(Shendge, on which taxes are not being paid.

 (Shendge, Shelar, & Kapase,
2017)

The Research
paper focuses on effects and significance of cashless strategy in India.

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According
to the Government of India the cashless strategy will build business, decrease
money related theft in this manner diminishing danger of conveying money.
Cashless strategy will likewise decrease money related debasement and pull in
more outside financial specialists to the nation. The study also tried to analyse
future trends of cashless transactions. This study only used secondary data
from various sorces.

 

(Malhotra, 2017)

This study was conducted to find out the effects of the cashless transactions and its impact
on

Indian economy. They
study was conducted using primary and secondary methods. They found out the
various cashless options used for sending and receiving money by the help of
interviews conducted primarily on the common people. they found out the various
benefits associated with a cashless economy. The study concluded that the cashless economy is the need of the hour but
there is need to educate people about the various modes of transacting using
various modes of transaction. They also concluded that there is need for
the infrastructure to be put into place to move towards cashless economy.

 

 

(GUTPA & GUPTA, IMPACT OF CASHLESS SOCIETY ON BANKING SECTOR, 2017)

 

This investigation concentrated on the present
arrangement of paper money and coins. It focused on devising a model that beats
the weaknesses of money. This investigation likewise talks about how the
concurrence of money with plastic cash serves nearly nothing. With the
assistance of innovation, a totally cashless economy isn’t as a long way from
us as one anticipates. It additionally takes a looks at the current card based instalment
framework. It additionally isolates the distinctive cards being utilized by the
people.

 

 

(Gorlamandala, 2017)

This report basically focuses on how the objective of
demonetisation was to move towards a cashless society. They mainly used the
secondary sources to publish the report. This report talked about the various
benefits of moving to a cashless economy. It also drew comparison with several
countries to show the benefits of cashless economy. It also talked about
various tools which will help the country to become a digital economy.

(SWAIN & SAHOO, 2017)

This research paper focuses on the effect of demonetization on Banking
Industry. It also takes into consideration the cooperative banks. The study
also focused on the cooperative banks and how the rural economy will struggle
due to demonetisation. This study concludes that demonetization is good but it
has to be taken into consideration that most of the black money is kept in the
form of land, buildings or gold or kept abroad. Only 4% of the total amount of
black money is in cash, on which taxes are not being paid. Out of this, a lot
of money is in circulation in everyday transaction.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

On November 8,
2016, The Prime Minister’s office made historic decision in connection to
cancellation out the high denomination of 500 and 1000 rupees with an objective
to penalise black money holders., curb tax evasion, stop terror activities,
encourage cashless transactions and put an end to the parallel economy. The
banned currency notes made about 85% of the total cash in the economy. In the
announcement, Prime Minister Modi declared that the 500 and 1000 rupee notes
will cease to be legal tenders from midnight and told that new 500 and 2000
will be issued in exchange of the old notes.

 

The whole nation
was impacted by this decision and everyone experienced severe cash crunch for
the next few days. The long queues in the banks and the ATMS became a common
sight. This was the first time in the history of the country that such a major
step was taken to bring black money back to the formal economy and promote the
cashless transactions.

The BSE SENSEX and
NIFTY also crashes for the next two days. The move was supported by a few
bankers as well as from a few international commentators but it was heavily
criticised by the opposition parties, leading to debates on several news
channels and both the houses of the parliament. There were several organised
protest against the government in many places across the nation.  

While the citizens of the country
were lining up for money and the economists were busy with assessing the degree
to which the development will be hit due to demonetisation drive. There has
been a great deal of dialog on whether the legislature can utilize the current
circumstance to push India towards a cashless future. The people were divided
over the issue of demonetisation at large. Some believed that it will help the
country while others believed that it is just a gimmick. The demonetisation
drive showed that the country does not have the necessary digital
infrastructure to replace the cash. It showed that people also lack the
information regarding the digital transactions. More importantly neither
businesses, citizens of India are ready to move into cash less state nor the
implementers of such policy being the banks, regulators and other fin tech
operators who can give access to digital platforms are adequately resourced to
deal with such a change in the government’s policy of achieving a cashless
economy.

