Project

On

“A STUDY OF PUBLIC PERCEPTION & BEHAVIOR TOWARDS

CASHLESS ECONOMY ”

Submitted To

The Maharaja Sayajirao University of Baroda

In partial Fulfilment for the Award of the Degree of
BACHELOR OF BUSINESS ADMINISTRATION

Under the guidance of

Ms. Pooja Parmar
Visiting faculty
BBA programme, Faculty of Commerce
Submitted By:

Parmeet singh sitara

ROLL NO. 618117

T. Y. BBA (SEM VI)

BBA PROGRAMME
FACULTY OF COMMERCE
The Maharaja Sayajirao University of Baroda, 2019
 CERTIFICATE

This is to certify that this project report entitled “A STUDY OF PUBLIC PERCEPTION &
BEHAVIOR TOWARDS CASHLESS ECONOMY” is submitted to the Registrar
(Examinations), The Maharaja Sayajirao University of Baroda through the director of BBA
Programme, Faculty of Commerce. This report has been prepared by Mr. Parmeet Singh
Sitara (Roll No 618117) studying in TY BBA (VI semester) in partial fulfillment of
requirement for the award of the degree “Bachelor of Business Administration”.

This is to certify that Mr. Parmeet Singh Sitara (Roll No 618117) has carried out this work
under the supervision and guidance of Mrs. Pooja Parmar. The work is an original one and
has not been submitted earlier to this university or to any other institute or organization for
fulfilment of the requirement of a course or for an award of any degree/ diploma/ certificate.
All the courses of information used in this report have been duly acknowledged in it.

Ms. Pooja Parmar Mr.Parmeet Singh Sitara

{Research guide} {Student}
 DECLARATION

I the undersigned, declare that this project report entitled, “A STUDY OF PUBLIC
PERCEPTION & BEHAVIOR TOWARDS CASHLESS ECONOMY”, is the result of my
own research work and has not been previously submitted to any other university/institutions
for any other examination and for any other purpose by any other person.

(Parmeet Singh Sitara)

Place: Vadodara

Date: April 22, 2019

 PREFACE

This survey will study the views of people on introduction of cashless economy in India. Data
will be collected with the help of structured questionnaire and analyzed using simple
percentage method and chi-square test. Responses from respondents will show what is their
perception and views on benefits and challenges of cashless economy. The study will also help
to know whether the introduction of cashless economy in India can be seen as a step in right
direction. The data collected can be useful in growth and development of economy in India.
 ACKNOWLEDEMENT

I, as a researcher, wish to express my appreciation to all those with whom, I worked/interacted

and whose thoughts and insights helped me in furthering my knowledge and understanding of
the subject.

I sincerely acknowledge Prof. (Dr.) Ketan R Upadhyay for providing the opportunity, his
valuable guidance and support for such an immense research work. I thank my guide, Ms.
Pooja Parmar, Faculty, BBA Program, Faculty of Commerce, The Maharaja Sayajirao
University of Baroda, for spending her precious time, help and support. I also thank all my
faculty members for imparting knowledge of different subjects that aid me in the successful
completion of my work. I also thank numerous other authors/publishers for some quotations,
which have enriched the quality of his research work.

Last but not the least I would also like to thank my respondents who provided me the valuable
information I needed to complete my project by providing me their full co-operation and their
valuable time.
 Table of content
1. Introduction
2. History
3. What is cashless economy?
3.1 Indian scenario
3.2 Challenges in making India a cashless economy

4. Current Monetary system and objectives

4.1 Instruments of monetary policy

5. Demonetisation
5.1 Background
5.2 Process
5.3 Objectives and outcomes
5.4 Other effects
5.5 Reactions

6. Digital economy
7. Consumer behavior towards cashless economy
8. Theoretical framework
9. Review of literature
10. Objectives of study
11. Research methodology
11.1 Research Design
11.2 Research plan
11.3 Sources of data
11.4 Data collection
11.5 Data analysis and interpretation

