I have my own reservations. I am a fan of digital payments only for higher denomination transactions (greater than 50,000/- INR).

Let us discuss some flaws.

  1. In an economy like India, velocity of money is very important. It is the speed at which money travels or changes hands. Now consider two scenarios.
    1. I go to buy half litre milk. I give 50/- to shopkeeper. He returns 20/- back. Time taken for transaction (keeping other variables like time taken by shopkeeper for picking stuff and waiting for my turn constant) = 10 seconds.
    2. Case two. I chose to pay digitally. I have to use mobile or card. Either of us of both of us have to use internet. This process will take minimum 30 seconds. That means I have reduced velocity of money by 1/3 rd!
    3. Other issues : Mobiles or POS terminal cost money to use data. We have to charge them which in turn costs more energy. Hence effectively an online transaction performed for day-to-day needs slows down economy. This is what is happening in India right now. We are a very big country with countless small vendors. We use cash for 20–100 transactions per day. We are not Europe or US where people buy weekly stuff in bulk (because of their demography and availability). More info here (video is in Hindi).

Cash is the need of large-scale economies like India. We are informal sector driven economy. We need cash at every step since we are producers and manufacturer of many small-scale industry goods.

Cash is instant settlement. It is very efficient. It lubricates the economy like ours. Yes government believes that it creates unaccounted money and black money.

All cash is not black money. Government taxes businesses on profits and not on transactions. Anyone having disproportionate income even with cash is liable to get caught. With PMLA act we cannot transact more than 2L in cash.

Anyone earning (not transacting) black money will spend it somewhere and is liable to get caught. I was hoping with Modiji bringing benami property act (linking all properties to aadhar card) to curb black money but it has still not happened.

With GST coming (which is like TDS of taxes), I don’t think cash is now a problem.