This is a question that has been doing the rounds globally. However, in India the seeking of validation to this issue is comparatively of recent origin. We have mentioned in a previous blog that in Africa digital transaction caught on fast not because of an initiative taken by the governments concerned, but because of the local compulsions of citizens.

In Africa there were two issues that kept dogging the corporates and the citizens and also the governments. Given the remoteness and inaccessibility of a vast swath of the territory, corporates and the governments were foxed by the issue of how to pay wages without incurring a huge cost of carrying money in a secured way. For the citizens, the issue was how to protect cash in their hands from the thieves.

To solve this problem M-pesa was launched in Africa that caught on like wild fire for remittance, payment and micro credit. This was the model that later was emulated in India in different flavours to solve the huge dependence on cash for transaction and is being actively pushed for popular acceptance.

Now cash transaction is expensive in the hands of the government and it is accepted. Because it involves cost of paper, ink and printing, protecting the currency from counterfeiting and from fraudulent use, secured bulk transportation and hoarding. There is also the issue of black market. It is generally argued that cash based transactions tend to make illegal transactions easy. With transactions conducted through electronic mode all these costs can be reduced to a bearable level.

However, doing away with cash altogether is not easy. Even in the developed countries where electronic transaction is huge, cash is not entirely done away with. The degree of success of converting an economic transaction into a largely electronic based transaction mode depends directly on the degree of development and education. It’s also contingent on the spread of electronic communication as digital transaction is highly dependent on seamless network availability.

Where transaction volume is low, savings are at the margin and support infrastructure has yet to be accessible universally, converting people to generally accept electronic transaction mode is not only difficult it’s also almost impossible. In the African context adopt-ability was ruled by the lawlessness and need for security. The same is not true here. So conceiving a situation wherein all citizens will adopt electronic transaction is a feasible and necessary scenario but not in the immediate run. However, with the push from the government this will happen in the long run saving crores of rupees in the economy bringing gains to all the stakeholders.

The fact the initiative has started showing results is proven by the steady rise in small ticket transactions through the electronic routes. Debit card transactions are growing at a steady clip of 37.5 per cent according to RBI data in the October quarter in 2018-19. A bulk of which is accounted for by the small ticket transactions. This implies that even the people who were mainly dependent on the cash economy is getting into the target stream which has been the goal of the financial inclusion.

Similar growth is seen on the UPI platform with 482 million transactions clocked in October, 2018 against a measly 0.2 million in November, 2016. As we can see from the movement digital transaction is picking up at a respectable clip.

Though we have some way to go before we can say that digital economy has replaced cash economy, we may not be far off from the goal.