YOJANA GIST | FEBRUARY 2017|LESS CASH ECONOMY

TABLE OF CONTENTS

1. DEMONETIZATION A LOOK BACK AT THE LAST TWO MONTHS 2

2. FROM A CASH ECONOMY TO A CASHLESS ECONOMY 3
3. DEMONETISATION IMPACTING ELECTIONS 5
4. LESS CASH ECONOMY: IMPACT ON BLACK MONEY 7
5. CYBER SECURITY: ISSUES AND WAY FORWARD 8
6. LESS-CASH ECONOMY: INDIA VIS-A VIS THE WORLD 9
7. ACHIEVING A CASHLESS RURAL ECONOMY 12
8. DEMONETISATION: A STEP TOWARDS LESS CASH ECONOMY 13
9. PAYMENT SYSTEM IN INDIA- DRIVING LESS CASH ECONOMY 14
10. DEMONETIZATION, CASHLESS ECONOMY AND DEVELOPMENT 15

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1. DEMONETIZATION
A LOOK BACK AT THE LAST
TWO MONTHS
When 86 per cent of a countrys currency, which
constituted 12.2 per cent of its GDP, is squeezed
out of the market and sought to be replaced
by a new currency due to demonetization, an
analysis of this decision and its impact is
required.
STEPS AGAINST BLACK MONEY:
The prime minister had proposed to
the G-20 at Brisbane that international
cooperation in sharing information with
regard to base erosion and profit sharing
should be expedited.
The agreement with Switzerland with
effect from 2019, details of assets
held by Indian citizens in Switzerland
and vice-versa would be provided to
each other.
Since 1996, the Double Taxation
Avoidance Treaty with Mauritius was
being renegotiated.
Similar treaties with Cyprus and
Singapore been renegotiated.
The Income Declaration Scheme (IDS)
2016 was highly successful with a 45 per
cent tax.
The PAN card requirement for cash
transactions beyond rupees two lakhs
put hurdles on expenditure through
black money.
The Benami law was legislated in 1988
and never been implemented.
The GST, which is scheduled to be
implemented this year, will provide for
better indirect tax administration and
will be a more efficient law will check tax
evasion.
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THE ADVERSE CONSEQUENCES OF CASH
Paper currency is a zero interest
anonymous bearer bond.
Mountains of cash money reach tax
havens through the hawala route from
the original paper currency.
Cash facilitates real time untraceable
payments.
Cash is the medium, which funds bribery,
corruption, counterfeit currency and
terrorism.
Reducing cash may not eliminate crime
and terrorism but it can inflict serious
blow on them.
THE MAGNITUDE OF THE DECISION
Drop in economic activity on account
of the currency squeeze during the
remonetisation period would have a
transient impact on the economy.
The amendment to the Income Tax
Act itself provides that the said
money, if voluntarily detected, would be
liable for differential and high rates for
taxation and penalty.
THE SITUATION TODAY
Economic activity is being restored.
Lakhs of crores, which were floating in
the market as lose currency, have now
entered the banking system.
In the medium and long run, the GDP
would be bigger and cleaner.
Money entering into the banking system
and officially transacted would give an
ample scope for higher taxation both
direct and indirect.
The Centre and the state governments
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would both stand to gain.
The economy would also be serviced by
both cash and highly digitized
transactions.
LUCKY GRAHAK YOJNA (FOR
CONSUMERS) AND DIGI-DHAN
VYAPAR YOJNA (FOR MERCHANTS)
For promotion of digital payment
methods to encourage consumers and
merchants to increasingly shift to these
payment modes.
The Schemes will be implemented by
National Payments Corporation of India.
Transactions eligible for this scheme
should take place through RuPay cards,
Unstructured Supplementary Services
Data, Unified Payments Interface and
Aadhar Enabled Payment System.
No charges on card payments at fuel
pumps.
BHIM will create equality Bharat
Interface for Money named after the
main architect of the Indian Constitution
Bhim Rao Ambedkar. The technology
through BHIM will empower poorest of
the poor, small business and the
marginalized section.
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2. FROM A CASH ECONOMY TO
A CASHLESS ECONOMY
INTRODUCTION:
The currency notes of two
denominations Rs. 500 and Rs. 1000
had accounted for more than 85
percent of the total value of banknotes
in circulation. We can start with a less-
cash society and then cashless society
will not be a far-off destination.
First in 2014, the government launched
the Jan Dhan Yojna which also sow the
seeds of a cashless economy.
The best way to reduce corruption and
black money in the economy is to move
from an economy dependent
predominantly on cash to electronic
transfers.
It means a revolution from the fiat
money to digital money to curb the
flow of black money and increasing
transparency of the flow of cash.
Internet banking and the recently
launched Unified Payment Interface
along with the e-wallets are widely used.
ADVANTAGES OF A CASHLESS ECONOMY:
Various ways like auditing and enforcement
