By definition, Cashless Economy is an economy (country) that uses no cash for all its transactions. Citizens are able to purchase everything using Cheques / Cards (Credit Cards, Debit Cards etc) or Digital payments (e-wallets, UPI transfers, Online banking etc).

Does this sound like a myth that can never be implemented?

Take a look at the places where cash is majorly used:

1. Rural areas of the country
2. Unorganized sector -> Daily workers, house help, fruit and vegetable vendors, vendors selling on roadside or signals, small shops, gym/yoga/fitness trainers at local societies etc.
3. Organized sector -> Doctors, clinics, hardware, electrical, grocery & kirana stores, small jewelry shops, restaurants etc where you pay via cash and don’t take bills.
4. Temples/religious places.
5. Petty Transactions like giving alms to beggars, filling air in the tyre, tea/coffee, buying cigarette/pan/gutkha etc.
6. Black Market, Illegal activities like betting, drugs etc.
7. Bribery
8. Criminal activities, terrorist operations
9. Political parties during election campaigns, protests, celebrations, events, ceremonies etc

Cash is so prevalent in the system that most people don’t even dare to think of replacing it.

But what if we dare to think? What if I say that it is possible to become a cashless economy in the next 3 – 5 years? That there is a possibility to use Covid situation to catapult us on our path to become a Cashless Economy!

Let us find out how…

What are the benefits of a Cashless Economy

No campaign succeeds without the involvement of public. Hence, before focusing on how to become a Cashless Economy, let me just list the benefits of going cashless. This will help people understand how useful it can be and hopefully align them to join the movement.

Benefit 1 – Unorganized Sector shifts to Digital mode

Thanks to lockdown, all my housemaids who never had a bank account and took their salary in cash have now started accepting salary via UPI transfer to their bank accounts. Even the roadside fruit or vegetable vendor now shares their scanner code for digital payment. I am able to fill air in car/bike tires and even buy things as cheap as 10 rupees via digital payment. This transformation is because of Covid where people are scared to touch anything.

All this means that the unorganized sector which hitherto accepted only cash and organized sector which did not use to give bills has now shifted entirely to digital payment mode. All the petty transactions no matter how small they are can be done via UPI/E-Wallet payments thus eliminating the need for cash.

Benefit 2 – Increased tax revenues

Getting the above sector under digital payments will immensely benefit the government. Everyone will now have to file Income Tax honestly knowing that all their earning data is easily accessible to the government. IT department will be able to identify tax evaders easily at the click of a button. This will give huge revenues to the government while easing the tax burden on the honest middle-class & salaried group.

Benefit 3 – Government can save on money and time

The government will save a huge amount on printing and distributing money. No more procurement of raw materials (paper for notes, metal for coins, ink, machine spare parts etc) for printing. Costs associated with safeguarding cash and transporting cash from one location to another will disappear. Time spent by government and firms on accounting and auditing work for all cash spends will reduce significantly if there are no cash transactions.

Benefit 4 – No more worries about losing wallet or cash

The ability to buy everything using a mobile will make wallets obsolete saving you from worries of carrying or losing cash.

I had 500 rupees in my wallet in March when lockdown had initially started in India. And trust me. Those 500 rupees are still lying in my wallet. In fact, I have now stopped carrying wallet as everything can be paid via mobile.

Other benefits

1. Black market, Thefts, Criminal activities, Terrorist activities, Illegal activities etc – all of these will reduce significantly due to lack of cash.
2. Fake money prevalent in the system will stop
3. Banks will save money on setting up and operating ATMs, loading money, having cashier’s in banks etc

Now that we know the benefits, let us look at the process of becoming a cashless economy.

First steps towards a Cashless Economy – Short Term Solution

We Indians love cash as it gives an option to evade taxes. So as soon as things improve, most probably the unorganized sector will again go back to cash-only transactions.

Hence, it is important for the government to ensure that such digital payment trend continues even after Covid.

Following can be the short term solution to push towards Cashless Economy:

1. Ban all notes above 200/-. Smaller denomination notes will still be in circulation. People can deposit higher currency notes in their bank account within 6 months of the ban.
2. In cities that have good internet and mobile connectivity, put a limit on the number of withdrawals per month and also on the amount which can be withdrawn every time. For example, a maximum of 5 withdrawals are allowed per month and in each withdrawal, a maximum of 1000/- rupees can be withdrawn. However, in rural areas, this limit and charges should be waived.
3. Indians love discounts and hate paying extra. So, in cities having good internet and mobile connectivity, give subsidies/incentives to switch to digital modes of payment. At the same time, levy extra fees for all cash withdrawals. This will discourage customers from making cash payments. Note that this step should be not be applied to rural areas
4. Government should work on cybersecurity guidelines to address the situation where people lose their money due to cybercrimes. There should be a robust but simple way to protect people from losing money to tricksters.

Aim of such short term solution should be to reduce cash usage and push people to adopt cashless ways in non-rural areas.

How to become a fully Cashless Economy – Long Term Solution

While short term solutions can be a beginning, India faces enormous challenges in becoming fully Cashless due to its infrastructure and diverse socio-economic background, .

Apart from improving infrastructure, the government will have to address on-ground challenges before pushing for a fully cashless economy.

Challenges and Possible solutions

Following are few challenges which the government will have to address first. I have also listed possible solutions to these problems.

Challenge 1 – Tourism

Foreign tourists coming to India may find it difficult to manage without Cash.