12. Analysis of data and interpretation

13. Suggestions
14.Conclusion
15.Annexure
16.Bibliography
 1. Introduction

The government has implemented a major change in economic environment by demonetizing

the high value currency notes of – Rs 500 and Rs 1000 from 8th November 2016 and push
India towards cashless future. What is cashless economy: A cashless economy is one in which
all the transactions are done through electronic channels such as debit/credit cards, Immediate
Payment Service (IMPS), National Electronic Funds Transfer (NEFT) and Real Time Gross
Settlement (RTGS). The circulation of physical currency is minimum. The Indian economy
continues to be driven by the use of cashless than 5% of all payments happen electronically.
Electronic based transaction seeks to drive the development and modernization of India’s
payment system. The essence of the policy is to shift the economy from a cash based economy
to a cashless one. Efficient and modern payment system is a key enabler for driving growth
and development. The policy also aims at improving the effectiveness of monetary policy,
managing inflation in the economy, maintaining stable pricing system. In India, the ratio of
cash to gross domestic product is 12.42 %in GDP; this is one of the highest in the world. It was
9.47% in China or 4 % in Brazil. Further, the number of currency notes in circulation is also
far higher than in other large economies, India had 76.47 billion currency notes in circulation
in 2012-13 compared with 34.5 billion in US. The government is working at various levels to
reduce the dependence on cash.PM-Narendra Modi unveiled two schemes –Lucky
GrahakYojna, Digi DhanVyapaarYojna for customers and traders like to promote mobile
banking and e-payments. To encourage and strengthen cashless economy it’s important to
inculcate the habit of making e-payments. Government encourages cashless transactions like
mobile banking, Ru-pay cards, UPI, USSD these are means and methods of digital payments.
Less cash economy is in the interest of everyone and it will help in creating a clearer economy
in future. Government have also introduced Aadhar based payment system, this is for those
people who don’t have cards or mobile phones. Reducing Indian economy’s dependence on
cash is desirable for a variety of reasons. To control counterfeit notes that could be contributing
to terrorism, It also affect the monetary policy of our country and to eliminate the ―black
money, hawala transfers can't be made without paper currency, Curbs illegal activities
altogether. A large part of black money is generated in illegal trades like selling drugs therefore
without cash or less cash illegal trade might become difficult. RBI has also issued licenses to
open new-age small finance banks and payments banks which are expected to give a push to
financial inclusion and bring innovative banking solutions. Things are also falling in place in
terms of technology for India. The recently launched Unified Payments Interface by National
Payments Corporation of India makes digital transactions simple. Even the RBI has also
recently unveiled a document, “Payments and Settlement Systems in India: Vision 2018”,
setting out a plan to encourage electronic payments and to enable India to move towards a
cashless society or economy in the medium and long term.
 2. History

The trend towards use of non-cash transactions and settlement began in daily life during the
1990s, when electronic banking became common. By the 2010s digital payment methods were
widespread in many countries, with examples including intermediaries such as PayPal, digital
wallet systems operated by companies like Apple, contactless and NFC payments by electronic
card or smart phone, and electronic bills and banking, all in widespread use. By the 2010s cash
had become actively disfavored in some kinds of transaction which would historically have
been very ordinary to pay with physical tender, and larger cash amounts were in some situations
treated with suspicion, due to its versatility and ease of use in money laundering and financing
of terrorism, and actively prohibited by some suppliers and retailers, to the point of coining the
expression of a "war on cash". By 2016 in the United Kingdom it was reported that 1 in 7
people no longer carries or uses cash. The 2016 United States User Consumer Survey Study
claims that 75% of respondents preferred a credit or debit card as their payment method while
only 11% of respondents preferred cash. Since the founding of both companies in 2009, digital
payments can now be made by methods such as Venmo and Square. Venmo allows individuals
to make direct payments to other individuals without having cash accessible. Square is an
innovation that allows primarily small businesses to receive payments from their clients.

By 2016, only about 2% of the value transacted in Sweden was by cash, and only about 20%
of retail transactions were in cash. Fewer than half of bank branches in the country conducted
cash transactions. The move away from cash is attributed to banks convincing employers to
use direct deposit in the 1960s, banks charging for checks starting in the 1990s, banks launching
the convenient Swish Smartphone-to-phone payment system in 2012, and the launch
of iZettle for small merchants to accept credit cards in 2011.

Trade industry bloomed so much with thousands of merchants. They're crossing oceans
and took local produce to different lands. Buying of a volume of goods by merchants has
increased more and ended by having a shortage in coins. Cheques become more advanced,
knowing the fact that it was used before to be given to a bank in exchange for money, but also
to be given to another dealer with a written and signed monetary value to be deposited in the
bank. These notes are useful for transactions of big volume but not in retail.