agencies with the idea of cashless economy is
appealing, as most economic transactions
would be part of the formal system and easy to
track. The challenge is to strengthen the digital
infrastructure of banks and to make
transactions safe.
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FOLLOWING ARE THE ADVANTAGES:
Convenient Mode of Payment
Lower Risks
Reduction in the cost of printing money
Decrease in Crime Rate
Good for the Banking Sector
Transparency and monitoring
Reducing tax evasion and ensuring
transparent functioning of economy
However, the flip side of moving towards a
cashless economy in a developing economy
like India is that for the poor people, cashless
transactions are just not practical.
Demonetisation has particularly hit the informal
society and unbanked community. This section
of society would need longer to adapt to move
to a cashless society.
STEPS TOWARDS A CASHLESS SOCIETY:
Lucky Grahak Yojana for consumers
Digi Dhan Vyapar Yojana for merchants.
Vittiya Saksharta Abhiyan
BHIM (Bharat Interface for Money)
RuPay
Aadhaar Payment App
THE SWEDEN EXPERIENCE:
Sweden is one of the top five cashless
economies in the world. Sweden is the
first country to have promised to go
100% cashless by 2020, and leads the
race to become cashless society with
banks, buses, street vendors and even
churches expecting plastic or virtual
payment.
According to the central bank (the
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Riksbank), cash transactions made up
barely 2% of the value of payments
made in Sweden in 2016, and the figure
is expected to drop to 0.5% by 2020.
Circulation of Swedish krona has fallen
from around 106 billion in 2009 to 80
billion in 2016.
Technology plays an important role when
we talk about the policy shift from cash
to cashless.
Swish (a mobile app) allows users to
make real-time transactions from
anywhere.
INDIA AND SWEDEN: A COMPARISON
As on 31 December 2015, the
population of Sweden was estimated
at 9.85 million people; Literacy was
almost 100%, India had a population of
1260 million; literacy was almost 75%.
The population of illiterate people in
India was almost 30 times the entire
population of Sweden.
Per Capita Income is 435% of the world
average in Sweden but 14% in India. In
India, 68% of the population lives in
rural areas; in Sweden 85.5% of the
population of the population is urban.
In India, 68% of population lives in rural
areas while in Sweden 85.5% population
lives in urban area.
CHALLENGES AHEAD:
Infrastructure and Logistics: In rural
India, there are only 20.8% of ATMs of
public sector banks and of the State Bank
group and 8.5% of the ATMs of private
sector banks.
Fast and Reliable Internet: E-Wallets
and mobile payment systems need a
smartphone and an internet connection,
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but less than a quarter of the population
owns a smartphone, a fast and reliable
internet.
Cyber security: remains a key concern.
Prevalence of High level corruption
CONCLUSION:
Achieving a 100% cashless society will
never be possible, but one can always
start from a less cash society and then
move towards becoming mostly
cashless. Though cash will still play an
important role for discrete transactions,
especially in the most remote areas and
informal sector, even these transactions
can automated.
Digitizing financial transactions can
prove to be an effective means of
curbing the large parallel economy in
India. Fake currencies and their use will
fade away and money laundering will go
down.
IT infrastructure would be required on
a ground scale, which India severely
lacks even after 70 years of
Independence.
However, move towards less cash
economy depends on how effectively
we deal with issues like cyber security,
online frauds, financial inclusion into the
formal banking sector, awareness
campaigning and proper redressal
system.
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3. DEMONETISATION
IMPACTING ELECTIONS
INTRODUCTION:
Extensive use of money power to
influence the voters and win elections is
widely in practice.
Distribution of money and liquor on the
night before elections decide the
representatives of the people.
An analysis by ADR (Association of
Democratic Reforms) shows that in
state assembly elections of 2011 in Tamil
Nadu, West Bengal, Kerala, Puducherry
and Assam approximately
576 candidates were crorepatis and
yet 50 percent of them had never
filed income tax returns.
We see that the seed of corruption sown
in elections eventually germinates in
corruption in administration in the
country. Candidates and political parties
spend crores to come to power and
when they come to power, they start the
collection drive that inevitably leads to
a politician-bureaucracy nexus.
When the two most important
instruments of governance join hands in
this unholy alliance, corruption spreads
in all directions.
STATE FUNDING OF POLLS:
The Indrajit Gupta Committee on this
