While India strives to control the flow of black money and reinstate transparency, a cashless economy seems to be part of the solution. Can India’s impoverished infrastructure match the standards of European economies such as Sweden where 98 pc of all transactions made last year were cashless?
Indian Prime Minister Narendra Modi in his infamous “Mann Ki Baat” (“words from heart”) address pointed out the importance of a cashless society. Modi urged fellow citizens to use electronic payments to increase transparency in transactions and curb illegal businesses growing profusely in the country. He said, “Through electronic means and usage of technology, we can both pay and receive money. There was a time when transactions happened through barter system. Then notes and coins came. Now, the world is moving towards a cashless society.”
However, is the current scenario in India conducive enough to adapt a cashless society? When compared to the countries in Europe which are increasingly turning into a cashless economy, what are challenges in India? This also allows us to reestablish the importance of education and skill development in the country which will subsequently enhance the prospects of implementing cashless society norms.
Indian black money declining but the size of Thailand economy
This cashless economy goal might still face some obstacles, as the Center’s fight against black money is also boosting cash usage in the economy, and lowering the comparative attractiveness of other assets like real estate or gold, according to a report just published by Ambit Capital Research.
“A marked increase in preference for holding cash in its physical form has materialized owing to Modi’s crackdown on black money. Also, as expected, there has been a notable decline in usage of formal banking channels as evinced by the decline in bank deposits as well as debit cards,” writes the report. Quite evidently it points at a 53 year low in bank deposits growth rate, less than 10% in the financial year ended in March 2016.
“Given that India’s Gross Domestic Product (GDP) in calendar year 2016 is expected to be $2.3 trillion, the size of India’s black economy is about $460 billion (over Rs 30 lakh crore), 20% of the total, which is larger than the stated GDP of emerging markets like Thailand and Argentina,” Ambit Capital added. The Research Company is underlying that even if black money’s volume is receding over the years, lending rates in the black economy have seen a rise to 34 per cent, from around 24 per cent a year earlier.
The “JAM Trinity”
The Indian government in its long standing attempt to regulate the flow of black money in the country and encourage cashless payments initiated the JAM Trinity model for its citizens. JAM is a cashless transaction model that involves the ‘Jan Dhan account’ (bank account for all push by the government), ‘Aadhar card’ (personal identity identification number), and ‘Mobile number’ of a citizen.
In his official website, the Indian PM writes, “JAM vision, will serve as the bedrock of many initiatives to come. For me, JAM is about Just Achieving Maximum. Maximum value for every rupee spent; maximum empowerment for our poor and maximum technology penetration among the masses.”
Measures to endorse cashless economy
The Union Cabinet in India approved a range of measures to support the cashless economy model which includes relaxed card and digital payments. India, the second largest smartphone market in the world behind China, is still quite inactive when it comes to use of mobile money.
The government plans to discourage cash payments beyond a certain point and increasingly promote digital payments by making such methods the most convenient and secure in the coming years. Moreover, digital payments will be instrumental in reducing tax avoidance. As the government plans to encourage payments and collections to cashless mode, the shift towards the cashless economy is expected to accelerate. Ancillary fees such as surcharge, service charge, convenience fee on cards and digital payments currently imposed by various government Departments and organisations will be withdrawn.
Sweden’s cashless economy
Sweden was the first European country to issue true banknotes way back in 1661. However, the country in the recent years have come a long way like its Nordic neighbours Norway, Denmark and Finland becoming an almost cashless economy.
From buses and metros to retailers, street vendors and even churches have started denying cash payments in Sweden. Either you pay using your card or phone, as the law permits them to refuse coins and notes.
Reports from Riksbank, the Swedish central bank states, cash transactions made up barely 2% of the value of all payments made in Sweden last year – a figure which might drop to 0.5% by 2020. 20 pc of the transactions in Swedish shops are made in cash nowadays, way below the global average of 75%.