Encourage use of plastic money

The setting up of a committee recently by the finance ministry to make recommendations on incentivising the use of plastic money in the country is a welcome step. Finance minister Arun Jaitley has announced that the government wanted to encourage the use of credit and debit cards and discourage cash transactions. Some steps have already been taken to limit cash dealings in the real estate sector, which is a major area of black money, and in certain other dealings. It is also planned to put a cap on cash transactions, to make the use of PAN mandatory in all sale transactions above a limit and to make changes in laws to facilitate greater use of cards, cheques and other instruments. The committee which has been appointed now will also consider ways to incentivise banks to discourage cash deposits and withdrawals by mandating that transactions above a specified level should be settled only by cards. The cost of installing machines in small shops is proposed to be reimbursed.

These steps are necessary to take the country to the goal of a cashless economy. Unlike in many other parts of the world, cash is still king in India. There are even places where money has not penetrated and the barter system rules. A modern economy is sometimes judged by the kind of financial transactions that take place in it. In India, the cash in circulation amounts to about 13 per cent of the GDP. This is considered to be very high. In Sweden, this is only 3 per cent. Denmark has announced plans to become a cashless society soon. In many countries like the US, most of the personal spending and all commercial transactions are by electronic means. The development of modern technologies has made it easy. New companies which specialise in digital money transfer have established themselves. New payment methods and platforms have come to the fore. Some developing countries are ahead of India in mobile banking.

So, there is the need to encourage greater use of plastic money in transactions. The government wants to create greater awareness among the people of the benefits of Rupay cards and similar instruments. This should go hand in hand with the efforts for greater financial inclusion. A shift in attitudes and habits is also needed. Decrease in black money, increase in revenues and transparency in financial dealings are obvious benefits. Businesses will be more productive too. The society will be more legal and stronger, as it won’t have a sense of guilt over violation of laws.

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