Possible Solution

To solve this problem, government can take the following steps:

1. Set up dedicated kiosks at all international airports where foreign tourists can buy special local sims
2. These sims should have Paytm/Google Pay/PhonePay/BHIM pre-activated
3. Foreign Tourists can load money in their e-wallet by paying via credit cards or international currency
4. During their stay in the country, foreign tourists will have to visit the bank to reload money in their e-wallets
5. While departing, they can submit their sims / close their e-wallets at the airport and get refund of balance money in international currency

Challenge 2 – Connectivity issues

What happens during situations when internet services are down, the phone battery is dead or the phone is lost/damaged

Possible Solution

1. If internet services are down
   1. The government will have to introduce ways to accept payment via Bluetooth or SMS.
2. If phone battery is dead
   1. Government should install phone charging stations in public places. In fact, with cash no longer being used, there can be an option to convert ATMs into phone charging stations.
3. If the phone is lost or damaged
   1. In case your phone is lost or damaged and you have to purchase something, use someone else’s phone to call your family/friend. Ask them to make the payment on your behalf and send a screenshot to the vendor

Challenge 3 – Domestic Tourists coming from rural areas 

Citizens who travel from rural areas to the city

Possible Solution

1. Domestic tourists coming from non-cashless economy to cashless economy areas should be clearly informed to use only digital payment options
2. Government should also set up helpdesks at railway stations/bus depot/city borders/banks to help such people activate their e-wallets/UPI (if not done so) along with the ability to load money into it.
   1. This can be eased by asking everyone to pay a token amount of 2 rupees digitally. This will help identify people whose setup is not done/do not know how to pay. They can be taken to help desks for further guidance
   2. Alternatively, people can approach rural banks to load money in their e-wallet/card before traveling to cashless economy towns
3. All this is based on the assumption that anyone coming to city / cashless economy area will own mobile phone with internet connectivity. For those who do not have phone/internet connectivity, the following can be done:
   1. Such people should be asked to pay some nominal security deposit in exchange for basic phone offering digital payment option and internet
   2. When they return back to village, they can return the phone and get back their security deposit basis the condition in which phone is returned

Challenge 4 – Domestic tourists from the city

Citizens who travel to rural areas or areas with no internet connectivity

Possible Solution

This will be the biggest challenge for going cashless. To fix bad infra and network/internet connectivity in rural areas, government will have to prepare a roadmap and implement it in multiple phases. I have detailed them in the next section

For now, easy solution for people traveling to non-cashless economy areas is to allow them to withdraw money from rural/non-cashless zone banks. People will use cash for their transactions and while returning back, they will have to either deposit back the money in rural banks or spend entire money (since cashless economy banks will not accept cash deposits).

Long Term Roadmap for becoming Cashless Economy

Apart from solving the above-mentioned challenges, I suggest the following 8 steps roadmap to become a full cashless economy in the long term:

Roadmap for next 6 month – 1 year:

1. Give incentives and subsidies to local manufacturing units to produce good quality smartphones at low cost so that poor people especially in rural areas can afford the phone. Or maybe run subsidized/free phone distribution campaigns to ensure every rural and poor family has at least 1 phone.
2. Work with banks and Credit Card companies to come up with easy to secure cards which can be used for payments everywhere, do not pass service charge to merchants or customers.
3. Government should work on cyber security guidelines to address situation where people lose their money due to cyber crimes. There should be a robust but simple way for people to protect people from losing money to tricksters.

Roadmap for year 1 to year 3:

1. Phase 1a => Trial Phase for 2 weeks => Implement cashless economy in one city
   1. Pick one city with good mobile and internet connectivity, digital infrastructure, and where majority have mobile phones. Do a trial run to assess how things work out – what are the difficulties being faced and how they can be addressed, whether there are any tangible benefit coming out of the experiment. Just pick a date and announce that for next 15 days, all cash transactions in this city will be stopped. Time period is of importance here. Our main aim is to see how the unorganized sector and economically weaker section manage this without putting them to too much hardship.
2. Phase 1b => Fixing issues and Implementing cashless economy within 6 months to 1 year in Metros / Tier 1 cities
   1. Learn from mistakes of Phase 1a, fix the issues in next 6 months to 1 year and implement cashless economy in Metros/Tier 1 cities.
   2. Government is already tying up with Google to offer free wifi in few public places. More such tie-ups should be done to ensure people get wifi/mobile connectivity in every area of the country
      1. I am sure digital wallet companies like Paytm/Google Pay / Phone Pay / Mobikwik etc will be more than happy to invest in such projects considering that they can get a huge number of new customers
   3. Announce that users can deposit cash to their bank accounts for up to 6 month of becoming cashless. This will allow enough time for everyone to deposit their cash. Although people may convert their black money to white and deposit in the bank, it is OK for us. Since cash will not be accepted in future, they won’t have future access to black money.

Roadmap for year 4 and 5:

1. Improve network and infrastructure in Rural areas – Telecom department should ensure that in the next few years, all areas of India have good internet connectivity. They should incentivize telecom operators to setup towers in rural and remote areas thus connecting entire nation
2. Gradually, as more areas start getting internet connectivity and people have phone, government should bring them under cashless economy
3. Until then, people should be allowed to withdraw money from rural banks/ATMs

Conclusion

There are immense benefits from going cashless. Onus should be on us to push towards Cashless Economy. We should stop cash payments and push merchants to opt for online modes. Just like we are pushing for Boycott China, we should push for Boycott merchants accepting only cash. 

Another big hurdle is the will of political parties to implement it. Cash plays a major role in politics and it will not be easy for political parties to agree on stopping this source of money. Also expect a lot of resistance and backlash from criminal and corrupt groups.

Whether we citizens and the government has the courage to face these challenges and still go ahead with this reform for the betterment of country is something only time will tell.

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