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Cashless India: Benefits and Threats

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Cashless India: Benefits and Threats

Since the demonetization of currency notes rupees 1000 & 500 on 8th November 2016, Government of India is making efforts with heart and soul to make Cashless India.

Actually the SIT headed by Justice MB Shah, constituted on black money in year 2014 has recommended the ban on cash transaction for more than 3 lac in order to curb the black money. Recently, the SIT has suggested the cash holding limit up to rupees 15 lac only. The recommendations made by SIT are under consideration of Finance Ministry.

After demonetization of currency notes, government has claimed that it has broken the backbone of black money holders and now it is requirement of time to make the economy cashless by digital transactions in order to curb the black money and corruption.

It is right that there are so many benefits of digital economy but in our country there are many hurdles also in the way.

Benefits of Digital Economy

  • Increase in Tax Collection:

Out of 125 crores of population of country only 5.43 crore (which is 5% of total population) pay taxes. These honest tax payers bear the burden of tax thieves. If the transactions are made in digital mode, the economy will be transparent and the theft of tax will be difficult. Thus the tax collection will be increased and the revenue collected will be used for the development of country.

  • Reduction in Tax Rate:

Since the number of tax payers will increase in digital economy, the tax rate will be reduced. As Finance Minister of India has given indication that tax rates may be reduced.

  • Reduction in Inflation:

More collection of tax revenue will be helpful in reducing the inflation.

  • Convenient:

It will be very convenient for everyone. No hassle to carry cash, No risk.

  • Check on Exploitation by middle men:

By digital transactions the labourers and employees of unorganized sector will be free from the exploitation by the middle men.

  • Check on Counterfeit Currency:

The counterfeit currency will be of no use.

  • Check on Crime and Terrorism:

If the society become cashless the criminal activities and terrorism will be reduced because these type of unfair activities run on the base of cash.

  • Check on black money and corruption:

It will be difficult to store black money in cashless economy, so the black money and corruption will automatically be reduced.

Threats before cashless economy

  • Habit of cash transactions:

80% of our economy is based on cash. It is difficult to switch such a huge economy from cash to digital mode.

  • Internet connectivity:

Internet connectivity is a great problem in India. The average speed of internet is 2.8 Mbps which is much lower than the global average speeds ranging above 5 Mbps. The average page load time in India is 5.5 seconds while in neighbouring country China it is 2.6 seconds.

  • Internet Users:

India is the country having second highest smartphone users in the world but out of total population of country the smart phone users are only 20%. In country, out of 125 crore population, there are only 35 crore internet users, which is 27% while the global average of internet users is 57%. In country about 83 crore people live in rural area. The number of internet users in rural area is only 11 crore which 13%.

  • No Bank Account:

About 40% people in country have no bank account. Often, there is only one bank account in a family. For digital economy almost every person should have a bank account. Though, to meet out this problem, prepaid debit cards may be provided by banks to the persons who have no bank account.

  • Infrastructure in banking industry:

Though there are various options for digital transactions like Banking Cards, USSD, AEPS, IMPS, UPI, Mobile Wallets, Bank Prepaid Cards, PoS Machine, Internet Banking, Mobile Banking, Micro ATMs, but the banking industry is not equipped with the adequate infrastructure to provide these options to whole of the population in the country. The required infrastructure includes –

  • Mechanism for opening sufficient bank accounts.
  • Issuance of debit/credit cards.
  • Providing PoS machines etc.
  • Electronic fund transfer services.
  • Sufficient branches, ATMs.
  • Service through BCs in unbanked areas.
  • Cyber security.

It is noteworthy that the banking services are still out of reach for thousands of villages in country because of inadequate infrastructure in banking industry.

  • Uneducated Population:

About 25% of our population is uneducated and depends upon cash economy. It is a great challenge to educate illiterate people to come with digital economy as it is difficult for them to maintain the secrecy of their PIN and operate digital system confidentially. So there money may be at high risk.

  • Cyber Threats:

The cyber security firms Symantec and Kaspersky lab have warned that the cyber threats in India have been increased. In the month of October 2016, the country was rocked when more than 30 lac debit cards holders were asked to changed their PIN. The RBI has also showed concern over the cyber security in banks in country. No doubt, the cyber security is a great issue for digital economy in India.

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