DMPQ: Is cashless economy feasible in India? Also discuss the impact of it on informal economy?

India Cash/GDP ratio is 12.24% which makes it one of the largest cash based economy. But there are certain problem for a cashless economy especially for India as :

  • ‘ There is low penetration of internet. Last mile connectivity especially in rural sector is quite low which creates hurdle in digitisation of economy.
  • Lack of financial inclusion due to low bank penetration is another issue. According to a report, 221 million accounts are in inactive state.
  • Another issue is of theft issue. Debit card fraud are increasing.
  • According to Transparency international report, India is placed at 76th rank out of 168 countries . Hence, corruption is a major problem.
  • Rural economy still runs on cash. Hence it is difficult to implement cashless measures.

Impact on informal economy:

  • It will push informal sector to go for digitisation like payment of wages. SO additional cost in the long run but might be beneficial in the long run.
  • It will help to streamline the data and will help to consolidate data. So our parameters and indexes will reflect true picture.
  • Government with employees having account can provide bsocial security benefits like pension, health insurance etc.
  • It will help to increase the tax base. As informal sector will come under the vigilance of taxation authorities
  • In the short run it might lead to unemployment.


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