 

Importance
of Radical Reforms

 

Radical Reforms across the globe
have transformed the economy by creation of a new middle class and greater
empowerment to the people. In the US, Ronald Reagan was able to deliver jobs
growth along with high consumption through reduction in government control, low
inflation and encouragement to private enterprises. Thatcher also undertook the
same steps in UK to grow the economy and reduce the income divide. This created
a new pro-Thatcher middle class in British society.

 

While in China, Deng Xiaoping’s
reforms were targeted to increase the income of the huge population. The
measures by Deng has turned China into a global economic superpower by using
its huge population to its advantage and in the process formed the world’s
largest middle class by pulling 700 million people out of abject poverty.

 

Demonetisation is India’s most
radical reform since Independence. As it approaches official

climax with terrible economic and
dubious transparency narratives, the debate is now

divided between ostensible gains
and tangible losses. Demonetisation may lead to greater government control on
the economy. The political goals of this reform are visible, but a clear
picture of economic benefits is yet to emerge.

 

Why    is         cashless          economy         for       India   is         important?   

 

The government’s aim to reduce the
economy’s great dependence on the cash is desirable for a number of reasons. India
has one of the highest cash to gross domestic product ratios in the word, and
lubricating economic activity with paper has costs. According to a 2014 study
by Tufts University, The Cost of Cash In India, cash operations cost the
Reserve Bank of India (RBI) and commercial banks about Rs 21, 000 crore
(~A$2.4bn) annually. Also, a shift away from cash will make it more difficult
for tax evaders to hide their income, a substantial benefit in a country that
is fiscally constrained.

The Government had taken a number
of efforts to move toward a digital economy and reduce the dependence on the
cash. The first step was taken by opening the bank accounts for the unbanked by
opening accounts under the Jan Dhan Yojana (Prime minister Financial Inclusion
scheme) and adoption of direct benefit transfer is part of the overall idea to
reduce usage of cash and increase transparency.

 

RBI has also issued licenses to
open new-age small finance banks and payments banks

which are expected to give a push
to financial inclusion and bring innovative banking

solutions. RBI gave license to
PAYTM, Airtel along with some other companies to open a payments bank because
these companies can cater to a large audience. The recently

launched Unified Payments Interface
by National Payments Corporation of India makes

digital transactions as simple as
sending a text message.

 

 Nandan Nilekani, in an interview to this
newspaper, termed this as “a defining point in India moving to cashless”.
Shortage of cash has significantly increased the use of digital modes of
payment, but the actual shift will only be visible after the cash crunch eases.
It is possible that a section of people who has used electronic mode of payment
for the first time due to the cash crunch will continue to transact through
this medium, but there are still a number of hurdles in making India a cashless
economy.

 

? First, a large part of the
population is still outside the banking net and not in a

position to reduce its dependence
on cash. According to a 2015 report by

PricewaterhouseCoopers, India’s
unbanked population was at 233 million. Even for

people with access to banking, the
ability to use their debit or credit card is limited

because there are only about 1.46
million points of sale which accept payments

through cards.

 

? Second, about 90% of the
workforce, who produces nearly half of the output in the

 

country, works in the unorganised
sector. It will not be easy for the informal sector to

become cashless, and this part of
the economy is likely to be affected the most

because of the ongoing currency
swap. 

 

? Third, there is a general
preference for cash transactions in India. Merchants prefer

not to keep records in order to
avoid paying taxes and buyers find cash payments

more convenient. Although cashless
transactions have gone up in recent times, a

meaningful transition will depend
on a number of things such as awareness,

technological developments and
government intervention. For instance, mobile

wallets have seen notable traction,
and it is possible that a large number of Indians

will move straight from cash to
mobile wallets.  

