Cashless economy | Time for India to change.

Cashless economy

As the country moves towards a cashless environment after demonetization, it promotes the idea of a digital India in one way or another. But in the early stages, it gives a lot of confusion to people whether it will bring benefit and comfort or stress. In this article, we will about the cashless economy and the advantages and disadvantages of cashless transactions in India.

What is a cashless economy?.

Cashless economy is a system of non-payment using hard money or printed notes, but the money is made through debit / credit cards or through electronic transfers.

What is a cashless economy?.
What is a cashless economy?.

Demonetization is a revolutionary move to control more currency notes. The majority of people have switched to digital payments after the demonetization period.

Types of cashless transactions.

It is of three types, such as

1. Closed.

2. Semiclosed.

3. Open.


It is provided by a company to purchase goods and services from it, which do not allow for a refund or withdrawal. Ola money is such a closed wallet.


These are used to purchase goods and services, including financial services, from merchants who have a specific contract with the provider. These also do not allow withdrawals or refunds and include wallets provided by service providers such as Paytm and State Bank Buddy.


These can be used to purchase goods and services, including money transfers at business locations, and to withdraw cash at ATMs. All Visa and MasterCard cards fall into this category.

Types of cashless transactions.
Types of cashless transactions.

Countries that have successfully achieved a cashless economy.

In Kenya and Ethiopia, the cost of getting money is very low because 60% of Kenyans use their mobile to make money transactions and only 3% of Indians use mobile to do such a thing.

Kenya is more cash-friendly than us, leading to the need for comprehensive banking infrastructure in areas where cashless transactions are inaccessible in Kenya, reducing corruption and hoarding money.

India can learn a lot from an African country like Kenya and Ethiopia.

Sweden is very close to achieving a cashless society, with only 3% of money transactions.

No country is a completely cashless country.

The Current status of cashless economy in India.

According to the current situation, India is not ready to go cashless economy. But it can definitely be a less-cash economy.

  • About 85% of transactions are made in cash.
  • 60% of people are in rural areas who are unaware of the use of computers and cannot afford smartphones and devices.  Connection is also an issue that needs to be addressed.
  • 90% of the labor market is informal.  That means they rely on daily pay, which is heavily dependent on cash.
  • 35% of people (approximately) belong to the uneducated group, so it is a bit difficult for the government to teach them to use cashless technology.
  • A few days ago we received a news that the database of some banks has been hacked, so cyber security is still a matter of concern in India.

Initiatives made by the government to promote digital India.

The government is making several efforts to promote Digital India.the major initiatives taken by the government to improve the cashless economy are.

  • Direct Benefit Transfer (DBT).
  • BHIM app.
  • Digi Dhan Campaign.
  • Jan Dhan account.

The goal is to regulate the cashless economy.


Online banking is beginning to change money around the world, and the time is not far off when the cashless community will become a reality. After the demonetization, a similar revolution can be seen in India.

The two banned notes 500 and 1000 account for 86% of all currency notes in circulation in the country, and 75% of these transactions are cash-based until last year.

Demonetization - an initiative by the government for a cashless economy.
Demonetization an initiative by the government for eradicating black money.

However, after demonetization, many online websites and e-wallets saw increased traffic.

Because of the lack of money and increased demand, people were forced to search for online options.

To further support card transactions, the government waived all fees on debit cards.

Undoubtedly, India responded quickly to this time request and we saw the request to move forward with this significant move by the government.

the Pradhan Mantri Jan Dhan Yojana.

The scheme, which connects every household to a bank account, has 25.4 crore accounts and a debit card of 19.3 crores has been issued.

the Pradhan Mantri Jan Dhan Yojana - cashless economy
the Pradhan Mantri Jan Dhan Yojana which connects every household to a bank account.

But in a USAID study, of those who used debit cards only to withdraw money at ATMs.

  • 81% said they did not know how to use cards for digital payments.
  • 60% did not think such payments were safe.
  • 48% said there was nowhere near where they could use this option.
  • Only 22% said they did not use their cards for digital payments because merchants did not accept them.

This means that in addition to being unused by merchants, there are other important factors that prevent people from making digital payments, which may continue to be the case.

Many metro areas in India have already begun to take this step, where smart cards are used for daily transactions and mobile payment applications, and all possible luxury amenities are already 90% cashless {restaurants, clubs, movies, shopping, metro travel, local stores and vendors, logistics, etc.}

We can’t achieve it overnight, of course, it will take a few years.