subject was set up in 1999. The
committee suggested only partial state
funding of elections and that too with a
condition that there must be genuine
inner party democracy which no party
is willing to consider.
Two challenges are great abuse of
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money and voter apathy. Two new
divisions were created to address these
issues seriously. Both met with
significant success, one achieving the
highest-ever voter turnouts ever since
and the other unearthing crores of
rupees and goods including liquor.
Some of the landmark achievement
included unseating and disqualifying of a
sitting MLA in U.P and countermanding
two Rajya Sabha elections in Jharkhand.
Voter education program sought to
educate and motivate voters not to
accept money for votes.
The National Voters Day on 25th
January since 2011, is the biggest voter
enrolment programme in the world.
A proactive expenditure control division,
a supportive voter education and a
watchful media and civil society is
needed to control the deteriorating
situation.
The law prescribes a ceiling on
expenditure of the candidates though
strangely not on the expenditure of
political parties. The absence of ceiling
on parties negates the whole logic of
ceiling and creates conditions of financial
indiscipline. E.g. According to Election
Commission, in the 2014 general
elections, the amount spent on
campaigns was estimated at the
staggering Rs 30,000 crore.
There is no transparency in the source of
the most of donations. It may be foreign
money or from crime, drug or real estate
mafia.
Cash- for -votes notoriety as a regular
feature in our elections was conveyed
by US diplomatic cables, leaked by
WikiLeakes. A Union Minister of Tamil
Nadu distributing up to rupees 5,000
per voter in a by-election in 2009.
After this victory, this notorious
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Thirumangalam formula was a sure
winner for the politicians; which is the
biggest challenge.
The public perception of the politicians
today is that they are all corrupt. Such an
image is not good for democracy. India
has grown into a major power mainly
due to the great political leaders we had.
IMPACT OF DEMONETIZATION:
It is believed that this move would have
a big impact on the ongoing polls in five
states, as this is the time that black
money is in distribution pipeline.
Earlier, disbursal of money to various
areas used to take place closer to the
date of polling.
However, after the ECI drive of cracking
down, political parties moved up the
disbursal date.
That is why announcement of
demonetization few weeks before the
elections hit the money distribution
plans ate the right time.
CONCLUSION
Demonetization and the subsequent
developments have a bearing on
electoral reforms leading to a strong
banking system and higher level of
financial inclusion.
The prime ministers directive to party
legislators to disclose all their bank
transactions since November 8, can be
seen as a first positive step towards the
financial transparency of politicians.
Passing of an act to curb Benami
property leads to subsequent
crackdown. Moreover, the cashless
transactions will ensure higher level of
transparency and scrutiny.
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4. LESS CASH ECONOMY: Digital payments bring in greater
efficiency in welfare programmes as
IMPACT ON BLACK MONEY money is wired directly to the account of
beneficiaries.
It will help in fighting the black money
Availability of alternatives of cash in the as it attacks on non-transparency and
form of credit/debit cards, electronic anonymity, which is the basis on which
wallets, mobile banking etc., has helped parallel economy thrives.
in pulling up day-to-day transactions
It will also reduce real estate prices
when India decided to fight against
because of the curbs on black money
shadow economy on November 8.
as most of the black money is invested
These alternatives of cash support in real estate, which inflates the prices.
Indias march in achieving more
In India, less than 5 per cent of all
transparent and less corrupt society.
payments happen electronically.
By moving towards cashless economy
RBI has recently unveiled a document
in which transactions can be tracked,
Payments and Settlement Systems
it has far- reaching consequences on
in India: Vision 2018 setting out a
fight against black money, in lifting the
plan and mood to encourage electronic
tax collections and in ensuring that credit
payments in medium and long terms.
flows to the less privileged.
According to a report by
PricewaterhouseCoopers in 2015, it pegs CONCLUSION:
cash transactions at 98 percent of
consumer transactions in value terms and
68 per cent in volume terms. A behavioural change, starting from every
It is much higher than comparable individual, can help the nation to weed out the
economies, such as China, Brazil and black money.
South Africa.

