But how feasible is the idea of a cashless India?

Are we prepared for such a regime? The numbers do not seem to paint a very happy picture. 

According to the latest data (July 2016) available on the website of the Reserve Bank of India (RBI), banks in India had issued 25.9 million credit cards and 697.2 million debit cards as of July-end. These were net figures after adjusting withdrawn and cancelled cards. A month earlier, this figures for credit and debit cards had been 25.4 million and 691.1 million, respectively.

Is the total number of cards enough for India to go cashless and still transact freely?

Cards are used to make transactions in three ways. First, they can be used to make payments online; second, to withdraw cash at ATMs; and third, by swiping these at point of sale (POS) terminals at merchant establishments. 

E-commerce transactions completed using cards have not been affected by the demonetisation move (except those where payments are made through the cash-on-delivery mode). But most of Indians’ other transactions take place mostly in cash. Moving the cash transactions to plastic money would require a large penetration of POS terminals across India.

Besides, the number of cards in use is not reflection of the number of Indians using these cards; a large number of people, especially in urban India, have multiple cards.

What is the current status of POS terminal penetration in India?

According to RBI data, India had a total of 1.44 million POS terminals installed by various banks across locations at the end of July. Besides, there were more than 200,000 ATMs across India. Are 1.44 million POS terminals enough for a country of the size of India to be able to transact cashlessly? There are approximately 150,000 to 200,000 (as per different estimates) telecom recharge counters in the state of UP alone. This figure pertains only to telecom retailers and cannot be used to estimate the total retail universe, either in the state or in India. It does, however, make it clear that the POS terminals available at present are not sufficient to enable India to transact without cash anytime soon. 

The RBI data do not inform about POS penetration in rural India but experience suggests that POS terminals so far remain an entirely urban phenomenon. Of the 1.44 million POS terminals, SBI, Axis Bank, HDFC Bank, ICICI Bank and Corporation Bank account for 1.16 million. Four of these five banks are predominantly urban.

What do people use debit cards for?

In the month of July, a total of 881 million transactions across India took place through debit cards at ATMs and POS terminals. About 85% of these transactions were done to withdraw cash at ATMs. In terms of value, 92% of all debit card transactions were at ATMs. This only suggests that debit cards are used less for purchase and more as a means to withdraw cash.

What are the challenges in increasing the spread of plastic money in India?

POS terminals use mobile internet to enable transactions. Mobile internet penetration remains weak in rural India. Besides, the cost of transactions is also high, as banks charge on a per-transaction basis. These, in addition to a lower literacy level in poor and rural parts of the country, make it problematic to push the use of plastic money on a wider scale.

Should India go cashless?

The beauty of cash is that it just works. Even in the remotest locations of India, where the State might not be present with all its paraphernalia, its writ runs in the form of currency notes that people use to do business on a daily basis. The large, informal economy that supports a large number of Indians also runs using cash. White money moves to informal economy with ease and helps support these livelihoods. It does not necessarily lead to the generation of more black money or pose a threat to national security. Cash transactions are not necessarily immoral transactions. They are a highly refined way in which human beings, having evolved from the barter system prevalent in the ancient period, transact business today. Cash in itself represents order and evolution.

As cash gets sucked out of the Indian economy, this informal economy and remote areas with poor connectivity will get affected the most. It is suggested that it would take nearly six months for India to remonetise completely and restore cash supply to the pre-November 8 level. In the absence of an assured transaction mechanism, there is a possibility that people in the informal sector will migrate to alternative arrangements or, worse, a parallel black economy might emerge and use old, banned currency.