 

 

A study by Boston Consulting Group
and Google in July noted that wallet users have already

surpassed the number of mobile
banking users and are three times the number of credit

card users. However, as noted
above, a material transition to a cashless economy will

depend on a number of factors.

 

? First, the availability and
quality of telecom network will play an important role.

Presently, people face difficulties
in making electronic payments even in metro

cities because of poor
network. 

 

? Second, as one of the biggest
beneficiaries of this transition, banks and related

service providers will have to
constantly invest in technology in order to improve

security and ease of transaction.
People will only shift when it’s easier, certain and

safe to make
cashless transactions

? Third, the government will also
need to play its part. It will have to find ways to

incentivise cashless transactions
and discourage cash payments. Implementation of

the goods and services tax, for
example, should encourage businesses to go

cashless. Government should also
use this opportunity to revamp the tax

administration, as more than taxes,
small businesses fear tax inspectors.

 

The government will have to create
conditions—not necessarily by creating cash

shortages—to push cashless
transactions to a threshold level after which the network

effect will take over. India may
not become a cashless economy in the foreseeable future,

but it needs to reduce its unusually
high dependence on cash to bring in much needed

transparency and efficiency in the
system.

3

 

Is         Indian Digital economy         is         moving           fast      enough            to            achieve           cashless         

economy?      

Private equity and venture capital
money have been concentrating in certain markets in

ways that mimic the electronic gold
rush in Silicon Valley. During the summer of 2014 alone

$3 billion poured into India’s
e-commerce sector, where, in addition to local innovators like

Flipkart and Snapdeal, there are
nearly 200 digital commerce startups flush with private

investment and venture capital
funds. This is happening in a country where online vendors

largely operate on a
cash-on-delivery (COD) basis. Credit cards or PayPal are rarely used;

according to the Reserve Bank of
India, 90% of all monetary transactions in India are in

cash. Even Amazon localized its
approach in India to offer COD as a service. India and other

middle-income countries such as
Indonesia and Colombia all have high cash dependence.

But even where cash is still king,
digital marketplaces are innovating at a remarkable pace.

Nimble e-commerce players are
simply working with and around the persistence of cash.

To understand more about these
types of changes around the world, Harvard & Tuffts

University developed an “index” to
identify how a group of countries stack up against each

other in terms of readiness for a
digital economy.  Digital Evolution Index
(DEI), created by

the Fletcher School at Tufts
University (with support from Mastercard and DataCash), is

derived from four broad drivers:
supply-side factors (including access, fulfillment, and

transactions infrastructure);
demand-side factors (including consumer behaviors and

trends, financial
and Internet and social media savviness); innovations (including the entrepreneurial,
technological and funding ecosystems, presence and extent of disruptive forces
and the presence of a start-up culture and mindset); and institutions
(including

government effectiveness and its
role in business, laws and regulations and promoting the

digital ecosystem). The resulting
index includes a ranking of 50 countries, which were

chosen because they are either home
to most of the current 3 billion internet users or they

are where the next billion users
are likely to come from.

Based on the performance of
countries on the index during the years 2008 to 2013, we

assigned them to one of four
trajectory zones: Stand Out, Stall Out, Break Out, and Watch

Out.

4

 


Stand         Out     countries have shown high levels of
digital development in the past and continue to remain on an upward trajectory.

 

? Stall Out     countries have
achieved a high level of evolution in the past but are losing

momentum and risk falling behind.

 

? Break         Out     countries
have the potential to develop strong digital economies. Though

their overall score is still low,
they are moving upward and are poised to become Stand

Out countries in the future.

 

? Watch        Out     countries
face significant opportunities and challenges, with low scores on both current
level and upward motion of their DEI. Some may be able to overcome

limitations with clever innovations
and stopgap measures, while others seem to be

stuck.

 

 

 

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