Prepaid, Credit, Debit Cards, and other advanced forms of payment have raised as a
driving force behind the explosion of the global economy over the last 5 years.
 During the 1950s, it started in a Diners Club, founded by Frank McNamara, who
introduced a novel method of paying for purchases that he called as a “credit card.” 42,000
members of the Diners’ Club need never pay the waiter when they wind up a spirited evening
on the town. ("Business: Charge It, Please", 2018) They simply sign the check, get billed once
a month. This credit card has no penalty or interest charges for payments made after 30 days.
The company’s main source of revenue was the 7% fee which they called as interchange that
was charged to merchants on each transaction.

Visa’s history begins in 1958, when Bank of America launched the first consumer credit
card program for small to medium-sized merchants and middle-class consumers in the U.S. In
1964, Automated Teller Machine (ATM) has been created being known to be an electronic
telecommunications device enabling the customers to do financial transactions at any time,
without needing a direct interaction with a bank staff.

In 1968, Interbank Card Association (ITC) was created by a group of California banks,
which would soon be issued as the nation’s second major bank card, MasterCard. It didn’t take
long for the company to grow the company expanded internationally in 1974 and introduced
the debit card in 1975. Initiated its BankAmerica program in Fresno, Calif. Originally, the
company only planned to provide the system across the state. In 2004, Proximity card,
contactless payments on Near Field Communication. Eventually, on 2008, mobile payment
rose and became more popular with different users up to present.

Cashless transaction is one where the payment is made by means other than physical cash.
(Gupta, 2017) The rise of cashless transaction is due to emerging trends driven by consumer’s
preference, convenience and efficiency in transacting. (Ahmed, 2016) The concept of cashless
transaction system emerged in the nineteenth century through the public writings of Edward
Bellamy. He described that paper transaction will soon be replaced by credit-card based system.
(Bellamy, 2000) Mobile wallets, online payment providers, and near field communication
technology (NFC) is continuously innovating the way people transact using mostly “Tap-and-
Go” payment solutions. (Ahmed, 2016) Mobile transactions will continue to grow in 2017 as
Apple-pay, Google Wallet, Paymaya, Gcash and other companies continuously advertising this
method. (NASDAQ, 2017) Bitcoin is a trend now and is always the content of the news
headline almost every day. Bitcoin is a decentralized block chain and public ledger that verifies
each transaction via a network of nodes. (Flatt, 2016)

During the year 2000, hip-hop music and culture are being used to provide an unverified
perspective of cashless society of the Millennials. (Lewis, Cole, 2016). However, in Britain, a
survey result found out that shoppers are using less cash than ever before because retailers are
introducing a new system of payment. (British Retail Consortium, 2014) In the Philippines,
Smart eMoney, a digital financial service of Philippine Long-Distance Telephone and Smart
Communications, introduced PayMaya. On the other hand, Globe telecom along with
Integrated-Micro Electronics introduced their own version of PayMaya called Gcash. Both
companies are convincing the Filipinos to download to their mobile phones that facilitate
payments for digital transactions. (Estopace, 2015)

According to data of BSP as of 2012, there are 112 banks in the Philippines that are
equipped with an electronic banking system (internet or mobile-based). 54 of these 112 banks
are rural banks. There are 24 e-money banks and 3 e-money issuers (non-bank/others). There
are over 15,000 cash-in/cash-out agents. There are about 8 million active users of e-money
platforms and e-money total inflow and outflow transactions amounts to over PhP 188 million.
 3. What is cashless economy?

A cashless economy describes an economic state whereby financial transactions are not
conducted with money in the form of physical banknotes or coins, but rather through the
transfer of digital information (usually an electronic representation of money) between the
transacting parties. Cashless societies have existed from the time when human society came
into existence, based on barter and other methods of exchange, and cashless transactions have
also become possible in modern times using digital currencies such as bitcoin. However this
article discusses and focuses on the term "cashless society" in the sense of a move towards, and
implications of, a society where cash is replaced by its digital equivalent - in other words, legal
tender (money) exists, is recorded, and is exchanged only in electronic digital form.

