The landscape of a Cashless India

cashless economy

In 2019, just a week after Cyclone Phani had hit Odisha, I had to go to Bhubaneshwar on work. Most of the usual hotels I stay in were not accepting bookings, they had still not been able to restore services to normalcy and were therefore not accepting customers. With some difficulty, I got a booking in an obscure hotel where I had not stayed before. Once in Bhubaneswar, I found that the residual damage from the cyclone was still visible in terms of debris on the streets, uprooted trees, and even the odd carcass. More evidence of that was available in the hotel. The hotel manager said that they could only accept payment in cash as their credit card terminals were not working. The hotel had a provision to accept UPI payments but their wi-fi had not been restored. The cellular network was patchy and operating with 2G speeds and was unable to scan the QR code and link back to the server. A trip to a few ATMs revealed that all were out of cash and in fact, most were shuttered, so no cash withdrawal was possible. Even getting to work was hard, the app-based taxis could not be booked in the absence of a data network and local autos and cans could not be paid as I didn’t have enough cash in hand. It was a real nightmare and taught me that for all the advantages of a cashless economy when the chips are really down, everyone wants cash.

Traditionally, India has been a cash-based economy though the idea of a cashless society is not a new one. The widespread use of debit cards and the recent explosion of digital payment options have given the average person little reason to touch cash. The pandemic has only intensified the need for cashless payment tools. “In the time of COVID-19, going cashless is safer and more hygienic because it allows for less contact between a cashier and a customer.

India’s Unified Payment Interface (UPI) payment system has revolutionized the digital payments ecosystem. Initially promoted by the government-owned National Payment Corporation of India, the open-source interface meant that private players could also enter the field and did. Paytm was the first off the block and captured the market in a big way in the weeks and months following demonetization when there was a currency shortage. Subsequently, other players entered the fray. Among the entities I can recall offhand are Amazon, Google, Flipkart, Airtel, Jio as well as most banks have them, though some are more popular than others. The digital payment space is so crowded that the National Payments Corporation has laid down rules as to which entity can enroll just how many customers. In Delhi, the UPI QR code is so ubiquitous that one can buy a cup of tea for Rs 10 and pay the roadside vendor through UPI.

There’s no denying that transitioning to cashless transactions could help improve several areas of society. Digital payments provide heightened security. They provide opportunities for hacking and data breaches, but they also eliminate the risks of carrying cash, which is arguably tougher to mitigate. After all, cash can be easily lost, misplaced, or counterfeited. And when that happens, recovering the funds can be extremely difficult. “Most digital transactions offer various levels of security and reputability, such as the ability to dispute a credit card charge, which cash cannot compete with mainstream cashless transactions also carry certain information about the payment participants, including what was purchased and when. This makes money laundering and tax avoidance much harder with cashless transactions. However, with the growing threats of misuse of payment networks and data theft, a large number of retail customers are apprehensive of migrating to a digital payment infrastructure. The fear can be overcome by implementing state-of-the-art technology tools along with the provision of insurance cover to mitigate the risks of cyber fraud.

In the near future, digital infrastructure and connectivity will become as important as physical infrastructures like roads and airports. Governments therefore should make every effort and drive policy changes to make access to the internet and PCs an essential need. This should be an all-around development that involves security, constant maintenance, and upgrades. Building the digital infrastructure, securing the infrastructure, and maintaining the digital infrastructure is equally important. It continues to remain largely restricted to the metro cities and it will take some time before populations in small cities, towns, and villages substitute contactless payments in place of cash on delivery.

This having been said, it also needs to be emphasized that unless special outreach efforts are made, the poor and unbanked will likely have an even harder time in a cashless society. If smartphone purchases become the standard way to transact, for example, those who can’t afford smartphones will be left behind. Some of the technological limitations for India to go cashless are the limitations of digital literacy which is still not at optimum level. Most of the cashless transactions are done using the internet and to make free internet available in every part of the country is a great challenge and also requires a huge investment in the internet and telecom industry. Approximately 45% to 50% of the Indian population still doesn’t have internet access, and approximately 20% of the population does not have access to a bank. The working poor rely almost exclusively on cash, with involving an exchange of rupees. With 93 percent of the country working in informal off-the-books jobs, most transactions entail personalized relationships rather than standardized forms of a legal contract or corporate institutions.

However, Despite many technological limitations making a cashless economy is a long-term goal and will definitely serve long-term benefits to people. The United Nations is leading an effort by more than 50 financial companies, foundations, and governments, including India, to accelerate the transition from cash to digital payments specifically to “reduce poverty and drive inclusive growth.”. Let us hope those efforts and the government’s Digital India initiative work well and leave no one behind.

Dr. Shantanu Dutta, a former Air Force doctor is now serving in the NGO sector for the last few decades.


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