Model Answer
0 min readIntroduction
In a rapidly evolving financial landscape, the preference for cash transactions remains surprisingly persistent. While digital payment methods like UPI, credit/debit cards, and mobile wallets gain traction, a significant portion of the population, and even individuals with access to digital infrastructure, continue to favour cash. This preference stems from a complex interplay of factors, ranging from trust and convenience to financial literacy and infrastructural limitations. Understanding the reasons behind this preference, and its implications for economic growth and governance, is crucial for formulating effective policy interventions.
Reasons for Preferring Cash
Several factors contribute to the continued preference for cash transactions:
- Trust and Security Concerns: Many individuals, particularly in rural areas, lack trust in digital payment systems due to concerns about fraud, data security, and technical glitches.
- Lack of Financial Literacy: Limited understanding of digital financial products and services hinders adoption, especially among older generations and those with lower levels of education.
- Accessibility Issues: Inadequate internet connectivity, particularly in remote regions, and limited access to smartphones or other digital devices pose significant barriers.
- Convenience and Anonymity: Cash offers immediate settlement and anonymity, which are valued by some individuals for various reasons.
- Habit and Cultural Factors: Long-standing habits and cultural norms often favour cash transactions, particularly for small-value purchases.
Disadvantages of a Cash-Based Economy
A predominantly cash-based economy presents several challenges:
- Increased Costs: Handling cash is expensive, involving costs related to printing, transportation, storage, and security.
- Shadow Economy: Cash facilitates illicit activities like tax evasion, money laundering, and corruption, hindering economic transparency.
- Inefficiency: Cash transactions are slower and less efficient than digital payments, impacting productivity and economic growth.
- Financial Exclusion: Individuals without access to formal banking services are excluded from the benefits of the financial system.
- Hindrance to Policy Effectiveness: Cash transactions make it difficult for the government to track economic activity and implement effective monetary policies.
Government Initiatives Towards a Cashless Economy
The Indian government has launched several initiatives to promote digital payments and reduce reliance on cash:
- Jan Dhan Yojana (2014): This flagship scheme aims to provide universal access to banking services, opening over 480 million bank accounts as of November 2023 (RBI data).
- Unified Payments Interface (UPI): Launched in 2016, UPI has revolutionized digital payments, enabling seamless and instant fund transfers between bank accounts. UPI transactions crossed 8.17 billion in November 2023 (NPCI data).
- RuPay Debit Card: Promoting the use of RuPay debit cards, developed by the National Payments Corporation of India (NPCI), to facilitate digital transactions.
- Digital India Campaign: This campaign aims to transform India into a digitally empowered society and knowledge economy, promoting digital literacy and infrastructure development.
- BHIM App: Developed by NPCI, BHIM (Bharat Interface for Money) is a mobile app that allows users to make digital payments using UPI.
- Incentives for Digital Payments: The government has offered various incentives, such as tax rebates and cashback offers, to encourage the adoption of digital payment methods.
Despite these efforts, challenges remain. Bridging the digital divide, enhancing cybersecurity, and building trust in digital payment systems are crucial for achieving a truly cashless economy. Furthermore, addressing the concerns of small merchants and informal sector workers, who heavily rely on cash, is essential for ensuring a smooth transition.
Conclusion
The preference for cash, while understandable given existing socio-economic realities, poses significant challenges to economic growth and governance. The government's initiatives to promote digital payments are commendable, but sustained efforts are needed to address the underlying issues of trust, accessibility, and financial literacy. A balanced approach, combining technological innovation with inclusive policies, is crucial for realizing the benefits of a cashless economy while ensuring that no one is left behind.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.