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Driving into cashless lane through demonetization route

Post demonetization, what is the most significant development taking place in the country besides fire-fighting black money Propelling digital economy!

Demonetization has become a radical reform for India to trot towards a cashless economy. In India, 90% of transactions are done in cash. This is due to a large informal/unorganized sector employing 90 per cent of the workforce and dealing mainly in cash. While majority of this informal economy is not hoarding or dealing in black money, it is very difficult for India to transition into a cashless economy unless its mammoth informal sector joins the efforts and transitions to digital payments itself.

The RBI governor has said that the government was fully aware of the consequences of the move quelling the questions on the ill-planned move. The Prime Minister on his part has erased the difference between legal cash and black money, treating all cash as black until proven white. In effect, he equated cashless with  clean  and cash with  dirt.

But why this urgent push towards a cashless society? One of the major impacts of a cashless India would be a sharp rise in compliance of indirect taxes. Currently, majority of shopkeepers, consumers, traders, and small businesses routinely use cash to avoid paying VAT, sales tax, service tax, and other indirect taxes and fees. This mindset has to be changed and stopped if Goods and Services Tax (GST) regime is to work effectively. Another big beneficiary of a cashless India would be finance capital. Currently, a lot of low-income households access credit through informal systems like money lenders, pawn broker or relatives in cash. The third and a major beneficiary is of course the digital sector. Since the demonetization drive started, digital payment apps and e-wallet companies have seen record downloads and deposits through their financial platforms.

Barring the political ramifications, this step clearly is a move in the right direction. The banking sector, the IT sector and people of India stand firmly behind the Prime Minister in his efforts.

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