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Is India on its Way to Becoming a Digitised Society?
Wed, 28 Dec Pre-Open

The government's demonetisation drive has changed the way how India spends money to a great extent. The cash crunch, long lines at ATMs and hassles with the Rs 2,000 note have led many people towards digital transactions. And as days go by, many seem to expect that India will now move inexorably in the direction of becoming a cashless economy.

It would indeed be a positive development if India moves to a cashless economy. It will ensure lower costs, improve transparency in transactions, and open up opportunities for some companies.

But is India ready to go digital?

If one has to go by ground realities, they are not so conducive. Facts show that India is not going to become a cashless economy anytime soon. The reality remains that the absolute quantum of such payments is just not large enough compared to the size of the economy.

Even if these issues are sorted out, there remain many issues ahead blocking Modi's cashless ambition. As a recent issue from Vivek Kaul's Inner Circle points out:

  • When we start thinking in terms of months and years as opposed to days or weeks, things change dramatically.

    Lack of trust in online payments, security risks, identity and privacy issues, as well as old habits of paying in cash, are just some of things that come into play.

    Then there's the all-important issue of data usage on cell phones. A majority of Indians don't seem to use phones to surf the internet in the same carefree manner as we use them for calls and messages.

So unless the above things change, the road towards a cashless economy will remain a long one.

Apart from these issues, India's digitisation would deal a big blow to the informal economy. While digitisation will encourage these firms to enter the formal sector, it will also expose them to various threats. Tax levy and increased regulation would affect their operations and make them less competitive.

One way to solve this issue could be to expand the formal sector and make it easier for firms to operate there. If this is done, many informal businesses will themselves be encouraged to join the formal sector and also offer more jobs - which is the need of the hour.

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

To know more on digital India and its far-reaching implications, you can read the recent edition of The 5 Minute WrapUp titled Is Digital India Also Made in China? It offers some insights on how digital India is related to the global war on cash.

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