There has been a lot of brouhaha over the Government’s recent bold step of Demonetization. Comments have been pouring in since the 8th of November 2016, when the Indian government decided to do away with the 500 & 1000 denomination notes, thus paving a way towards a cashless economy.

It is a bold step in the sense that it wiped out nearly 80% of India’s cash. Like everything else, this step also has pros and cons. Some have favoured it, others have condemned it. But before jumping into the merits and demerits of the cashless economy, let’s first check what is the cashless economy?

What is a Cashless Economy? 

This type of economic system is based on transactions made through credit card, debit card, digital wallets and modes. Limited amounts of cash transactions take place in cashless economies. In this type of economy, the electronic representation of money is encouraged over transactions by coins or physical notes.

Countries like Denmark, Sweden and Norway are leading the way to a cashless economy in the world.

Cashless Economy Meaning

Cashless economy means an economic system where digital transactions like net banking, mobile banking, digital wallets, payment through debit cards and credit cards are used to replace the traditional method of payments made via cash or coins.

Money Saving

Printing notes and coins are not really cost-effective and this where the cashless economy will be helpful. With the majority adopting this method of payment, a huge amount of money can be saved.

Cashless Economy in India

Indian economy is mostly physical cash transaction-driven while many initiatives have been taken by the Indian government in recent years to bring a cashless economy in India. 

Most people in India prefer to make a cash transaction than using the digital payment method. To encourage a cashless economy in India, many offers and discounts are offered to consumers if they make transactions through the digital method. 

Merits and Demerits of Cashless Economy

So now when you know what a cashless economy is, let’s take a look at what are the merits and demerits of a cashless economy.

Benefits of Cashless Economy

No Counterfeit Currency

Counterfeit currency in 500 & 1000 denominations will be rendered useless. People who engage in corruption and allied practices generally hoard their wealth in cash. This hoarded cash will be of no use because of the note ban. If they deposit it in the bank, they will be questioned regarding the source of that income.

Less Cash Theft

There will be minimum theft of cash. After the note ban, nobody would want to steal cash in 500 & 1000 Rupee notes. This will quickly stall the theft, as that money won’t be accepted anywhere but banks.

Easy Payment

The cashless transaction ensures easier payment across the country. People who want to transfer money to places across India can be done with more ease, via NEFT for instance.

With digitisation being initiated, every person will have to be digitally literate at some point, thus soothing their efforts in transferring money and making transactions more transparent.

Easier International Payment

Exchanging currency is a tiresome job for many while they go for international travel. Cashless payment is a much easier option for them. There is no worry about exchange rates, one only needs to have a mobile device with their bank account linked in it and that’s it.

Other Benefit

One of the benefits of a cashless economy is that it will also help in widening the bracket of taxpayers. People will have to give and receive their payments via cheques and online transactions.

Disadvantages of Cashless Economy

Less Literacy Rate

The lesser literacy rate has been the top reasons for so many issues. Bringing a cashless economy in India or making India digitally literate is not an easy task. There are many places which don’t even get electricity and water, let alone computers and the internet. A large number of the population is based in remote areas without these basic necessities. People here rely solely on cash. They can be conned if they have to rely on someone for online transactions.

Less Availability of Device

Another issue is the implementation of digital mode of transaction in India is the affordability, availability and efficiency of the devices which support online transactions, such as, computers, smartphones, Point of Sale devices. Only 15% of India’s population uses the internet. With such a meagre number of people being exposed to the internet, digitisation can’t be made universal, not at least in a short span of time.


Corruption, despite being one of the points for establishing digitisation of monetary transactions, can’t be guaranteed to decline. This is merely speculation but A person taking a bribe in cash right now might demand it in kind in the future, say a mobile phone, or a computer. 

Economic Inequality

If the traditional payment style gets converted in the cashless system entirely, chances are that buying smartphones or devices will become mandatory. In a country like India, where a huge part of the citizens strives to arrange their daily food, buying a smartphone is definitely a luxury which not all can afford.

If cashless purchase becomes the standard rule then an inequality can be seen in the society because not everyone can afford it.

Cyber Security

India will have to tighten its cybersecurity owing to the instances of hacking into banks and personal accounts occurring globally. A country like India, being at its nascent stage in terms of cybersecurity might be more vulnerable to such threats.

Daily Need of Cash

Indians need cash every single day for meeting their basic expenditures. Many cab drivers refused to take cash payments as their drivers started facing multiple challenges in their daily course. Currently, the eateries which accept debit and credit cards are higher priced.

Things like cigarettes and tobacco aren’t available in shops which accept cards, and the ones who sell these things don’t have the resources or the infrastructure to get a Point of Sale device. Such small businesses will succumb to digitisation. This is just one example, there are myriads more.


There is no denying to the fact that cashless transactions are easier to make just with a simple click, people can make payments. This convenience of payment leads to overspending tendency, especially among the young generation.

Identity Theft

Risk on identity theft is one of the major disadvantages of the cashless economy in India. Rate of online fraud is rising with each passing day, broadening the risk of hacking.

Not every individual is very tech-savvy or very much aware of all the technical usage. While trying to make digital transactions many may end up losing their confidential identity in the online world.

Dependent on Smartphones

Complete dependency on the smartphone is another drawback of the cashless economy. Since for making each and every transaction, people have to depend on their mobile phone, losing it will lead to complete cashlessness.

Along with keeping the mobile safe, another thing to keep in mind is to keep the phone always charged because one can not meet their needs if the phone turns off.

Government’s Role in Introducing Cashless Economy in India

Converting traditional payment methods with the digitised transaction is not a cakewalk in a country like India. The Indian government has been taking many initiatives for bringing this change in the economy style. Let’s have a look at some of those important initiatives taken by the government. 


The Ministry of Electronics and Information Technology has launched DigiShala, a government-owned 24*7 TV channels to spread the awareness of Digital Payments.


Vittiya Saksharta Abhiyan, is a campaign initiated by the Government of India, Ministry of Human Resource Development, for promoting Digital literacy.

Installation of Point of Sale Devices

Grocery stores, local doctors, chemists and other essential commodities and service providers have been asked to install Point of Sale devices by the government.

Problems Faced by Indian

Despite the government efforts India lags behind due to illiteracy, lack of technical know-how, unequal incomes etc. Even if a person is willing to transfer the money online, the receiver should at least have a bank account, he should have that bank in his area, that bank should have the cash whenever a person needs to withdraw. These are only some of the problems faced by all many Indians on a daily basis.


Many believe that there was no urgency for this bold step of Demonetization. The government could have executed it in a much better fashion had it planned a few basic things which were overlooked, ignored deliberately, or simply not thought of. India can be a Less-cash country, but not a cashless one, at least in the near future.

Hopefully, this article will help you crack all the questions related to the cashless economy in the UPSC exam. If you have any thoughts regarding this topic, you can share it with us by commenting in the below section.

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What is a Cashless Economy? Here’re the Merits and Demerits of Cashless Economy
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About the Author

Akshay Palande

Akshay Palande is a passionate teacher helping hundreds of students in their UPSC preparation. With a degree in Mechanical Engineering and double masters in Public Administration and Economics, he has experience of teaching UPSC aspirants for 5 years. His subject of expertise are Geography, Polity, Economics and Environment and Ecology.

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