The government of India on Wednesday officially disclosed the purpose of Prime Minister Narendra Modi’s demonitisation drive saying, the PM was actually aiming at introducing a cashless economy in India. “Modiji aims at a cashless economy where you don’t have to pay anything to anyone in person,” minister Venkaiya Naidu said in Delhi.
Yet, sensing such an impending move by several governments in the world, the Harvard Business Review (HBR) had warned five months ago that these countries – India among them – are just not ready for a cashless economy. India should first improve its level of digital readiness and become more “digitally inclusive” before going cashless, HBR had advised.
According to the latest data of Reserve Bank of India 25.9 million credit cards and 697.2 million debit cards had been issued by various banks till July this year. India also has only 1.44 million Points of Sale terminals and a little more than 200000 ATMs across India. These are simply not enough in a country with a population of 130 crore.
Yet Visa and Mastercard, two of the world’s largest payment networks, have been pushing for this kind of change in India for several years now. “Visa and Mastercard both benefit as paper currency or checks turn toward electronics,” Moshe Orenbuch, an analyst at Credit Suisse Group AG who has a buy recommendation on both stocks told the Business Standard. “When we think about where they are investing, they look toward areas where there is the potential to accelerate that transition,” he said, adding that that the recent changes in India are “something they know how to move in on.”
Only in October, Visa had released a report that laid out a framework for accelerating digital-payment acceptance in India.
In its report, The Harvard Business Review observes that cash accounts for nearly 85 per cent of transactions in the world at present and that cash has stubbornly resisted going the way of digital extinction.
“The migration to a cashless society is far from being either uniform or universal. Whereas most Swedes are embracing a cashless future, along with an unlikely peer group that includes Somaliland and South Korea, some of Sweden’s neighbors are demanding a “constitutional right to pay in cash,” fueled by concerns around negative interest rates and a perceived loss of privacy that comes with digital money.”
According to HBR, India, along with other countries such as those in parts of Eastern Europe including Poland and Russia and countries with large populations such Indonesia, Mexico, Nigeria, Egypt, and the Philippines should first improve their digital readiness before depending completely on digital money.
Only the following countries had the potential for migration to a cashless society: U.S., Netherlands, Japan, Germany, France, Belgium, Spain, Czech Republic, China and Brazil.