Mobile wallets.

As the notes lost their value, people began to look for alternatives to carry on their daily routine. Nothing seemed more convenient than a mobile wallet at the time.

PayTM, FreeCharge, Mobikwik, were some of the popular names. These applications directly supported the measures taken by the government and spread confidence.

Banks are ready to take the change.

Statistically, India is the second largest consumer of cell phones after China, and these figures are directly related to the increase in the number of Internet users.

The number of Internet users will reach 700 million by 2020, up from 450 million now.

Banks are ready to take the change of cashless economy
Banks are ready to take the change.

To stay in the flow of the cashless economy, banks have even come out with their applications.

ICICI Pockets, State Bank buddy, HDFC payzapp, and Axis Bank’s Lime are among the mobile applications that help consumers adapt to the cashless community.

Problems in implementing the cashless economy in India.

Demonetization was one of the many measures taken by Prime Minister Narendra Modi to put an end to the gray economy.

We can say that India is the fourth largest user of money in the world and every citizen is obsessed with having money. In this technologically driven age, this is completely unscientific.

Despite various initiatives and steps taken by the government, India as a developing country is facing many problems.

Literacy rate.

Most importantly, people do not have the knowledge and education they need, which means the illiteracy rate is high.

Although the new generation is closely linked to their phones and gadgets, computer literacy among those over 50 is still low.

There are many people who are not comfortable using mobiles or computers and they are still dependent on their children to use these gadgets.

Internet access in remote places.

If a cashless transaction is available, these are at a very high rate that people do not choose the internet for, and people do not have smartphones for the purpose they need.

Internet access in remote places.
Internet access in remote places.

Internet cost.

The cost of the internet in India is still significantly higher. There is no WiFi in public places and if people do not recharge their monthly data packs there is no way to connect them to pay online.

E-wallets also require an internet connection. In order to convince people to make cashless transactions, the price of the internet should be reduced and free wifi should be provided in public places.

Network connectivity.

When card machines stopped working due to heavy load on the network, many people encountered this problem while standing in line to pay for a transaction at a store.

These issues will demotivate people to use the cards. The connection issues must be resolved before the idea of a cashless society can be put in place.

No bank accounts.

Most people do not have bank accounts yet. Often there is only one account per family, which also limits the number of cards that people can hold separately.

A family of four cannot depend on just one card for all household expenses.

The Government of India gave them a window to open a bank account even if they have zero balance (Note: – Minimum balance required to maintain a bank account) because they had planned for a step like demonetization.

Adequate banking infrastructure.

The cashless community needs proper infrastructure.Banks need to be fully equipped to handle the rise of e-transactions.

Infrastructure is also needed to open more accounts in banks.

Safety of the transaction.

Even if people choose online transactions, is there any protection from cybercrime? Keeping in mind the latest Twitter account hacks of celebrities, we must not forget that today social accounts contain our personal details and financial details.

Safety of the transaction in cashless economy
Safety of the transaction in cashless economy.

These hacks can prove to be dangerous to a normal human being. If the government promotes digital transactions, it should also promote how to make these transactions secure.

Cybercrime laws need to be tightened to the point where even Rs 50 fraud can be taken seriously.

People are reluctant to use digital payment mode because of the risk of disclosing our identity and personal details.

People’s saving habits:

Many people try to save their money for their future and keep a close eye on their expenses, but paying with cards gives people a free hand.

People's saving habits:
People’s saving habits.

Not only credit but also debit cards give the impression that you can pay the bill immediately, but the amount of expenses increases rapidly with the use of cards.

Service tax.

Maybe India will soon launch a service tax for exempted online transactions to promote digital transactions. This service tax may seem small on low transactions but gets heavier when the transaction amount is in the millions.

Banks and merchants charge 1 -2% of total transactions when offering an online payment facility.

Why would a person pay extra? This can lead to the use of physical money again.

The cost of making these transactions increased the burden on the population.

Advantages of promoting a cashless economy in India.

Eradication of Corruption.

The presence of corruption in various causes of libel and the lack of proper resource distribution in various sectors can be verified once and for all.

So, let’s quote some of the scenarios that cashless India can achieve on the path to eradicating corruption.

Funds transfer to various government agencies can be done fully online, which can ensure that the funds provided by the government have reached the correct account.

When the government funds something, the middlemen always eat up a large part of it as termites, which causes a lack of funds in lower body organizations.

The overall transparency of the economy.

If every transaction is cash-less, transparency in the economy will rise. 

