Benefits Of Moving Towards A Cashless Economy – Strategy With RS

Friends, I am sharing a post I had published on 26th May 2015, on FB, arguing the merits of moving towards a cashless economy. It seems, after an interminable delay, the Government has bought into my argument and more importantly acted on my suggestion

“I wish the government takes concrete steps towards making our country’s economy ‘cashless’. The benefits that would accrue from pursuing this strategy are far too many to be ignored.

1. Elimination of the Shadow Economy (Black Money Economy): It is generally believed that the shadow economy of India is estimated to be upwards of 30% of the official economy ($ 2+ trillion). Remember cash based economy offers anonymity. But cashless economy will make every transaction and deposit accessible to authorities. Result: Decrease in the incidences of black money generation.

2. Efficient Tax collection: Our country’s tax collection as a % of GDP is estimated to be between 10% to 17%. For many developed economies it is upwards of 25%. By moving to a cashless economy, government tax collection on both fronts – corporate and personal income tax will bump up. Over time Government can then lower both the corporate and individual tax rate leaving more money on the balance sheet of companies and in citizens’ pockets for discretionary spending.

3. Stimulating economy during recession: In a cashless economy, money would have to be kept under the overall supervision of the central bank. During recession, the central bank can stimulate the economy by imposing a negative interest rate on deposits. So it would be in the interest of depositors to spend money instead of keeping it in the bank.

4. *Commercials: Look at the paradox:  Quite often it costs more money to print money than the face value of the money itself. Hence in a cashless economy, the commercials will always make sense because there will be no printing or minting of money.

The rising popularity of Credit cards, Debit Cards, contactless payment, electronic banking have already made us familiar with ‘Cashless’ economy. The government has to up the ante.

I hope I have convincingly argued my case for moving towards a cashless economy. It seems to be a win-win situation for all stakeholders sane a few. Here’s a clincher – eliminating the shadow economy will catapult India among the top-3 economies in the world behind USA ($18 trillion) and China ($11 trillion)!’

 

 

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About the Author:

rajesh-srivastava-insideiim

In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here.

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