BENEFITS:

It will help in achieving the idea of

financial inclusion as:
High rates of cash movements require
money and resources to deal with the
cash.
In financial year 2015, RBI spent 27
billion on just the currency issuance and
management. It could have been used
for some other purposes in less cash
economy.
Less cash economy will also pave the
way for universal availability of banking
services as no physical infrastructure is
needed other than digital.

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5. CYBER SECURITY: ISSUES Cyber security is managed and
administered through a mechanism
AND WAY FORWARD called people, process and technology as
shown below:

The paradigm anywhere any time has

been realized by the technological
advancement in modern times.
The first such system, i.e. all electronic
transaction in India, was 1st
demonstrated in Hyderabad in 2001. The
all-electronic eco system was created
and household water bill payment was
made electronically. Security largely depends on people
However, digital space is becoming more and process involved as technology
vulnerable and the term cyber security is installed and configured properly will
gaining ground. work as designed. It is the humans, who
behave differently.
The aim of Information Security is to
provide Confidentiality (secrecy from
others),Integrity(secured communication CONCLUSION:
between parties), and Availability of
In a time when government is pushing
information (C.I.A).
for less cash economy, a secure and
The other security objectives include
reliable digital space will allay the fears
parameters like authenticity,
of many.
authorization, accounting, and
Cyber security is also an area for our
nonrepudiation.
young engineers to make a career in the
Important and Mission critical systems
field of cyber security.
employ several measures to counter
the cyber- attacks. These includes
several layers of defense (defense in
depth) to take care of data, applications,
hosts, and networks or perimeter assets
infrastructure as shown below:

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6. LESS-CASH ECONOMY: A number of countries including Sweden,

INDIA VIS-A VIS THE
WORLD
Indian government is creating an
ecosystem so as to encourage greater
use of electronic payments thereby
moving towards a less-cash society.
Kenya and Brazil have successfully
moved towards a less-cash economy.
Their experience shows that less-
cash economy needs supporting
regulations ensuring security of online
transaction, robust infrastructure and
customer centricity. India vis--vis other
countries:

Modes India Other Countries

Cash circulation In 2015, the share of cash circulation as a Brazil 3.8%
percentage of GDP was 12.3%.
Sweden 1.7%
Transactions settled 68% of total transaction in cash Thailand, China, Brazil have
in cash much lower usage of cash
Available Infrastructure
Cards (Credit/debit) In 2015, only 50% of the Sweden 2.5 (avg.
card per person)
Indian population had card.
Brazil 4.1
China 4
South Korea
introduced a
preferential value
added tax treatment
for consumers who
pay through card.
In India, bank charges
are deducted making
more lucrative for the
consumers to pay in
cash.
Point of sale (PoS) One of the lowest numbers of Brazil (25,241 per
terminals PoS terminals per million inhabitants million inhabitant)
(1080 in 2015) China (16,602 per
million inhabitant)
Electronic money
India has a wireless phone subscriber In South Korea 88%
terminals and base of over a billion people as of of adults had smart
mobile-money june phones.

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payment 2016.Only 0.05 per cent of the total For Kenya, it was
system --- Through non-cash transactions are made 26%
Mobile through electronic money terminals
that can be accessed through mobile
phones.
One of the reasons is that smartphone
ownership and internet penetration is
low. Only 17% of adult held smart
phone in 2016.

