Understanding The Newly Emerging Cashless Economy In India

Though a lot has been done, what has become an important matter of discussion among the Indian Economists, politicians and the general public are questions about India’s path towards a Cashless Economy.

Can India achieve the goal of being cashless? What will be the challenges in front of it? Will there be any advantages? All these questions need to be answered.

It is a well-known fact that India is the fifth-largest economy in the world, in terms of nominal GDP. It is also one of the fastest-growing economies in the world. Several efforts are been taken in moving towards higher levels of development

But, before we get into the details of whether a cashless economy can be supported in India, we need to understand what a Cashless Economy is. A Cashless Economy, in simple terms, is an economy in which the use of printed paper money/currency is less, rather the majority of the transactions are done through Credit Cards, Debit Cards, in the form of UPI payments and e-wallets are in great use.


The emergence of such an economy where the use of cash is minimal is not an easy process that could be achieved in just a span of one or two years. What adds more to the worry is what a report suggests that 98% of the transactions in India take place in the form of cash. It shows us how far India is from its goal of a Cashless Economy.

If we trace back to 2016, the time when the Government of India came up with demonetization, where the 500 and 1000 rupee notes went out of existence, we saw how the general public had a hard time engaging in the day to day transactions. That was the first time when there was some visible surge in the digital payment system in India.

It was planned by the government to bring more transparency to the system. Moving from 2016 until 2020, when the entire world got hit by the Coronavirus Pandemic. All over the country people were supposed to be at home as a nationwide lockdown was put in place. It was at this point when we again saw a rise in cashless payments, which was way more than what was there in 2016.

What do the above two examples indicate? The examples indicate how a Cashless economy can support the payments and transactions system in adverse times. It shows that if we were to adopt such a system altogether, how beneficial it could be to the economy as a whole. Not only this, but a Cashless economy also has many more benefits for the country as a whole as well as on an individual level, but what are these advantages?

A Cashless economy, as our Hon’ble PM Narendra Modi once quoted, is secure, and clean. A paperless economy helps to bring transparency to the payments system. All the transactions get recorded and this helps in a way to cease the working of a parallel black economy in the country. It also helps to reduce the cost of printing a large amount of paper currency, which not only saves paper but also helps in keeping inflation in check. Moreover, digital payments systems also offer cashback, gift cards, vouchers, etc. from time to time.

It also facilitates collecting higher amounts of taxes, which is possible by formalizing the activities in the informal markets. Not only this, but it will also reduce the peoples’ cost of going to the banks, ATMs to get their money out in the case of an emergency. Also, the citizens could keep a large amount of money in banks in the form of deposits which will earn them interest payments. The digital payment system can also help provide direct transfers to the needy, with no intermediaries.

The government has also played a big role and is responsible for taking many efforts to increase the reach of cashless transaction systems in India. These include supporting smartphone technology which is a key factor in the emergence of e-commerce and other services.

It also played a role in the introduction of referral and cashback schemes. It has pushed India towards a cashless economy, with major initiatives such as demonetization, Direct Benefit Transfers, BHIM, and many more, with the intent of the government to streamline the economy and curb corruption. To provide digital literacy, the government has initiated programs like Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA).

Though many initiatives have been taken, the transition to the cashless system of transactions cannot be as smooth as it may seem. One of the biggest hindrances is the lack of knowledge among the poor people, with no facilities in terms of internet connection, no prior knowledge about how to use such digital payment systems, etc which may put them at a huge risk of being caught in the fraudulent activities.

Another major issue of the digitization process is that such technology is highly prone to the risk of being hacked and the cases of cyber-attacks are not unknown.

Thus, though the emergence of a Cashless Economy seems very important in the coming times, the transition isn’t as easy. The people in the Indian economy are used to the paper printed currency systems and this cannot be replaced at once and it will take some time.

A Cashless System is not to be developed just for the sake of it, rather the need is to develop a reliable system and also in the way provide digital banking literacy and the efficiency to understand the technologies involved.


Edited by Anupama Roy

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