Such a concept has been discussed widely, particularly because the world is experiencing a
rapid and increasing use of digital methods of recording, managing, and exchanging money
in commerce, investment and daily life in many parts of the world, and transactions which
would historically have been undertaken with cash are often now undertaken
electronically. Some countries now set limits on transactions and transaction values for which
non-electronic payment may be legally used. And benefits are:

Cash less economy helps in curbing generation of black money. As a result it reduces real estate
prices because most of black money is invested in Real estate which inflates the prices of Real
estate markets. Notes is supposed to be fake, which has a huge negative impact on economy,
by going cashless, that can be avoided. An increased use of digital payment instead of cash
would enable a more detailed record of all the transactions which take place in the society,
allowing more transparency in business operations and money transfers which reduce tax
avoidance and money laundering .Cashless Economy also reduces the cost of banking services.
It also improves monetary policy in managing inflation and increases economic growth in our
country. Another benefit of cashless economy is that it discourages cash related robberies and
other cash-related crimes.
Other benefits:
Cost Reduction
Cashless system brings down the cost associated with printing, storing and transporting of
cash.

Risk Reduction
The risk of money getting stolen or lost is minimal. Even if the card is stolen or lost it is easy
to block a credit/debit card or a mobile wallet remotely. It is also a safer and easier spending
option while travelling.

Convenient
The ease of conducting financial transactions is probably the biggest motivator to go digital.
With the advent of digital modes, one can avoid queue for ATMs, transact 24*7 and save time.
Additionally for service providers, with the emergence of e-KYC, it is no longer necessary to
know your customer physically as the payments model has overcome limitations related to
physical presence.

Tracking spends
Spending done via mobile or computer applications can be easily tracked with a simple click.
This allows users to keep a track of all their spending and manage their budget effectively.

Increase in tax base

Traders, small businesses, shopkeepers, and consumers regularly use cash as a means to avoid
paying service tax, sales tax, etc. However, in a cashless economy where all transactions will
be done through organized channel, through banks and financial institutions, they can be
monitored by the government and proper actions could be taken against the evaders. This will
result in more transparent transactions which in turn lead to fall in corruption in the economy
of the country.

Containment of parallel economy

In a cashless economy it is easier to track the black money and illicit transactions unlike cash
based economy in which money does not come into the banking system. In case of digital
transactions it is easy to track and monitor suspicious transactions as all the records are
available with the banks.
Financial Inclusion
At present, India’s low-income households access credit through informal systems, through
relatives or private lenders. Forcing them to shift to cashless payment platforms instantly
formalizes this world of informality and include them in formal economy.

Discounts
A lot of ecommerce websites offer huge incentives in terms of discounts, cash back, loyalty
points to the customers for making digital transactions for shopping online.

3.1 Indian scenario

India’s reliance on cash

Indian economy is primarily to be driven by the use of cash and less than 5% of all payments
happen electronically. This is largely due to the lack of access to the formal banking system
for a large part of the population and as well as cash being the only means available for many.
Large and small transactions continue to be carried out via cash. Even those who can use
electronic payments, use cash. Indians traditionally prefer to spend and save in cash and a vast
majority of the morethan 1.2 billion people doesn’t even have a bank account. Indian economy
is primarily driven by the informal sector and it relies heavily on cash based transactions. 4 A
report by Google India and Boston Consulting Group showed that in 2015 around 75% of
transactions in India were cash-based while in developed countries like USA, Japan, France,
Germany etc. it was just around 20-25%. RBI estimates for July 2016 show that banks had
issued around 697.2 million debit cards and 25.9 million credit cards to customers after
deducting withdrawn or cancelled cards. However, cards on their own cannot turn the economy
into a cashless one. It is Important to note that the number of cards in operation is not equal to
the number of individuals holding those cards. It basically means that many customers hold
multiple accounts and cards. The difficulty in going digital is exemplified by the data on debit
card usage — over 85% (in volume) and 94% (in value) of all debit card usage is at ATMs for
the purpose of withdrawing cash. The principal purpose for cards in an Indian context is thus a
means to withdraw cash. The exponential growth in debit cards (over 600 million) is a direct
consequence of the financial inclusion drive that led to the opening of over 170 million bank
accounts. Though the move put plastic money into the hands of millions, effectively it has only
shifted cash withdrawals from banks to ATMs, which was not quite the intent. Reducing Indian
economy’s dependence on cash is desirable for a variety of reasons. To control counterfeit
notes that could be contributing to terrorism, It also affect the monetary policy of our country
and to eliminate the ― black money, hawala transfers can't be made without paper currency,
Curbs illegal activities altogether. A 5 large part of black money is generated in illegal trades
like selling drugs therefore without cash or less cash illegal trade might become difficult. RBI
has also issued licenses to open new-age small finance banks and payments banks which are
expected to give a push to financial inclusion and bring innovative banking solutions. Things
are also falling in place in terms of technology for India. The recently launched Unified
Payments Interface by National Payments Corporation of India makes digital transactions
simple. Even the RBI has also recently unveiled a document, “Payments and Settlement
Systems in India: Vision 2018”, setting out a plan to encourage electronic payments and to
enable India to move towards a cashless society or economy in the medium and long term.

