Cashless Economy in India

By : Neha Dhyani

Updated : Jun 15, 2022, 14:37

Cash and coins have been a part of the country's economy since immemorial. In an economy, when the transactions become increasingly fulfilled by non-cash instruments like Unified Payment Interface, Debit cards, Credit cards, etc., such an economy is said to progress towards becoming a Cashless Economy in India.

Stepping Towards a Cashless Economy in India

India has started making inroads towards becoming a cashless economy. India's aim to become a cashless economy is a product of the Government's Digital India program.

Let's look at a few of the reasons why India has progressed fast towards becoming a Cashless Economy in India:

  • The Indian government announced Demonetization on the night of November 8, 2016. After Demonetization, people began using digital payment methods instead of cash for convenience.
  • The launch of United Payment Interface has contributed towards going cashless. According to the data of NPCI, 4,527.49 million transactions occurred through UPI in February 2022 alone.
  • The Covid-19 pandemic forced several businesses to adapt to digital modes of transactions due to the danger of spreading the virus.
  • Fueled by the pandemic and the ensuing lockdown, the overall banknotes printing volume has reduced by 13%, and the money circulation has declined by 23.3%.
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India's Cashless Payments Progression

India's digital payments system has been steadily improving for several years, fueled by advancements in digital technologies and nurtured per the RBI's goal. Since its inception in 2008, the National Payments Corporation of India (NPCI) has been at the heart of the technological advancement of India's retail payment network.

These technological advancements reflect the country's evolving Digital Payments ecosystem. It led to the establishment of the Committee on Digital Payments in 2016, chaired by Shri. Ratan P. Watal, Principal Adviser, NITI Aayog.

NPCI has developed various modalities in addition to UPI, which were recently released and are mentioned below.

  • The Bharat Bill Payment System (BBPS) is a tiered framework for administering a unified bill payment system in India.
  • Bharat Interface for Money (BHIM) is a smartphone app that allows the Unified Payments Interface (UPI) to facilitate simple, fast and rapid financial transactions. With merely a mobile phone and a digital payment address, you may make instant bank-to-bank payments.
  • Bharat QR: An interoperable QR code solution designed by NPCI, MasterCard, and Visa technical synergy. Consumers may pay via connected accounts by scanning the QR codes using Bharat QR-enabled application in an interoperable ecosystem, which merchants can display on their locations or mobile phones.

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Cashless Economy in India - Government Initiatives

  • The Unified Payments Interface(UPI) was created by the National Payments Corporation of India (NPCI) to assist the RBI's goal of "less cash" and much more digitalization.
  • The Government of India announced the Direct Benefit Transmit (DBT) plan to transfer the perks and subsidies of several social benefit programs such as LPG subsidy, Old Age Pensions, Scholarship, MGNREGA, and others directly to the recipients' bank accounts. This paved the way for online banking to reach rural communities of India.
  • The government has formed a committee, led by NITI Aayog CEO Amitabh Kant, to devise a plan for accelerating India's transition to a cashless economy.
  • The government of India introduced The Pradhan Mantri Jan Dhan Yojana. The program is a country's financial inclusivity project that takes a comprehensive approach to complete fiscal inclusion and offers financial services to all households.
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FAQs on Cashless Economy in India

Q1. What is the Cashless Economy in India?

When the transactions by non-cash instruments like Unified Payment Interface, Debit cards, Credit cards, etc., dominate more than cash transactions in an economy, such an economy is called a Cashless Economy in India.

Q2. How does Demonetization affect the rise of the Cashless Economy in India?

Many believe that Demonetization affects the rise of the Cashless Economy in India as the Demonetization of 500- and 1,000-rupee notes is the reason for the significant increase in digital transactions. Currently, cards are being used to undertake transactions worth INR 70,000 crore at Point-Of-Sale (POS) terminals. Since March 2016, this has increased by 25% on average.

Q3. Why is a Cashless Economy in India preferred?

A Cashless Economy in India is beneficial as it reduces the risk of violent crimes related to cash, corruption, and tax evasion.

Q4. What are the advantages of a Cashless Economy in India?

The benefits of a Cashless Economy in India include the reduced danger of violent crime, fraud, tax evasion, and lower transaction costs.