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Cashless Economy India- How well did India managed to cope up with Cashless Economy during Covid-19

As one is aware of the 2016 November series of events that majorly includes Demonetization followed by Cashless Economy initiated by our PM Narendra Modi. The cashless economy initiative came right after-math of Demonetization, as some say, due to consequences and chaos caused in the economy just after RBI decided to ban the use of Rs. 500 and Rs. 1000 notes.

On the announcement being made about the Cashless economy initiative, there were many immediate steps taken up by the Government of India (GOI) to drive the economy towards a Digital economy. Some of the measures included Public and Private Banks reducing their service charges, availing customers with discounts on online payments, e-wallets monthly transactions limit was increased from Rs. 10,000 to Rs. 20,000. Indian Railways decided to encourage e- booking by not levying any service charges. Along with these, few major steps that were taken up by the Government to boost the cashless economy and to have a swift transition from cash driven to the cashless economy. These were the implementation of UPI, a separate panel of NITI Aayog was directed with ways to think upon on implementation on a large scale, a separate Ratan Watal panel on digital payments headed by our former finance secretary Ratan Watal, was constituted in August’16 to suggest ways to encourage India’s movement towards a cashless economy.

Growth Projection of India FY 2021
Source: IMF

With the onset of coronavirus outbreak in India soon after Wuhan, where India reported its very first case on 27th January 2020 in Kerala and over a year since then, India reports 10.8 million cases as of now. Although now India is seeing a decline in its weekly average cases ranging down from 93,199 during the peak time to currently being 12,772. The year 2020 has been nothing but a roller coaster ride for all the people. Many lost their jobs, some lost their lives due to the virus and the whole economy seemed to be doomed. With the increase in cases from January onwards and to prevent the spread of novel coronavirus, the whole nation was put under complete lockdown from 23rd March 2020 till 31st May 2020. After that to protect the economy from going down the hill, the GOI decided to sustain restrictions only for the containment zones while easing the restrictions in a phased wise manner with every Unlock planned. With little or no activity in the initial months and easing of restriction in the second half of the year the growth for FY 2020 dipped down and became -8.9%. Although June onwards up till now mostly all the economic activities have resumed which is a positive sign and a relief for India as recently IMF predicted positive and that too double-digit growth for India in FY 2021 i.e. 11.5% which shows a drastic V-shaped recovery that is in process and bound to happen over the year. Not to forget the fact that in the year 2020 China was the only country with a positive growth rate of 2.3% and yet China is second to India in the year 2021 with a growth rate hovering at 8.1%.

As one might wonder the vital importance of a cashless economy, this pandemic was surely an eye-opener for all. With Nationwide lockdown restricting all economic activities except the necessary services and online services, the online mode of payment is what came to rescue to the Indian economy. Mostly all the shops and online platforms encouraged and accepted online mode of payments to avoid and curb the spread of the virus through the exchange of cash. One of the most important facilities was availed by the recipients of Direct Benefit Transfer (DBT) as a part of Financial Inclusion made by the GOI. The online payment services contributed to the spending side which pulled up the economy. Although this leaves aside the fact that there are people belonging to remote areas who are not yet completely aware of online services. There are many underlying reasons for it. A few of them include lack of awareness, low internet connectivity, affordability of smartphones by an individual, a slow adaption from cash to cashless, habitual issues, safety concerns, etc.

Study shows that the Smartphone Penetration Rate in India predicts that by 2022, over 36% of the people in the country would use smartphones, up from 26 % in 2018.  The estimate shows that the number of smartphone users in India is to reach over and above 760 million in 2021. Whereas, Data on Internet Usage shows that there were around 700 million internet users across the country and this is expected to grow over 974 million users by 2025, signalling a  huge market potential in Internet Services. Reports show that India was ranked the second-largest online market worldwide in 2019, coming second only to China. In the future, the number of internet users is estimated to grow in both rural as well as urban areas, indicating a progressive growth in terms of access to the Internet. Because of low Internet and technological literacy among women, older adults, and people belonging to rural areas have lower access to the internet in the Country. Therefore, the need of the hour is to encourage Internet accessibility and awareness to all.

Currency Circulation to GDP during Cashless Economy
Source: RBI Data

With so much going on, the other side of the Data reveals that in FY 2019, the share of Currency in Circulation (CIC) to the GDP in India was around 11%, which implies that having a high CIC relative to GDP indicates that Cash is highly preferred as a mode of payment. Based on this, India continues to have a strong inclination toward cash payments. However, Demonetization and persistent growth brought down the CIC as a percentage of GDP from 8.70% in 2016-17 to 10.70% in 2017-18 and to 11.2% in 2018-19 which, is less than the pre-demonetization level of 12.1% in 2015-16. The lower rate indicates a recognizable shift away from cash.

Unknowingly India has faced two challenges. With the pandemic in place, it was a clear test of the initiative of the cashless economy, in which India seemed to do fairly well. According to RBI reports of 2019, the value of digital payments to GDP has increased from 660% in 2014-15 to 862% in 2018-19, making the shift to digital payments in India recognizable. Amidst the on-going pandemic, we can see a surge in these numbers of digital payments beating the cash-driven economy all for once. But India still has so much unexplored potential aligned with increasingly growing digital activities. India is on the right path to reduce dependency on cash that would eventually bring out many advantages along with it. A few of them include tackling both Black Money and the circulation of Fake Currency notes and importantly reducing Transaction costs in the long run. A cashless economy will help reduce corruption as Digital transactions bring more transparency and accountability to the economy.

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