Cashless Society India: Why do we need to be one?

NEWS - The Prime Minister of India on Tuesday removed the existing currency denominations of Rs 1,000 and Rs 500 to combat black money and terror-financing. The best way to eliminate black money is to get rid of the money. The Modi government's decision to demonetise Rs 500 and Rs 1,000 notes will curb counterfeits in circulation. It will also significantly push India towards a cashless economy.

Why Indians prefer Cash over Cashless? 

 India is the fourth-largest user of cash in the world. Reason?

• Lack of access to banking.
• Lack of Awareness among consumers regarding use of cards.
• Lack of Infrastructure to offer card-based transactions.
• No additional Transaction costs involved.

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What is Cashless Economy?

Cashless Economy is one in which the circulation of physical currency is minimal. Physical wallets are replaced by the digital ones. All transactions are done using cards or digital means. In a cashless society, no one uses the real cash. Instead all transactions are through electronic channels such as direct debit, credit/debit cards and payment systems like Immediate Payment Service (IMPS), Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT).

Advantage of a Cashless Society 

All economic transactions through electronic means are recorded - Electronic channels increase circulation of currency and it is near impossible to sustain black market or underground economies that prove damaging to a country's economic growth.

Digital payments indirectly bring down the cost of manufacturing, managing and moving money around - In the period 2010-11, the RBI spent nearly Rs 24 billion on printing money, and an additional Rs 455 million on distributing that money nationwide.

Current demonetisation will lead to rise in deposits and aid banking sector - Here’s how it would impact the country: People deposit money in the bank -> Bank’s deposits will increase by a huge margin -> Lending activity of the banks will increase -> Interest rates of Loans come down -> More loans given out -> Broad money supply Increases -> Slowly creates inflation.

Money laundering acts will be prevented and tax compliance will increase. All this will ultimately lead to greater revenue for state.