From Cashful to Cashless: Lessons from India’s Pursuit of a Digital Economy

India, under the leadership of Prime Minister Narendra Modi, has embarked on a roadmap towards becoming a cashless economy. This transition has been driven by several economic and social factors, but it has not been without challenges and controversies. The shift from a cash-based to a digital transaction-centric economy has its merits and demerits, and is a topic of intense debate.

Intentions Behind the Change

Sensible individuals prefer digital transactions over cash due to numerous reasons. Cash transactions can be inconvenient and risky, especially when carrying large sums of money is necessary. Moreover, cash is often used for unaccounted transactions that evade tax and scrutiny by the government. To address these issues, the Indian government initiated a series of measures aimed at promoting cashless transactions.

Some of the primary objectives include:

To curb black money and corruption To enhance digital literacy in the country To reduce the risks associated with carrying cash To make transactions faster and more secure To promote a cashless India and the Digital India campaign

Challenges and Controversies

The transition to a cashless economy faces several challenges. One of the most prominent issues is that imitation of Western practices may not fit India's unique demographic conditions. A story from Badjhiri village in Madhya Pradesh provides a compelling illustration of this challenge.

The Badjhiri Village Experiment

Badjhiri village, located near Neelbad area, saw an ambitious campaign initiated by the Bank of Baroda to transform it into a “cashless” village. ATMs, POS machines, and kiosks were provided to facilitate cashless transactions. On December 20, 2016, the village was declared the first cashless village in Madhya Pradesh. However, life in Badjhiri took a different turn.

According to reports, the village faces an acute water crisis. Villagers, instead of being motivated by the digital transition, resorted to a unique solution: collecting water through rooftop pipes from tubewells located in their agricultural fields. The infrastructure required for cashless transactions, such as pipes and wires, became a conspicuous sight, misleading locals and visitors alike.

Traders and farmers in Badjhiri expressed their frustration. Kanwal Singh Verma, a farmer, explained, “For this village to be cashless, we first need access to cash income for which most farmers are dependent on our crops. In the absence of enough water, we are unable to fully exploit the potential of our fields. Only good water supply can ensure us good crop yield, which in turn will get us cash.”

After a year, a report on NDTV revealed that the village had returned to a cash-based economy. POS machines had become obsolete due to network issues, and villagers preferred cash transactions over the cumbersome and slow process of cashless transactions. The entire village depends on cash now, highlighting the impracticality of implementing such a system without addressing fundamental issues like water supply.

Lessons Learnt

The Badjhiri village experiment encapsulates several important lessons for policymakers in India and around the world:

Context Matters: The success of digital transformation depends heavily on the local context, including infrastructure, access to resources, and socio-economic conditions. Inclusivity: Digitalization efforts must be inclusive, ensuring that the entire population, including those in rural areas, benefits from the changes. Infrastructure: Robust infrastructure is crucial for a smooth transition to a cashless economy. Poor network connectivity can make cashless transactions impractical. Education: Promoting digital literacy and understanding the benefits of cashless transactions among the masses is essential for the success of such initiatives.

Conclusion

The transition to a cashless economy in India, driven by Prime Minister Modi's initiatives, is a complex and multifaceted process. While it brings numerous benefits, it also faces significant challenges. The story of Badjhiri village serves as a stark reminder that such a transition should be approached with cautious consideration of the broader socio-economic context. India, like other nations, must learn from these experiences to build a sustainable and effective cashless economy.