Despite numerous benefits of cashless economy, the MSME in India are reluctant to go cashless. Critically analyze the reasons.

In India, there are about 50 million MSMEs contributing to over a third of India’s GDP,  40 percent of India’s exports, 45 percent of its manufacturing output and employ 20 percent of the workforce. Thus MSMEs have an important role to play in Indian economy.
Post demonetization, government undertook steps to promote cashless transactions   among MSMEs but MSMEs have been reluctant because:

• Digital payments leave a footprint and many MSMEs underreport their growth to avoid the net of the current tax and regulatory regime .
• MSMEs are highly reliant on informal credit which necessitates operating in cash  as banks are conscious to provide them loans.
• Cash is used as a route to avoid unclear compliance laws, complex tax norms as well as harassment by local authorities .
• Lack of clarity on digital payment methods is also one of the reasons for low compliance.
• Lack of digital infrastructure, low smart phone penetration, coupled with poor network and other perceived risks are further deterrents. 

Steps government should take:

• Raising the exemption limit on number of employees to enforce worker welfare compliance norm.
• Improving access to formal credit,
• Reducing cost of digital transactions.
• Making registration of MSMEs mandatory. 
• Improving digital infrastructure.

Extending to millions of small players similar  benefits that are being given to large players will ease the passage to a cashless business model even as it accelerates job creation

Topics: GS-III: Indian Economy Issues Relating to Planning