By definition, the cashless economy refers to the flow of currency through electronic channels such as debit or credit cards, internet banking, mobile banking, Point of Sales (POS) and e-wallets.
Cashless economy usually happens in 3 methods:
1. Mobile or e-wallet
2. Plastic money
3. Net banking
The other form is Net Banking, wherein the user logs in to the banking account and make the transactions through National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS) or Immediate Payment Service (IMPS) in case of India. The most common reason driving the demand for the cashless economy is an ease in transactions and maintenance. The increased digitization makes the transactions simplified and easier than ever, along with improved connectivity among users. Moreover, a cashless economy is also viewed as an effective means to tackle black money. It helps curb the circulation of fake currency notes, as every online transaction can be strictly monitored guided by regulatory mechanisms. Moreover, the cashless system can also avoid the utilization of natural resources like paper, printing machines, personnel and power, which are the prerequisites for making paper currency. This will also help governments tackle tax evasions as every record is stored digitally and can be traced easily. So, a cashless economy maintains an edge over cash-based one, while offering more transparency and accountability. Surprisingly, 50 percent of the country’s population using a digital payment app called Swish, and adding to that, majority of the country’s retailers don’t accept cash.
The Small and Medium Business (SME) sector in India has a heavy influence on the economy. It provides employment to millions of people every year and contributes a healthy eight percent to the country’s GDP. When a major economic decision like demonetization is implemented, it is necessary to study the impact it could possibly have on the economics of this sector. Businesses created by entrepreneurs who smelt the opportunity and moved fast to launch and become successful quickly. Businesses that came in late but could become reasonably successful because of the huge potential that remained untapped. The biggest priority of the government and the Reserve Bank of India must be to ensure that there is free and abundant availability of cash in the financial system. All restrictions on withdrawals from the ATMs and accounts must be removed at the earliest. The government is also sharply focused on bringing in critical reforms in the financial and trade and commerce sector. The announcement of GST and BTT was a major step in this direction but demonetization can affect the timely implementation of GST. Tax procedures and filing methods must be simplified and taxing structure made people friendly so that the highest level of compliance is achieved. The culture of settling issues under the table must be ended immediately.