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GLOBAL EXPERIENCES AND WAY FORWARD
terminals etc. E.g. A village in Gujarat
Akodara has been digitalized by an
Countries like Kenya have successfully Indian private sector bank in 2015.
moved towards a less-cash economy by Delhi metro will go cashless from 2017.
increasing the use of technology-based Moving forward towards a less-cash
innovative payment products. economy the government must ensure:
In Sweden, most street vendors and Neutrality of mode of payment so
small businesses have adopted as not to make cashless transaction
payment application and PoS card costlier by deducting bank charges or
reader. fees.
Similarly in Kenya, which is one of the Security of information so as to
biggest users of mobile money in Africa, allay the sense of fear among
M-Pesa is used for paying fees and bills consumers about the safety of their
and even receiving salary. money.
In India, there is need to encourage Setting-up a robust physical and
and support the use of payment technological infrastructure to
gateways such as Paytm, PayU etc.
increase the availability, accessibility
Also, there is need promote cashless and acceptability to different payment
transaction in informal sector and terminals.
agricultural sector.
Lower taxes so as to make IT devices
Not only will it increase the tax base such as mobile phone and tablets
but it will also help authorities to cheaper.
monitor whether minimum wages are
Robust e-commerce policy to ensure
being paid to the workers or not.
consumer protection for cashless
Several initiatives have been taken by payments.
the govt. to bring informal sector into
formal sector and promote cashless
transaction: CONCLUSION:
National Payments Corporation of India
(NPCI) launched Unified Payment
Indian government has taken the right
Interface which allowed users to transfer
step to move towards a low cash
funds across two banks using mobile
economy.
application.
However, in order to succeed the govt.
GoI passed an ordinance in December
needs to create infrastructure along with
2016, which brings an amendment to
right kind of policy framework.
provide for crediting the wages in the
bank account of the employees or
payment through chequethereby
making the transaction cashless.
The Village of Ibrahimpur in the state of
Telangana has become completely
cashless.
Banks are also taking lead to promote
cashless society by investing in
infrastructure such as internet, payment

