The Cashless Economy has its own advantages but Indian Economy continues to be driven by the use of cash. What are the constraints? While throwing light on its advantages, discusswhat steps should be taken to promote Cashless Economy in India.

Cashless Economy is when the flow of cash within an economy is non-existent and all transactions are through electronic channels such as direct debit, credit and debit cards, electronic clearing, and payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) in India.
However, the Indian Economy continues to be driven by the use of cash. Only about 5% of payments happen electronically.
There are several reasons as to why Indians prefer Cash over electronic transactions which act as Constraint:

  • Lack of access to banking.
  • Since, there are no extra transaction costs in Cash payments, it affects the consumer behavior.
  • Cash provides flexibility and simplicity as a transaction needs only moving from one hand to another.
  • India has a large unorganized sector.
  • Lack of infrastructure to offer card-based transactions.
  • Lack of education/ awareness among consumers regarding use of cards.

The cashless economy has certain advantages. The transaction costs will come down.
It would bring down the cost of printing, managing and moving money around. Further, the cashless economy automatically solves the problems of cash out on long holidays, risk of carrying currency notes etc. It also prevents money laundering and increase tax compliance, ultimately leading to greater revenue for state. Electronic channels increase circulation of currency.
Certain steps can be taken in order to promote a Cashless Economy:

  • Enabling access to banking is a pre requisite to promote cashless economy.
  • A robust payment mechanism to settle a digital transaction is also needed.

The Indian central bank will also have to shun its conservatism wherein it moves away from being a protector of banking interests to rather overall financial development.


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