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Is India Ready to Go Digital?
Dec 5, 2016

One of the major offshoots of the demonetisation drive is a push towards a cashless, digital economy. In today's chart of the day, we have presented the quantum of cashless transactions in some of the major economies of the world...and how far India has to go to become a cashless economy.

The statistics are startling. Just about 2% of the volume of economic transactions in India are cashless.

Less cash would mean less black money...less corruption...and more transparency.

But is India really ready to go digital?

We don't think so. In our view, digital India is a way distant dream...particularly for rural India.

Consider the following statistics...

As per, there were 5.3 bank branches per one lakh Indians in rural India 15 years ago. Today the figure stands at 7.8 bank branches per one lakh Indians. This shows that a majority of rural India has very little access to banks and the organized financial sector. They rely heavily on cash and the informal credit system.

Then, we have just 2.2 lakh ATMs in the country. For a population of over 1.2 billion people, that's a very small number. And guess what? A majority of ATMs are concentrated in metros and cities. For instance, Delhi has more ATMs than the entire state of Rajasthan.

Given the poor penetration of banks and formal sector financial services in rural India, we believe that Modi's cashless economy ambitions are a distant dream.

Then there are issues of related to security. In an earlier issue, we questioned if banks and other financial institutions were technologically competent to tackle the security issues associated with the shift towards a digital economy? This is what we wrote:

    Can the common man fully trust that his hard earned money in the financial system will be safe from hackers and fraudsters?

    And the answer does not seem be a comforting one!

    Recently a taxi driver in Punjab became a crorepati overnight.

    Here we are not talking of the moolah that he earned from winning a lottery. But rather the bounty of Rs 98 billion that was transferred to his Jan Dhan account. The glaring mistake was due to a wrong entry by the bank official who accidentally entered the Banking General Ledger account number in the amount column. The mistake was rectified the very next day. But not all such stories end on a happy note.

    There have been several instances of debit and credit cards being hacked and large sums of money fraudulently withdrawn from the accounts of hapless account holders. And with a large population still not financial literate, they remain gullible to falling prey to such frauds easily.

Therefore, unless the whole financial system is made more secure and fool proof, the shift towards a cashless economy can prove to be a financial nightmare for the common man.

Data Source:Business Today, Mastercard Advisors

This Chart Of The Day was published in The 5 Minute WrapUp - Demonetisation: The Biggest Failed Economic Experiment in Indian History?

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