3.2 Challenges in Making India a Cashless Economy

Large part of the population is still outside the scope of net banking like use of credit or debit
cards, making transactions using mobile phones, and using the internet to pay bills they are not
in a position to reduce its dependence on cash. Second, about 90% of the workforce, which
produces nearly half of the output in the country, works in rural sector. It will not be easy for
this sector to become cashless. There is a general preference for cash transactions in India.
Merchants prefer not to keep records in order to avoid paying taxes and buyers find cash
payments more convenient. Although cashless transactions have gone up in recent times, a
meaningful transition will depend on a number of things such as awareness, technological
developments and government intervention. For instance, mobile wallets have seen notable
traction, and it is possible that a large number of Indians will move straight form cash to mobile
wallets. The availability and quality of telecom network will play an important role. People
face difficulties in making electronic payments even in metro cities because of poor network.
Service providers will have to constantly invest in technology in order to improve security and
ease of transaction. People will only shift when it’s easier, certain and safe to make cashless
transactions. The government will also need to play its part. It will have to find ways to
incentivize cashless transactions and discourage cash payments. Difficulties in changing
attitudes and perception of people towards moving digital payments. India is dominated by
small retailers. They don’t have enough resources to invest in electronic payment
infrastructure.
 4. Current monetary system and objectives
Monetary policy is the process by which the monetary authority of a country, generally the
central bank, controls the supply of money in the economy by its control over interest rates in
order to maintain price stability and achieve high economic growth. In India, the central
monetary authority is the Reserve Bank of India (RBI). It is designed to maintain the price
stability in the economy. Other objectives of the monetary policy of India, as stated by RBI,
are:

Price Stability
Price Stability implies promoting economic development with considerable emphasis on price
stability. The centre of focus is to facilitate the environment which is favourable to the
architecture that enables the developmental projects to run swiftly while also maintaining
reasonable price stability.

Controlled Expansion of Bank Credit

One of the important functions of RBI is the controlled expansion of bank credit and money
supply with special attention to seasonal requirement for credit without affecting the output.

Promotion of Fixed Investment

The aim here is to increase the productivity of investment by restraining non essential fixed
investment.

Restriction of Inventories and stocks

Overfilling of stocks and products becoming outdated due to excess of stock often results in
sickness of the unit. To avoid this problem, the central monetary authority carries out this
essential function of restricting the inventories. The main objective of this policy is to avoid
over-stocking and idle money in the organisation.
To Promote Efficiency
It is another essential aspect where the central banks pay a lot of attention. It tries to increase
the efficiency in the financial system and tries to incorporate structural changes such as
deregulating interest rates, easing operational constraints in the credit delivery system,
introducing new money market instruments, etc.

Reducing the Rigidity

RBI tries to bring about flexibilities in operations which provide a considerable autonomy. It
encourages more competitive environment and diversification. It maintains its control over
financial system whenever and wherever necessary to maintain the discipline and prudence in
operations of the financial system.

4.1 Instruments of monetary policy

Monetary policy is a way for the RBI to control the supply of money in the economy. So these
credit policies help control the inflation and in turn help with the economic growth and
development of the country. So now let us take a look at the various instruments of monetary
policy that the RBI has at its disposal.

Open Market Operations

Open Market Operations is when the RBI involves itself directly and buys or sells short-term
securities in the open market. This is a direct and effective way to increase or decrease the supply
of money in the market. It also has a direct effect on the ongoing rate of interest in the market.

Let us say the market is in equilibrium. Then the RBI decides to sell short-term securities in the
market. The supply of money in the market will reduce. And subsequently, the demand for credit
facilities would increase. And so correspondingly the rate of interest would also see a boost.
On the other hand, if RBI was purchasing securities from the open market it would have the
opposite effect. The supply of money to the market would increase. And so, in turn, the rate of
interest would go down since the demand for credit would fall.

Bank Rate

One of the most effective instruments of monetary policy is the bank rate. A bank rate is essentially
the rate at which the RBI lends money to commercial banks without any security or collateral. It
is also the standard rate at which the RBI will buy or discount bills of exchange and other such
commercial instruments.

