From illiteracy to cyber security: Why Modi's cashless society dream is a far cry

From illiteracy to cyber security: Why Modi's cashless society dream is a far cry

Why becoming cash-less is a premature decision for India?

Women queue outside a bank to exchange and deposit their old high denomination banknotes in Chandigarh, India Women queue outside a bank to exchange and deposit their old high denomination banknotes in Chandigarh, India

The demonetisation of Rs 1000 and Rs 500 notes is the singlebiggest financial event in the history of Independent India. The move has beenwelcomed by many but has also received some serious criticism from citizens as wellas major economists.

Here we analyse why becoming cash-less is a prematuredecision considering India's current infrastructure:

98 per cent casheconomy

The invalidation of 86 per cent of the cash currency was amassive step in the economic history of India.

The country's cash to GDP ratio, an indicator of the amountof cash used in the economy, is around 12 to 13 per cent, much higher thanmajor economies including the US, the UK and Euro area but below that of Japan(about 18 per cent).

Another emerging economy Indonesia has a much lower ratio ofaround 5 per cent.

With cashless transactions accounting to just 2 per cent,India is bound to have highly disruptive transition to being a less-cash orcash-less economy. The sheer lack of infrastructure will act as a strongimpediment towards achieving the goal of going digital.


Cyber Security

The absence of robust cyber security laws in India is amajor threat to the country's dream of a cash-less economy. Instances like themassive security breach of 32 lakh debit cards, just months before demonetisation,is a strong indication that the country is yet to develop an efficientcyber-security system.

Paytm, a popular e-wallet in the country rolled out asmartphone-based PoS system to enhance the reachability of the technology  but there were serious shortcomings and ithad to roll-back the feature the very next day.

The lack of an adept checking-mechanism for the modernbanking technologies is an obvious deterrent towards a safe cash-less economy.


Terrible InternetConnectivity

Broadband connections are still a rare phenomenon in Indiancities but it's an even rarer facility in small towns or villages.

The country has 350 million internet users that are stillworking with a speed of 512 kbps which is much lower than the global averagespeeds ranging above 5 Mbps. India's average internet connection speed is2.8Mbps

Average page load time in India is 5.5 seconds compared toChina's 2.6 seconds.

In an interview to Outlook, TRAI chairman, Ram Sevak Sharmastated that the telecom regulatory body recommended the promotion of wiredinternet because it does not burden the spectrum. But there is no fixed lineand cable is not allowed in the country.

The only viable solution to get better data speeds will bethe use of cable-wires that are used for the television network but TRAI failsto implement it due to an outdated revenue system.

Wireless medium suffers from a major crunch in bandwidthwhich cannot solve the problem of poor connectivity.

Technology in bankingindustry has shallow reach

Though the country has the second highest number ofsmartphone users in the world, the number hardly covers 20 per cent of thetotal population of the country.

According to a report by IndiaSpend, only 27 per cent ofIndia's population has access to internet, which is much less than the global average of 57 per cent. India ranksbehind  countries like Ghana, Nigeria andIndonesia.

Banning 86 per cent of the cash currency has turned into abig challenge for rural area dwellers who heavily rely on cash to maketransactions. Out of the total 833 million people living in rural areas, only108 million (or 13 per cent) use internet.


Expensive personalbanking equipment

The country is no stranger to economic disparity. Expensivegadgets like PoS machines or even the finger print readers used for AADHARbased payment systems are not cheap enough to replace physical currency.

Smartphones are an important prerequisite for most mobilebanking facilities. The government has been actively promoting e-wallets andother mobile-banking facilities but with a smartphone penetration of meagre 17per cent is far from ideal to make such blanket implementations.

According to, India's 21.92 per cent of totalpopulation lives under the poverty line. 25 per cent people in rural areas and13.70 per cent in urban India fall under this category. Emphasising  on the use of technology to make simpletransactions can be unfair for this underprivileged section of the population.


Huge percentage ofuneducated population

According to the 2011 census, India has a literacy rate of73 per cent. The country has come a long way from the 12 per cent literacy ratesince its Independence in 1947 but according to UNESCO, it still is home tothe biggest population of illiterate adults in the world.

Without the basicknowledge to read and write, tech savvy banking is more of a distant realityfor this population. Despite government's thorough attempt at inclusivebanking, the lack of basic education discourages the use of technology.