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7. ACHIEVING A CASHLESS
RURAL ECONOMY
India is largely an agrarian based rural
economy with a predominant unorganized
sector and
68.84 per cent of Indias population living in
rural areas. Rural areas are home to two thirds
of the countrys population and challenge lies in
achieving cashless transactions in these areas.
SOME FACTS:
There are about 7.8 bank branches for
every 1, 00,000 people in India, less
than 3 branches per 100 square
kilometers.
For rural India, the number are less than
1 branch per 100 square km.
Access and availability are the main
factors determining their choice of a
particular bank.
RBI figures for July 2016 show that
banks had issued 697.2 million-debit
card and 25.9 million credit cards.
Noting the fact that, many people
possess multiple cards this number does
not reflect Indias readiness for cashless
economy.
CHALLENGES OF A CASHLESS RURAL
ECONOMY:
Currency dominated economy: Cash in
circulation amounts to 13 per cent of
Indias GDP.
Transactions are mainly in cash.
ATM use is mainly for cash withdrawals
and not for settling online transactions.
Limited availability of Point of Sale
Terminals.
Mobile internet penetration remains
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weak in rural areas.
This is being overcome by application
BHIM (Bharat Interface for Money) which
will work on USSD i.e. without mobile
internet.
PROSPECTS AND THE ROAD AHEAD
Over 93 per cent of people in India
have not done any digital transactions.
So the real potential lies there.
Most of the farmers now have a Kisan
Credit Card and no frills account. Hence,
agricultural transactions can be made
cashless. Although, presence of middle
men and traders in agricultural economy
make it difficult.
The Jan Dhan Aadhar Mobile (JAM) can
encourage digital transactions in rural
areas.
The government can make cashless
transactions mandatory for certain
payments and make it mandatory for
certain services exceeding a certain
amount. E.g. Payment for passports can
be made mandatory through cashless
methods.
Cashless transactions can be promoted
through 5 As of promoting financial
inclusion which are availability,
accessibility, acceptability, affordability
and awareness.
Special drives through schools, colleges,
panchayats etc. can help create
awareness about cashless/banking
transactions.
Financial literacy is must to bring more
people on digital platform.
Linkage of all welfare activities through
bank accounts is a strategic step.
Also, sustained focus on different sectors
of rural economy can be very helpful such
as:
Dairy sector Milk farmers affiliated
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to both the state cooperatives and
private companies can be promoted
to open bank accounts for direct
payments into their accounts.
PDS outlets Aadhar linked bank
accounts, RuPay cards issued by
banks, PoS machines etc. can be very
helpful to promote cashless
transactions at the Fair Price Shops.
E.g. Maharashtra government has
launched a pilot project to introduce
cashless transactions at 84 FPSs using
Business correspondent model or
payment through USSD and e-wallet
facility.
Thrust on digital education People
must be trained as consumers to use
all payment options which are
available to them and best suited.
CONCLUSION:
As the Prime Minister had acknowledged that
a cashless society is not immediately possible,
we can take multiple steps to move towards
less-cash society immediately. Going by the
progress so far, it seems that a sound beginning
has been made for making rural India a less
cash economy.
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8. DEMONETISATION:
A STEP TOWARDS LESS
CASH ECONOMY
India has been fighting against black
money and money laundering in multiple
ways, such as:
Formation of SIT on Black Money in
2014.
Passing of law on Disclosure of
Foreign Bank Accounts in 2015 to
curtail benami transactions.
Income Disclosure Scheme 2016 to
declare domestic black money
(deceleration of more than 67,000
crore were made under the IDS 2016)
All of these efforts brought Rs. 1.25 lakh
crore of black money into open so far.
Government also demonetized five
hundred and one thousand rupee note
in November 2016.
On one hand, govt. has waged a war
against the black money and on the
other hand, it has laid emphasis on
promoting digital banking and e-
payments.
VARIOUS INCENTIVES GIVEN BY THE
GOVERNMENT TO PROMOTE CASHLESS
ECONOMY IN THE COUNTRY:
The Central Government Petroleum PSUs
shall give incentive by offering a
discount at the rate of 0.75 per cent of
the sale price to consumers on purchase
of petrol/diesel if payment is made
through digital means.
The central government through NABARD
will extend financial support to eligible
banks for deployment of 2 PoS devices in
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1 lakh villages with population of less than
10,000.
Railways, through its suburban railway
network, shall provide incentive by way of
discount up to 0.5 per cent to customers
for monthly/seasonal tickets if payment is
made through digital means.
TRAI has decided to reduced the USSD
charges from the current Rs. 1.50 per
session to Rs. 0.50 per session for
transactions relating to banking and
payments.
All railway passengers buying online
tickets shall be given free accidental
insurance cover of up to Rs. 10 lakh.
For the payment of toll at Toll Plazas on
National Highways using RFID card/Fast
Tags, a discount of 10 per cent will be
available to users.
CONCLUSION:
With all the aforesaid measures, it is
expected that the demonetisation will go a
long way in expediting and pushing the process
of digital banking to new heights in shortest
possible time.
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9. PAYMENT SYSTEM IN
INDIA- DRIVING LESS CASH
ECONOMY
Payment System is defined as a system
which enables payment of a liability,
typically without involvement of
movement of cash or legal tender.
In order to process a payment without
movement of cash, the payer and the
receiver of the payment have to be within
the ambit or participant of a payment
system.
EVOLUTION OF CASHLESS PAYMENT SYSTEM
IN CURRENT TIME:
In the traditional paper-based payment
system, a cheque in its different forms
was the first instrument of a cash less
fund transfer transaction through an
inter-bank payment system.
The advent of technologies helped in
introduction of mechanization through
electronics was the introduction of MICR
(magnetic ink character recognition)
technology for cheque process in 1986.
RBI started paper-less electronic clearing
services (ECS-Cr) in mid 1990s, first for
credit transfers.
