A vision for a cashless India

The Modi government’s plan to rid the country of cash has split opinion. Many poor people lack bank accounts and computers. But internet usage is rising fast and less cash should equal less corruption.

A woman displays her 2,000-rupee notes as she has her finger inked with indelible ink, after exchanging withdrawn 500- and 1000-rupee banknotes at a bank in Chennai on Thursday. India is using indelible ink to prevent people from exchanging old notes more than once, the government said last week. Arun Sankar / AFPShow less

MUMBAI // Adam Khan, who runs a small grocery shop in a bustling market in south Mumbai, says he finds it hard to imagine India becoming a cashless economy.

“I’m only interested in cash,” he says, as a customer hands him a wad of 100 rupee (Dh5) bills to pay for his shopping. “We only accept cash and I buy all my goods in cash. The traders don’t take cheque or card. Some of my customers are uneducated and they don’t have bank accounts and they don’t know how to use banks.”

With prime minister Narendra Modi’s move this month to scrap India’s largest value notes of 500 rupees and 1,000 rupees in an effort to crack down on black money, as well placing strict limits on cash withdrawals, this is seen as a significant step towards creating a cashless economy.

But given the widespread dependence on cash in the country, this process will be far from easy.

“India has to go through a lot of transitions to finally be a cashless economy,” says Sathvik Vishwanath, the chief executive and co-founder of Unocoin Technologies, a Bangalore-based Bitcoin trading platform. “It is not easy for sure, but at the same time it is not impossible.”

Some of the biggest challenges include the vast black money market in India and the fact that there are many Indians who simply do not want this market to go away, the problem of poor internet connectivity and a lack of trust in internet banking, he says.

“The first step towards moving to a cashless society is to fight corruption and black money,” says Mr Vishwanath. “The government would need to cap the amount that can be transacted even further down so that most payments are made via online means. The transaction fees levied on merchants while accepting card payments need to be decreased.”

There were huge queues at banks to exchange notes in the days following Mr Modi’s demonetisation of the them and millions are struggling with basic services and goods because they do not have legal tender to pay for them.

“We all cry about corruption, and to eradicate that from the system one of the steps has to be cashless economy where every transaction is recorded and hence, transparent,” says Pratik Mehta, the managing director of Unishire, a Bangalore-based developer.

Working in favour of becoming a cashless society, India is a young tech-savvy country, where more than half the population is under the age of 25.

The number of internet users in India has been rapidly gathering pace. It is estimated to have reached 402 million at the end of 2015, meaning that India has surpassed the United States to have the second-largest number of internet users in the world, with only China ahead, according to a report by the Internet and Mobile Association of India and IMRB International. India’s smartphone market is the fastest growing in the world, according to IDC.

There has been a slew of mobile wallets that have launched and have been gaining popularity in India, such as PayTM and Ola Money. Such companies experienced a surge in transactions following the ban on 500 rupee and 1,000 rupee notes.

But the fact remains that, despite these developments, about half of the adult population in India does not have bank accounts.

“The lack of awareness and a lack of socio-economic conditions are both significant roadblocks in India’s move towards cashless economy,” says B Amrish Rau, the chief executive of PayU India, an online payment company. “Indians are used to saving and spending in cash. We have done that across generations and hence changing this very intrinsic habit is going to be a real challenge. Secondly, we cannot ignore the fact that cashless economy is still viewed as an urban concept. People hailing from far-fetched locations or underprivileged sections may not even have a bank account to begin with. Besides, we definitely need certain infrastructural transformations to make digital payments democratic and available to all.”

But he points out that it is critical that India increases cashless payments as its economy expands.

“If we take a cue from the leading economies of the world, one factor they all have in common is their limited dependence on cash,” says Mr Rau. “In order for India to emerge as a leading economy, it is pivotal for us to go cashless and avoid the traditional behaviour of spending and saving in cash. Furthermore, since online payments track every transaction, it becomes easier to keep a check on black money and compute taxes accordingly.”

He believes that India could be five years away from going cashless.

There is some evidence that this could be achievable.

One village, Akodara, in the state of Gujarat, has been dubbed India’s “first digital village”. As part of the government’s Digital India drive, the village, which has a population of 1,200, was transformed into a digital economy by ICICI Bank and even buying a packet of biscuits and some milk from the local grocer is paid for via e-banking.

“The move towards a cashless economy is both important and inevitable,” says Sanjay Krishna Goyal, the chief executive and founder of ACL Mobile, based in Noida, north India. “Cash is an expensive habit for any economy and India has predominantly been a cash-backed economy … with social perils like money laundering and black money.”

There are certainly hurdles that have to overcome, he adds.

“India is a fragmented economy. Although smartphones and internet are increasingly becoming affordable and accessible, we still have a lot of work to do in reaching out to the very last doorstep in every terrain, nook and corner.”

Ambarish Gupta, the founder and chief executive of Knowlarity, a cloud communication service provider, believes that cash is unlikely to be eradicated in India’s economy any time soon.

“Given the size of the Indian economy, it becomes highly unlikely that the country will go completely cashless,” he says. “However, there are several encouraging signs that the dependence on cash for buying and selling of goods and services will be dramatically lowered. It will take some more time to build consumer trust and make the mass consumer more comfortable using digital payment tools.”

Srividya Kannan, the founder and director of Avaali Solutions,a consultancy based in Bangalore, says that India is taking the right steps towards going cashless.

“A cashless economy is really a dream for a country like India,” Ms Kannan says. “We’re doing all the right steps to turn this dream into reality – though it still is some time away.”

Mr Vishwanath remains optimistic that there can be a successful transition, despite the array of challenges.

“The rate at which internet and smartphones have penetrated into the remotest villages in India is mind-blowing,” he says. “You get to know that you are going to be there sooner than expected when the oldest uncle of the family forwards a WhatsApp joke in the family group.”

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