Cashless Industry Can Revamp Indian Economy. Here's How!
Demonetization has created the need for an alternative to cash. This gives an opportunity for India to become a cashless economy. Transferring funds through cashless methods would essentially entail the use of plastic money i.e. credit/debit cards, mobile wallets, net banking and more. This shift towards a cashless economy is desirable for the economy for various reasons. This include:
1. Curbing Black Money: It's easier to keep a trail of transactions when money is exchanged online. If all activities are routed through banks, the problem of black money can be reduced to a great extent if not eliminated as Government will have access to all available banking information. Counterfeiting of notes, black economy/parallel economy and tax evasion are some of the illicit activities of the economy that a cashless economy can curb. Electronic payments can easily be tracked and no transactions will thus go unnoticed. Further, if the Government does notice fraudulent financial behavior, it can block or freeze accounts stopping the activity in its tracks.
2. Drop In Production Cost Of Bank Notes: As of 2014, the cost of cash operations in India was Rs.21,000 crore annually (2014 study by Tufts University, The Cost Of Cash In India). A cashless industry will drastically decrease the said cost of producing notes and coins. Wastage on account of torn or damaged notes will also be curbed. The government will save trillions of rupees once currency operations are reduced and this will add to the current GDP.
3. Growth in Financial Inclusion: The surge in bank accounts, credit/debit cards, and digital wallets has only been seen in metropolitan areas. In the long run, however, limited cash flow will push digital payment methods into rural area thereby creating a utopian situation of the cashless transaction for the entire nation. Financial inclusion at this scale will be nothing but beneficial for the economy.
4. Increased Spending: From a wider perspective, cashless payments will boost economic growth due to increased spending. Consumers forego minor purchases owing to a lack of cash whereas, in a cashless setup, these purchases will add to the money spent. The increase in spending power will also result in the creation of more jobs thus benefitting the economy in more ways than one.
5. Tracking Spending Behavior: By tracking the commercial activities of individuals or groups of people, the government will be able to predict consumer behavior and improve policies. Planning for sectors such as housing, transportation, and energy management will be more inclined to the preferences of consumers when such behavior tracking becomes characteristic of the government.
6. Growth in E-Commerce: Although the Cash On Delivery model was the most sought after method for e-commerce payments (83% according to a survey by Business Insider), digital transactions were also popular even before demonetization set in. In a cashless economy, e-commerce will definitely grow manifold due to the ease of paying through wallets and conducting online transactions. The growth in e-commerce will catapult the economy into an advanced, technology-driven phase.
7. Simplified Payments: The ease that comes with using Digital payment methods is unparalleled. With transactions becoming quicker and simpler to carry out and track, there will be less friction in the economy. Accounting will also become less time consuming. Digital payment will indubitably make life simpler for individuals and but will also lead to the smooth functioning of the economy.
In conclusion, there are a lot of upsides to a cashless economy. Overall it will bring stronger accountability and transparency into the system. It is going to drastically affect the corrupt practices and also give a new lease of life to various new age businesses, start-ups who have been struggling with abysmal financial infrastructure based largely on cash. It will reduce the risk and cost of cash handling as soft money is safer than hard money. It will also reduce government liability.