Villagers queue to exchange and deposit their old high denomination banknotes outside a bank on the outskirts of Allahabad. Photo: Reuters/Jitendra Prakash

India’s hopes of shifting to a cashless society seem impossible when around 233 million people do not even have access to a bank and 90% of employees working in unorganized sectors are paid in cash.

On top of that, outside of the major cities, nearly 70% of the population in over 60,000 villages throughout the country will need to have their levels of financial literacy raised in stages.

At present, India’s villages have only 18 ATMs per 100,000 citizens, according to the World Bank, compared to 129 in Brazil. In addition, just 22% of Indians use the internet “at least occasionally” and only 17% have a smartphone, according to a Pew Research Center report.

“Prime Minister Narendra Modi’s plan to force people to move to a cashless future in his attempt to curb black money through demonetization is unrealistic, to say the least,” said former journalist and financial commentator K Mohammed.

“You can ask someone to move from A to B, C to D and D to E but not jump from A to Z,” he added.

How can you talk of a cashless society when countless villages in India may have just one bank with no ATM facility

Mohammed’s remarks came as Finance Minister Arun Jaitley begins setting up a committee of chief ministers to find ways to make the country a less cash dependent economy.

The demonetization exercise, now in its fourth week, has caused immense suffering to millions of people who depend on cash for their day-to-day living. Parliamentary proceedings have come to a standstill and protests have been staged across the country against the shock move to scrap 500 and 1,000 rupee notes, representing 86% of cash in circulation.

“How can you talk of a cashless society when countless villages in India may have just one bank with no ATM facility?” Mohammed asked.

“A villager will be petrified if he is given a debit card and asked to withdraw money from an ATM or make purchases from a supermarket. Sorry, India is not yet ready for a cashless future. But where there is 100% literacy, this idea may click … in Kerala, for instance,” Mohammed said.

A vegetable seller waits for customers at a wholesale market, deserted because of the cash crunch, in Manchar village in the western state of Maharashtra. Photo: Reuters/Shailesh Andrade

T Jayachandran, who owns CICC Book House in Ernakulam, said a cashless society is not achievable for at least 10-15 years in Kerala.

“Even in the US, only 65% of people use plastic money. I want cash in my wallet when I go out. It makes me feel secure and confident. How is my credit card or debit card going to help me if the roadside tea stall or petty shop (local store) does not have a swiping machine?

“Of course, a new generation hooked on smartphones is emerging. They know how to do cashless transactions. Even then, it will take another 10 to 15 years for Kerala to go 50% cashless. For the rest of India, it may take another 30 years,” Jayachandran said.

Ravi, who owns a small tea plantation in Ooty, 90 km from Coimbatore, believes a cashless society is achievable and will make citizens accountable.

“If the sudden cash crunch forces them to use plastic money, it’s a positive sign. At the same time, debit cards should be freely available to the poor and semiliterate public and awareness camps should be organized for them on how to use the cards,” he said.

But many educated Indians are still reluctant to do online transactions.

Lack of cyber security

With no cyber security in place, they fear having their credit card skimmed at ATMs, gas stations, department stores or restaurants and bars.

“On every payday, I run to my bank to withdraw 95% of the money in cash because of the fear someone may withdraw my salary through skimming. When I have cash with me, I feel safe,” said a journalist in Bangalore who did not want to be identified.

But the Modi government’s move to go cashless has some advantages.

Cash operations cost the central bank and commercial banks about 210,000 million rupees (US$3.08 billion) annually.  Also a shift toward a cashless future will make it hard for tax evaders to hide their income.

The current cash crunch resulting in long queues at banks has already forced many people to uses credit cards or debit cards at supermarkets or when paying rent or power bills.

However, it is uncertain whether they will continue this practice after the cash crunch eases.

Safety and connectivity are other factors. India lacks laws to protect consumers if they lose money during online transactions. For victims of skimming, it will take months to recover money from banks.

Digital payments providers are cashing in on the opportunity provided by the cash crunch in India following demonetization — Photo/Reuters

Meanwhile, digital payments providers are cashing in on the opportunity provided by the cash shortage.

For instance, Paytm, backed by Chinese internet giant Alibaba Group, is recruiting more agents to serve small merchants in India. Although 1.5 million have signed up, many traders are concerned about security issues.

In October, 3.2 million debit cards were compromised and several victims had reported illegal usage from locations in China.

The breach is said to have originated in malware introduced in systems of Hitachi Payment Services, enabling fraudsters to steal information and funds.

Networks in India have also crashed because they have been unable to cope with a surge in online transactions caused by demonetization.

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