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Merits and demerits of cashless economy

Before we try to dive into the pool of cashless transactions, it is important to define precisely, what 'cashless' actually means. Does it imply the complete absence of paper currencyOr, are we referring to an economy similar to that of the barter economy Is ceaselessness the way forward

The Oxford Dictionary defines 'cashless' as 'characterized by the exchange of funds by cheques, debit or credit card or electronic methods rather than the use of cash'. The circulation of paper currency and metallic money is minimal.

However, in India, the liquidity preference is just too high. Cash dominates not just the local markets but also the high-end restaurants and shopping malls, which are frequented by debit and credit card holders as well as e-wallet users.


The prime objective of the much discussed demonetization move by the GOI is the introduction of new cashless technologies to curb the extent of the parallel economy, elimination of terror funding and to put a halt to the circulation of fake currencies and the revitalization of the Indian economy.

The cashless economy will make it almost impossible for the tax-evaders to evade taxes as cashless transactions always leave behind an electronic transaction trail, which can be easily monitored and hence enhance the tax-base.

This benefit would also extend to the sphere of sky-high prices of real estate, which has virtually shattered the dream of buying a house of millions of common men.

A cashless economy is also expected to be a 'corruption-less economy under construction', as the corrupt cannot sit with PoS machines at their disposal for carrying out transactions for their vested interests.

Lastly, but most importantly, in the context of today's environmental illness and the increasing repercussions of global warming, 'a cashless economy' is more or less synonymous with 'a green economy'.

It would also bring down the current high expenses of the RBI as the counterfeit-proof paper currency printing machines are quite expensive.


Cashless economy also helps in increasing the level of cash and demand deposits with the banks, thereby facilitating increased investment.

Cashlessness brought about by demonetization in India is dreaded to take a perilous toll on the economically weaker strata of the society and the repercussions might last longer than expected.

Even after six decades of Independence and the successful implementation of Jan Dhan Yojana, quite a considerable fraction of the population is still not banked and a major proportion of the illiterate and semi-literate bank account holders do not know how to use plastic money.

In other words, such people lack financial literacy, let alone the use of e-wallets or other online payment portals. This has emerged as one of the biggest hurdles in the path of cementing 'cashless mind-set' amongst the people.

It would definitely not be an exaggeration to say that most of the small traders and retailers in India deal only in cash. There is also the problem of limited number of point-of-sale (PoS) machines in the increasingly growing Indian market.

Currently, there are only 1.5 million PoS terminals installed in India and another one million is likely to be installed in the next six months. Online transactions also tend to compromise with the personal details of the users and may also lead to cyber-attack or phishing.

Another impeding factor in the way of creation of a cashless economy is the constricted number of smartphone users and internet users in India. As of 2016, there are 292 million smartphone users in India and only 26% of the population has access to internet usage.

As evident, a cashless or less-cash economy has got its own share of merits and demerits. Electronic payment gateways should be fully secured to restore the faith of the masses in electronic payment systems. The government can also stimulate cashless transactions by providing rebates or waivers on service tax on card transactions.

At this juncture, it would be unfair not to mention about the BHIM (Bharat Interface for Money) application, named after Dr. Bhimrao Ambedkar. At this juncture, it would be unfair not to mention about the BHIM (Bharat Interface for Money) application, named after Dr. Bhimrao Ambedkar.

The onus is on the civil society to speculate and decide the way ahead. Are we ready to risk our credit/debit card details in the hands of a third party to reap the greater benefit of doing away with counterfeit currency and the parallel economy

Undeniably, cashless economy is the way ahead but we need to take calculated and not hasty steps to march forward.

-Nitisha Bora

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