Just imagine, If you have to pay a fine with a debit/credit card, there will be no leakage and there is very little chance of corruption. The shopkeeper will show you what the actual rate of the product.

Increase in Government Tax / Non-Tax Receipts.

Shopkeepers who can easily avoid taxation in this country can monitor their accounts to avoid tax evasion.

Most shoppers in India get huge discounts on wholesale prices, but they sell their products at MRP (maximum retail price). This price max is not an absolute price.

But selling it at MRP gives them huge profits. They do not fail to make a profit, but the problem arises in billing.

Most shoppers do not even pay the bills for small transactions. These small transactions accumulate into huge profits and are easily avoided in taxation as there are no transactions in the bill book.

So, they can hide it easily. But in a cashless society, all transactions can be tracked, which completely eliminates this type of tax evasion.

Government receipts will certainly increase through tax and non-tax. Taxes are hard to avoid because all transactions are easy to find. This could lead to lower tax rates or increased government spending.

Reduce the maintenance cost for cash.

An amount of Rs 21,046 crore is spent annually on maintenance, which was Rs 43,000 crore compared to the education budget in the 2007-12 five-year plan.

Reduce the maintenance cost for cash.
Cashless economy – Reduce the maintenance cost for cash.

Isn’t it absurd that the money spent on maintaining money is almost 3 times more than the education budget over the same period?.

Imagine what kind of impact we would have if we switched from a money-based economy to a cashless economy, would have a rich budget for our children, and spend more on research and development of new ideas and innovations.

The budget spent on R&D is poor, at just 0.85% of GDP.

Ease of doing business.

Except for the big stylized malls where card payments are available.

Local markets face a great challenge to keep the right transition to the day-to-day transactions that affect their business. 

We have all experienced “not having the right change” in our lives. With Rs 2–3 left, it also became a toffee currency.  This can be avoided as anyone can pay accurate figures by paying cashless transaction.

Improvement in Infrastructure.

Forget the problem of internet connection, call drops, there are still 55000 villages in India without mobile network coverage.

All of these infrastructure problems will be solved by a cashless economy.

Reduction In Interest rates.

The interest rate in the economy will fall because the money supply with the bank will rise as everyone has bank accounts and will not lie idle with the people.

As the strength of the banks increases so will our business. Banks can provide loans at cheaper rates.

Increase the awareness about technology:

A lot of Indians who do not own smartphones have no excuse for this and they do not need one.

Increase the awareness about technology - cashless economy
Increase the awareness about the technology.

They all have to buy one and learn to run it to make everyday transactions. It will also ensure that people get the right exposure to news and various information.

Being cashless requires proper internet exposure. So, once India becomes completely cashless, you can expect free WiFi facility across the country, for transactions up to at least a few MB every day.

Active Cyber Police.

As people go cashless, cybercrime will also rise. To control the fact that there will be a lot of active cyber crime cells and experts in this area.

Boon for college students.

This is something that most young people and college students face. When you pay in full, others will have to wait for you to repay. Sometimes asking for money from your friends is also very embarrassing.

But because the cashless transaction is playing, everyone can pay back immediately.

Disadvantages of Cashless economy in India.

Apart from the traditional infrastructure and security risks, there are two main reasons, none of which are mentioned in many places as the disadvantages of cashless transactions. here I’m going to share the major disadvantages of a cashless economy.

Pain of Payment.

Tons of research (many of which can be found by searching for the word “pain of payment” by a Google scholar) show that people behave wisely when it comes to parting ways with money.

Pain of payment
The pain of payment.

However, when paying with a card, this pain decreases because the amount of money is changed, not the actual currency. In such a situation, people tend to spend more and get into debt very quickly.

All credit counseling services recommend using cash-only methods.

The Indian government seems to be smarter than economists around the world.

Moral problem.

When we make payments using cash, the payer receives benefits worth the same amount.

However, when paying using a card / digital wallet (not UPI), a percentage of the fee is charged through the payment gateway of the service provided.

Therefore, the benefit from both sides does not match. Eventually, this transaction fee will be sent to the customer, and a customer will pay an additional fee for the benefit he/she receives.

Generally, the cost increase should be directly linked to inflation, but in this case, it is implemented on a payor /payee.

In such a situation, the government will have to repay the transaction fees from the increased tax earned. Then there will be no moral problem.

With technological advancement and government support, it can be concluded that India is gearing up for a digitally-driven cashless economy.  This will happen much sooner than expected, and that too on a significant scale.