Then came electronic fund transfer
(EFT) where a customer of one bank
can pay to a customer of another bank
through an electronic instruction. Later, it
evolved as NEFT (National electronic
Funds Transfer).
Card based transactions opened up a new
horizon in making payments anywhere.
Linking of all banks ATMs enabled
withdrawal of cash from any ATM.
The ATM card evolved into the debit
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card which has become a versatile card
as it can be used for multiple purposes.
For large value payment system, RBI
established- Real Time Gross Settlement
(RTGS) system in 2004.
To create a central trusted counter
party in order to settle the transaction
between two participants, Payments and
Settlement System Act was passed in
2008 which empowered RBI to authorize
payment system.
The National Payments Corporation of
India (NPCI) and Clearing Corporation of
India Ltd. (CCIL) are two of the major
authorized organisations permitted by the
Reserve Bank to offer payment systems.
NPCI has rolled out a variety of
payment products which include:
IMPS Immediate Payment System
NACH National Automated Clearing
House
CTS Cheque tranquation System
AEPS Aadhar Enabled Payment
System
UPI Unified Payment Interface
*99#- based on USSD Unstructured
Supplementary Service Data
RuPay Debit Card
NPCI is also establishing a retail bill
payment system BBPS Bharat Bill
Payment system.
There are many payment service
providers offering wallet services such as
PayTM, Billdesk, CC Avenue etc.
The proliferation of mobile technology
has opened up a channel to make cash-
less payments accessible to all.
CONCLUSION:
Above payment systems have brought down cash
payments and even transactions through
cheques are not growing at the levels which
were seen earlier. Payment systems are at the
forefront of moving towards a less cash
economy.
WWW.CHANAKYAIASACADEMY.COM
10. DEMONETIZATION,
CASHLESS ECONOMY
AND DEVELOPMENT
Demonetization is an act by which
government of a nation strips the
circulation of one or more than one
currency unit of its status as a legal
tender.
The first demonetization in the
independent India was done in year 1946
and another in 1978.
WHY EARLIER EFFORT OF
DEMONETIZATION WERE NOT
SUCCESSFUL?
Demonetization was not successful then,
because only a very small proportion of
total notes in circulation were
demonetized. Notes demonetized in 1946
were of the value of Rs. 143.97 crore. As
far as the demonetization of November
2016 is concerned, the currency
constituted a share of 86 percent of total
circulated notes.
Size of economy, the growth rate, and the
role of private sector and service sectors
to the growth of economy was small in
year 1946 and 1978 compared to 2016.
The number of people within the net of
the income tax was also not so large
during that time.
In the year 1946 and 1978 public were
already aware that the demonetization
will be introduced by the government
sooner or later, therefore, the
demonetization at that time could not
produce any substantial gain to the
economy.
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 YOJANA GIST | FEBRUARY 2017|LESS CASH ECONOMY
CASHLESS ECONOMY
It is an economic system in which
transactions are not done predominantly
in exchange for actual cash.
There is a strong negative correlation
between cashless transaction and
corruption. Sweden, where 89% is no cash
payment, ranks 3rd in Corruption
Perception Index. In India, an estimated
22% is non-cash payment and it ranks
76th in that index.
Fact:
Cash to GDP ratio for India is 10.86 while
that of Sweden is 1.73.
DEMONETIZATION AND CASHLESS
ECONOMY: PERSPECTIVES
The perspective on benefits are as follows:
It will check money hoarding and as a
result, more money will enter the banking
system, which in turn will boost
investment.
The opening of new bank accounts for
depositing the banned currencies and
deposit of huge amount in Jan Dhan
account has shown the spread of banking
literacy among the general population.
It has strengthened the banking system,
as many bank branches were facing acute
problem of NPA (non-performing assets).
It will increase the tax collection, which in
turn will increase the welfare spending by
the government.
During the re-monetization process, the
supply of money and liquidity flow to the
market will be slow. It will help in
controlling the inflation.
It will expose the people who have earned
the black money, which will help in
creating a corruption free society. This, in
turn will enhance the flow of FDI to the
WWW.CHANAKYAIASACADEMY.COM
economy.
It will curb the incidents like money
laundering and hawala transactions.
The demonetization has inflicted a big
blow to the terrorists and Naxalite
funding. The cashless transactions will
check the use of counterfeit currency and
discourage terror funding
Demonetization, if done in regular
intervals, will check political corruption
and spending of illicit money during
election.
It will help the nation to achieve a real
and cleaner economic growth with lower
income inequality and greater distributive
justice.
SUGGESTIONS:
It should be a continuous exercise by the
government and be repeated at regular
interval. It would promote cashless
transaction and will curb hoarding of
money.
Tax net needs to be increased with
exemption to poor and lower middle
income group.
The size of the informal economy needs
to be curtailed.
Government needs to take steps to
reduce the interest charged on
debit/credit cards.
Adequate number of bank branches need
to be opened in rural areas.
Safe digital ecosystem must be created to
generate a sense of security among
people.
Like Pulse Polio Campaign, the Digital
India Campaign must be conducted at
mass scale twice or thrice in a year.
All the line department functionaries such
as school teachers, health workers,
anganwadi workers etc. must educate the
people about the financial inclusion and
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 YOJANA GIST | FEBRUARY 2017|LESS CASH ECONOMY
digital transactions.
Strong political will among different
parties is necessary to achieve the
objectives.

CONCLUSION:

The Crisil Report says that the

demonetization move could change the
face of the Indian economy.
The move could stifle some business that
are legal and clean, if they use cash
payment. But everyone will adjust. And
while it can hurt some small business and
individuals, it is better to do it than not.
Demonetization and cashless economy in
the long run will have negative impact on
black money and positive impact on
economic growth and development.

WWW.CHANAKYAIASACADEMY.COM 17
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