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Photo: Abhijit Bhatlekar/Mint
Photo: Abhijit Bhatlekar/Mint

Demonetisation a catalyst for a cashless society

It is pleasing to see smaller merchants such as tea stalls, grocery stores as well as consumers in rural and smaller cities embracing digital payments

The Modi government’s demonetisation decision, replacing 86% of currency, was undeniably disruptive. No major disruptive decision comes without upheavals and it will be foolhardy to suggest that the removal of Rs500 and Rs1,000 notes from circulation hasn’t inconvenienced most people, especially those on the wrong side of the socioeconomic and digital divide in India—the poor. Yet, the exercise was neither a knee-jerk reaction nor was it without consideration for the poor. In fact, it was just the opposite and reflective of the inclusive motto of the Prime Minister and his government’s ‘sabka saath sabka vikas’ theme.

Removing high-denomination currency notes fits well with the government’s successful efforts at financial inclusion, through Jan Dhan, and using technology as an enabler, through Digital India, to improve the socioeconomic condition of the most marginalized sections in our society. The central idea behind this vision is not just about connectivity, but about how to leverage that connectivity in enabling consumers, small businesses, traders and farmers to harness technology for efficiency and productivity.

The Jan Dhan-Aadhaar-Mobile trinity and less-cash initiatives are the backbone of far-reaching reforms, development and a growth agenda. Each and every Indian can now have access to full financial services through the revolutionary IndiaStack. IndiaStack is open innovation at its best, with tight integration with Aadhaar identity, digital locker and payment systems available to all to build their innovations on top of these platforms. The data exhaust from the digitization efforts will make our society truly data rich, which in turn can be leveraged for a host of applications, including better credit facilities for small and medium businesses, customized insurance and savings products, among others.

Prior to demonetisation, the bulk of transactions were conducted through cash. Since then, it has reduced considerably and this move has proven to be a catalyst for consumption to be digitally driven and payments to go cashless. However, it must be acknowledged that large parts of the poorer sections of society, especially in tier-2 and 3 cities as well as in rural India, are not financially literate and distrustful of the formal banking system. In many cases, even if they have bank accounts, they are unaware and unable to use digital payments systems. That is the real challenge for the new-age banks and fintech disruptors. They need to ensure that a consumer trusts and uses digital payments as comfortably as cash.

It is pleasing to see, since the demonetisation drive, the number of smaller merchants such as tea stalls, grocery stores as well as consumers in rural and smaller cities embracing digital payments through mobile wallets, bank point-of-sale machines, among others. But in order to make digital payments pervasive and sustainable, India not only needs to focus on continuing to roll out digital infrastructure, but also proactively educate its citizens on the long-term benefits of digital transactions.

The payment supply chain should work on smartphones, as well as on feature phones in areas of low connectivity with confidence. There are already villages in states such as Gujarat and Haryana where digital payments are the norm, be it in grocery shops or managing welfare payments from the government. But this needs to be replicated around the country.

The digital transformation of cash is also a cost savings to the entire financial ecosystem and not just the public purse. From printing to cash management to physical infrastructure to securing and dispensing of currency, cash is very expensive. Banks and our government must think out of the box to pass these savings to consumers as incentives to embrace digital transactions.

India must use the demonetisation drive to harness its innovation and political capital, to ensure those who are on the wrong side of the digital and socioeconomic divide, especially in rural Bharat, can effectively function in a less-cash society.

So, while it has thrown up many challenges, this bold decision by the government definitely acts as a catalyst to ensure all parts of our society can be part of India’s growth story. The government cannot do it alone—all of us need to play our part in it.

Arvind Gupta is a digital innovator and Eisenhower Global Fellow, currently heading the BJP’s information & technology department. The views expressed here are personal.

His Twitter handle is @buzzindelhi

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