

Even the RBI has also recently unveiled unveiled a document — “Payments and Settlement Systems in India: Vision 2018” — setting out a plan to encourage electronic payments and to enable India to move towards a cashless society or economy in the medium and long term.

What is a cashless economy and where does India stand?

  • A cashless economy is one in which all the transactions are done using cards or digital means. The circulation of physical currency is minimal.
  • India uses too much cash for transactions. The ratio of cash to gross domestic product is one of the highest in the world—12.42% in 2014, compared with 9.47% in China or 4% in Brazil.
  • Less than 5% of all payments happen electronically
  • The number of currency notes in circulation is also far higher than in other large economies. India had 76.47 billion currency notes in circulation in 2012-13 compared with 34.5 billion in the US.
  • Some studies show that cash dominates even in malls, which are visited by people who are likely to have credit cards, so it is no surprise that cash dominates in other markets as well.


Benefits of Cashless economy

  • Reduced instances of tax avoidance because it is financial institutions based economy where transaction trails are left.
  • It will curb generation of black money
  • Will reduce real estate prices because of curbs on black money as most of black money is invested in Real estate prices which inflates the prices of Real estate markets
  • In Financial year 2015, RBI spent Rs 27 billion on just the activity of currency issuance and management. This could be avoided if we become cashless society.
  • It will pave way for universal availability of banking services to all as no physical infrastructure is needed other than digital.
  • There will be greater efficiency in welfare programmes as money is wired directly into the accounts of recipients. Thus once money is transferred directly into a beneficiary’s bank account, the entire process becomes transparent. Payments can be easily traced and collected, and corruption will automatically drop, so people will no longer have to pay to collect what is rightfully theirs.
  • There will be efficiency gains as transaction costs across the economy should also come down.
  • 1 in 7 notes is supposed to be fake, which has a huge negative impact on economy, by going cashless, that can be avoided.
  • Hygiene – Soiled, tobacco stained notes full of germs are a norm in India. There are many such incidents in our life where we knowingly or unknowingly give and take germs in the form of rupee notes. This could be avoided if we move towards Cashless economy.
  • In a cashless economy there will be no problem of soiled notes or counterfeit currency
  • Reduced costs of operating ATMs.
  • Speed and satisfaction of operations for customers, no delays and queues, no interactions with bank staff required.
  • A Moody’s report pegged the impact of electronic transactions to 0.8% increase in GDP for emerging markets and 0.3% increase for developed markets because of increased velocity of money

An increased use of credit cards instead of cash would primarily enable a more detailed record of all the transactions which take place in the society, allowing more transparency in business operations and money transfers.

This will eventually have the following chain effect:

  1. Improvement in credit access and financial inclusion, which will benefit the growth of SMEs in the medium/long run.
  2. Reduce tax avoidance and money laundering thanks to the higher traceability of all the transactions.
  3. The increased use of credit cards will definitely reduce the amount of cash that people will carry and as a consequence, reduce the risk and the cost associated with that.

Challenges in making India a cashless economy

  • Availability of internet connection and financial literacy.
  • Though bank accounts have been opened through Jan Dhan Yojana, most of them are lying un operational. Unless people start operating bank accounts cashless economy is not possible.
  • There is also vested interest in not moving towards cashless economy.
  • India is dominated by small retailers. They don’t have enough resources to invest in electronic payment infrastructure.
  • The perception of consumers also sometimes acts a barrier. The benefit of cashless transactions is not evident to even those who have credit cards. Cash, on the other hand, is perceived to be the fastest way of transacting for 82% of credit card users. It is universally believed that having cash helps you negotiate better.
  • Most card and cash users fear that they will be charged more if they use cards. Further, non-users of credit cards are not aware of the benefits of credit cards.
  • Indian banks are making it difficult for digital wallets issued by private sector companies to be used on the respective bank websites. It could be restrictions on using bank accounts to refill digital wallets or a lack of access to payment gateways. Regulators will have to take a tough stand against such rent-seeking behaviour by the banks.

Steps taken by RBI and Government to discourage use of cash

  • Licensing of Payment banks
  • Government is also promoting mobile wallets.Mobile wallet allows users to instantly send money, pay bills, recharge mobiles, book movie tickets, send physical and e-gifts both online and offline. Recently, the RBI had issued certain guidelines that allow the users to increase their limit to Rs 1,00,000 based on a certain KYC verification
  • Promotion of e-commerce by liberalizing the FDI norms for this sector.
  • Government has also launched UPI which will make Electronic transaction much simpler and faster.
  • Government has also withdrawn surcharge, service charge on cards and digital payments

What else needs to be done?

  • Open Bank accounts and ensure they are operationalized.
  • Abolishment of government fees on credit card transactions; reduction of interchange fee on card transactions; increase in taxes on ATM withdrawals.
  • Tax rebates for consumers and for merchants who adopt electronic payments.
  • Making Electronic payment infrastructure completely safe and secure so that incidents of Cyber crimes could be minimized and people develop faith in electronic payment system.
  • Create a culture of saving and faith in financial system among the rural poor.
  • The Reserve Bank of India too will have to come to terms with a few issues, from figuring out what digital payments across borders means for its capital controls to how the new modes of payment affect key monetary variables such as the velocity of money.
  • RBI will also have to shed some of its conservatism, part of which is because it has often seen itself as the protector of banking interests rather than overall financial development.
  • The regulators also need to keep a sharp eye on any potential restrictive practices that banks may indulge in to maintain their current dominance over the lucrative payments business.

Though it will take time for moving towards a complete cashless economy, efforts should be made to convert urban areas as cashless areas. As 70% of India’s GDP comes from urban areas if government can convert that into cashless it will be a huge gain. Therefore different trajectories need to be planned for migration to cashless for those having bank account and for those not having.


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