The RBI and the Government are making several efforts to reduce the use of cash in the economy by promoting the digital/payment devices including prepaid instruments and cards. RBI’s effort to encourage these new variety of payment and settlement facilities aims to achieve the goal of a ‘less cash’ society. Here, the term less cash society or cashless transaction economy indicate reducing the use of physical cash for payments. Instead of cash, digital payments are made to settle the payments.
Cashless transaction economy doesn’t mean shortage of cash rather it indicates a culture of people settling transactions digitally. In a modern economy, money moves electronically. Hence the spread of digital payment culture along with the expansion of infrastructure facilities is needed to achieve the goal.
On November 8th, government withdrawned Rs 500 and Rs 1000 notes- two highest denominations in circulation. Main objectives were to fight counterfeit money and black money. The action has given tremendous boost to cashless transactions as card based and digital payments were not hindered when all high denomination cash transactions suffered because of absence of high denomination currencies.
What are the advantages of less cash economy?
There are several reasons why the government and the RBI brings up measures to promote cashless transaction economy. besides convenience, digital transaction gives more scope for recording of transactions and in this way it is a first step against the spread of unaccounted money or black money. Secondly, the problem of counterfeit notes can also be avoided when payment is settled digitally.
Efforts towards cashless transaction economy.
The RBI and government have launched several measures for the spread of electronic and other non-cash settlement culture.
The Vision-2018 for Payment and Settlement Systems in India brought by the RBI in June 2016 reiterates the commitment to encourage greater use of electronic payments by all sections of society so as to achieve a “less-cash” society.
“The broad contours of Vision-2018 revolve around five Cs — coverage, convenience, confidence, convergence, and cost. To achieve these, Vision-2018 will focus on four strategic initiatives such as responsive regulation, robust infrastructure, effective supervision and customer-centricity,” – RBI. The vision statement highlights following plans:
- The regulator wants to reduce the share of paper-based clearing instruments
- It aims to raise growth of the digital payments space
- It wants to ensure accelerated use of Aadhaar in payment systems
Government also made fiscal measures for the encouragement of card culture in the 2016 budget. Exempting service charge on card-based and other digital payments was one such step. Aadhar based payment system will be a big boost for promoting the cashless transaction culture.
A committee of seven members, chaired by a ministry official, Neeraj Kumar Gupta was formed to recommend steps for the reduction of cash based transactions.
The technology has spread internet banking, mobile banking, prepaid instruments, credit and debit cards etc. and at the same time, electronic payments system is fast growing. All these indicate that India is moving towards the RBI’s goal of less cash economy-steady but slowly.