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Is India’s cash based economy ready for a cashless world?

Is India’s cash based economy ready for a cashless world?
By Nikhil Gampa

Around the news, most discussions that last 24 hours were centered on the elimination of Rs 500 and Rs 1000 notes. Several statements like “Bold move”, “surgical strike on black money” were making the rounds. However, no one is completely saying if the decision of the government to ban higher denomination notes is completely good or bad. No one really knows the extent of the problem.

The assumptions and the discrepancies in them

We need to understand, that we are a cash based economy and the decision taken by the Centre is largely based on two crucial assumptions.

Firstly, counterfeit currency is being printed and exists in the country, and is used for sponsoring and supporting terrorism. Even if it is true, there are no evidences/estimates regarding the extent of this amount. However, if this is true, the extent of this amount is likely to be small.


A huge chunk of black money is stored in the form of investments like land and gold. | Source: Indian Express

Secondly, a large number of people keep black money in cash. But, this is doubtful. If someone has black money, they’re more likely to keep them as investments. These may be in the form of assets like gold and land. Moreover, the black money is likely to be pushed out of the border, through the hawala route, and in Swiss Bank accounts. This form of money holds a substantial portion of the black money and will remain as black money itself. Undoubtedly, there are few who have stored black money as cash, and that small section may be adversely affected. But we will only know how much of it exists only after 30th December, 2016. So this move is unlikely to be a black-money unearther as it is made out to be.

The problems that arise with these sudden measures

Most of the farmers, daily wage labourers and majority of the unorganised and informal sector have all their savings in cash. This move renders them penniless if they aren’t able to change the notes in the instructed time frame.

Millions of women have their savings in the form of cash of Rs 500 and Rs 1000 notes. Unknown to their husbands, brothers, and fathers, they keep it for their welfare or for future needs. Not in a position to go to the bank without their husband’s notice, if they talk about these savings, they might get beaten up for the effort.


There is no way to ensure that there will not be any sort of ‘cuts’ taken at bank counters for the exchange. | Source: Hindustan Times

One is also not sure if this isn’t going to give rise to a nexus between individuals who have cash required to be exchanged with mediators and bank/post office workers. A cut might be demanded for every transaction made in converting the notes.

The short-term, medium-term and long-term impact

Constituting short-term impacts: Are the individuals working in the unorganised and informal sector capable of missing the days of work in trying to get their savings changed and providing affidavits?

The government will put out new Rs 2000 notes, but they would be limited in circulation. This may be monitored strictly. In other words, this means that there will be a lot of Rs 100 notes carried in cash, making the wallets thicker for a common man. This is the medium-term impact.

Is India ready for a cashless world? 

In the long-term, these measures will be moving us towards a cashless economy like the Developed nations. These economies have eliminated notes of higher denomination and moved to card/apps/bank-based transactions which help in controlling the corruption, black money and crime. But the most important thing to be discussed is, is India ready for a cashless world?

Questioning the position of India in a cashless world

If India has to be a cashless world, it is not enough that everyone has a bank account. And, many still don’t have bank accounts. It is important that facilities exist to transform every transaction into a cashless transaction. People need to accept these technologies and made aware of how to use them.


India requires many infrastructures and facilities before venturing to become a cashless economy. | Source: Twitter

Few of the questions need answering before proceeding towards realizing the dream of a cashless economy.How many shops have credit/debit card machines? Does everyone have credit/debit cards? How many people have/know about internet banking?

If India is not ready for a cashless world, the premature introduction of measures will only adversely affect the less advantaged. We need a gradual and better thought-out series of steps if we want to go cashless. Time will only answer if these measures serve the purpose or if it’s just a deviation.

Nikhil Gampa is a Social Entrepreneur and development sector professional who has Co-founded Green Wave environmental solutions. He is an alumnus of Tata Institute of Social Sciences, Mumbai.

Featured Image Credits: Hindustan Times

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