Answered: India has a large informal sector which functions on cash and will take its time to completely move to digital modes of payment. Do you agree?

Nearly 90% of India’s workforce belongs to the informal sector.
Yes, it will take time for such a large informal sector to completely move to digital modes of payment such as via debit/credit cards, net banking, mobile banking and payment via mobile wallets etc.

Reasons for this are:

  1. Lack of smartphones – 27% of India’s population owns smartphones, most of them in urban areas and formal sector workforce.
  2. 2. Lack of digital literacy – amongst the informal sector, most of which consists of daily wage workers and labourers.
  3. Lack of financial literacy – despite having Jan Dhan accounts which come with a RuPay debit card, the account holders lack the knowhow regarding such facilities that come attached with the accounts.
  4. 4. Lack of easy, feasible modes of payment – such as USSD, which has been a success in Kenya.
  5. 5. Lack of user interface in local languages hinders adoption of digital modes of payment.
  6. 6. Lack of adequate PoS terminals.
  7. Absence of confidence in digital payments in general. People possess greater confidence in dealing with physical cash.
  8. Growing cyber threats also hamper the adoption of digital payments – such as the recent hacking of nearly 32 lakh debit cards of various banks in October.
  9. Several industries are viable only because they evade compliance by not leaving paper trails and dealing in cash. They will obviously be unwilling to adopt cashless modes of payment due to the fear of becoming unviable.
  10. Even the most developed of economies haven’t completely adopted digital payments. So some amount of cash-dependence will always exist.

The Way Forward:

Government has taken several initiatives to promote digital payments such as VISAKA initiative for awareness regarding cashless payments. BHIM app integrates UBI and also enables Aadhaar-enabled biometric authentication for payment. Schemes such as Lucky Grahak Yojana and Digi Dhan Vyapar Yojana have been introduced to create awareness about, as well as incentivize the use of digital payments.
1. Recommendations of Ratan Watal committee on digital payments should be implemented.
2. UI in regional languages should be developed to enable faster adoption.
3. Merchants should be incentivized to accept payment via cashless modes, either by a service tax rebate or some other mechanism.
4. Scrapping the duties applicable to PoS terminals and fingerprint scanners to make these cheaper and enable their faster adoption. This has been done via Finance Bill 2017.
5. Banking Correspondents as well as the sarpanches of various gram panchayats should be tasked with spreading the benefits and encouraging adoption of digital payments in rural areas.

India is a cash-heavy economy and using cash for majority of transactions has significant hidden costs in logistics, printing, security etc. Moving to a less-cash, digital payments society is therefore imperative. Concerted efforts by the government, RBI and the civil society are necessary to achieve this transition.


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