THE GIST of Editorial for UPSC Exams : 20 JULY 2019 (On Cashless economy (Indian Express))

On Cashless economy (Indian Express)

Mains Paper 3 : Economy
Prelims level : Not Much
Mains level : Role of Cashless economy

Context

• India’s trust towards a cashless economy. In a bid to promote cashless transactions, the government businesses with an annual turnover of over Rs 50 crore can offer lowcost digital modes of payments and no charges or Merchant Discount Rate will be imposed on them or their customers.
• Presenting the Union Budget for 2019-20, Finance Minister Nirmala Sitharaman also said two per cent tax deducted at source will be levied on cash withdrawals exceeding Rs 1 crore in a year from a bank account to discourage the practice of making business payments in cash. Finance Minister said the Reserve Bank of India and banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment.
• Lately, digital transactions using mobile payment firms are on the rise. For instance, Unified Payments Interface transactions have grown to 754 million in June 2019. IMPS and NETC transactions stood at
  around 171 million and 26 million, respectively.
• The cashless transfer is soon becoming the most preferred option and there are a number of benefits of going cashless. The digital or electronic transaction of the capital by using net banking, credit cards etc. is called cashless transfer. People can easily pay their bills online, shop and schedule transactions and manage all the finances using their laptops or smartphones.

Significance:

• Going cashless not only eases one’s life but also helps authenticate and formalize the transactions that are done. This helps to curb corruption and the flow of black money which results in an increase of economic growth.
• The expenditure incurred in printing and transportation of currency notes is reduced. In a nation like India, cashless transactions are not widespread and this is due to the technology gap and the lack of proper education.
• Though these are the matters of concern, the government or the financial institutes need to address them to create a strong cashless economy.

Benefits of Cashless Economy

• Saves money and time.
• Companies and governments will get efficient and they can reduce costs as they no longer need the manual accounting work to be done. The costs associated with accounting and handling cash is very
  high.

Less cash decreased crimes,

• Business and individuals can also avoid other costs as well. Theft often leaves a big hole in one’s pocket. The risk of theft will continue until people carry cash and by going cashless the same can be
  reduced.
• Production costs of coins and paper currency are reduced,
• Production of coins and paper currency is indeed an expensive endeavor and the life span of most of the paper currencies is about 6 years. So, by going electronic the cost of production gets reduced.

Less cash means more data,

• The government can use the data coming from the cashless transactions to improve and analyze their policies. By using such data, officials can predict or identify the patterns of activity and use such information for urban planning for sectors like energy management, housing, and transportation.
• More spending helps improved economic growth,
• When a nation is taking a step towards a cashless economy, a boost in the economic growth can be expected.

Challenges of getting our economy going cashless

• High Cash Dependency: India has a high cash penetration in almost all of its transactions that happen as B2C(Business to customer) transactions. Total cash flow in the market accounts for 12.04% of the GDP, which is among the highest in developing countries.
• Lack of Digital Infrastructure: The first and foremost requirement of a digital economy is the penetration of internet and smartphone. Although a billion mobile subscriptions (not users), only 30% of subscribers use smartphones. With 370 million mobile internet users, over 70% of them are in cities while 70% of Indian population lives in villages.
• Skepticism in Merchants: Small time merchants as well as users have high amount of suspicion over plastic money and they need to be educated over the potential benefits of using it. One cannot expect an overnight change in the perception of a majority of Indians over the use of plastic money. Government
  needs to come out with awareness and incentive schemes to promote digital economy.
• High Merchant Discount Rate: These are the percentage deducted from each purchase a merchant makes by the card issuing authority or bank. These are volume dependent and are more economical if the merchant is able to sell a large amount of products, thereby beneficial for big merchants. For smaller merchants, it does not provide enough incentive to make the shift from cash.

Way forward

• Consumer should be placed at the centre of the debate when cashless economy is discussed.
• The companies should take the consumers’ confidence and their ease into consideration when they go digital in economic transactions.
• The government also needs to take the necessary steps and make some policy considerations when they are preparing for a cashless economy. The payment systems have to be protected from the
  cyber-attacks which are the major threat for cashless transactions.
• Also, the government should be able to serve the underbanked as well. Everyone from the society should have access to an electronic system that they can use for such transactions.

  Online Coaching for UPSC PRE Exam

  General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) With reference to the Public Health Emergency of International Concern, consider the following statements:
1. World Health Organization (WHO) declared Ebola outbreak in the Democratic Republic of the Congo as a Public Health Emergency of International Concern.
2. This is the first such declaration in history.

Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both
D. None

Answer: A
Mains Questions:
Q.1) What are the key benefits and challenges of the cashless economy?