So now if the RBI were to increase the bank rate, the commercial banks would also have to
increase their lending rates. And this will help control the supply of money in the market. And the
reverse will obviously increase the supply of money in the market.

Variable Reserve Requirement

There are two components to this instrument of monetary policy, namely – The Cash Reserve
Ratio (CLR) and the Statutory Liquidity Ratio (SLR). Let us understand them both.

Cash Reserve Ratio (CRR) is the portion of deposits with the commercial banks that it has to
deposit to the RBI. So CRR is the percent of deposits the commercial banks have to keep with the
RBI. The RBI will adjust the said percentage to control the supply of money available with the
bank. And accordingly, the loans given by the bank will either become cheaper or more expensive.
The CRR is a great tool to control inflation.

The Statutory Liquidity Ratio (SLR) is the percent of total deposits that the commercial banks
have to keep with themselves in form of cash reserves or gold. So increasing the SLR will mean
the banks have fewer funds to give as loans thus controlling the supply of money in the economy.
And the opposite is true as well.
Liquidity Adjustment Facility

The Liquidity Adjustment Facility (LAF) is an indirect instrument for monetary control. It controls
the flow of money through repo rates and reverse repo rates. The repo rate is actually the rate at
which commercial banks and other institutes obtain short-term loans from the Central Bank.

And the reverse repo rate is the rate at which the RBI parks its funds with the commercial banks
for short time periods. So the RBI constantly changes these rates to control the flow of money in
the market according to the economic situations.

Moral Suasion

This is an informal method of monetary control. The RBI is the Central Bank of the country and
thus enjoys a supervisory position in the banking system. If there is a need it can urge the banks
to exercise credit control at times to maintain the balance of funds in the market. This method is
actually quite effective since banks tend to follow the policies set by the RBI
 5. Demonetisation

On 8 November 2016, the Government of India announced the demonetisation of

all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance
of new ₹500 and ₹2,000 banknotes in exchange for the demonetised banknotes. The
government claimed that the action would curtail the shadow economy and reduce the use of
illicit and counterfeit cash to fund illegal activity and terrorism.

The announcement of demonetisation was followed by prolonged cash shortages in the weeks
that followed, which created significant disruption throughout the economy. People seeking to
exchange their banknotes had to stand in lengthy queues, and several deaths were linked to the
rush to exchange cash.

According to a 2018 report from the Reserve Bank of India, approximately 99.3% of the
demonetised banknotes, or ₹15.30 lakh crore (15.3 trillion) of the ₹15.41 lakh crore that had
been demonetised, were deposited with the banking system. The banknotes that were not
deposited were only worth ₹10,720 crore (107.2 billion), leading analysts to state that the effort
had failed to remove black money from the economy. The BSE SENSEX and NIFTY 50 stock
indices fell over 6 percent on the day after the announcement. The move reduced the
country's industrial production and its GDP growth rate.

Initially, the move received support from several bankers as well as from some international
commentators. The move was also criticised as poorly planned and unfair, and was met with
protests, litigation, and strikes against the government in several places across India. Debates
also took place concerning the move in both houses of the parliament.

5.1 Background
The Indian government had demonetised banknotes on two prior occasions—once in 1946 and
once in 1978—and in both cases, the goal was to combat tax evasion via "black money" held
outside the formal economic system. In 1978, the Janata Party coalition government
demonetised banknotes of ₹1,000, ₹5,000 and ₹10,000, again in the hopes of
curbing counterfeit money and black money.

In 2012, the Central Board of Direct Taxes recommended against demonetisation, saying in a
report that "demonetisation may not be a solution for tackling black money or shadow
economy, which is largely held in the form of benami properties, bullion and
jewellery."According to data from income tax probes, black money holders kept only 6% or
less of their wealth as cash, suggesting that targeting this cash would not be a successful
strategy.

5.2 Process

Preparation and announcement

The plan to demonetise the ₹500 and ₹1,000 banknotes was initiated between six and ten
months before it was announced, and was kept confidential. In April 2016, a report by the State
Bank of India analysed possible strategies and effects demonetisation. In May 2016,
the Reserve Bank of India had started preparing for new banknotes and confirmed the design
of ₹2,000 banknotes in August 2016. The printing of new banknotes started in October when
the news stories of forthcoming new banknotes appeared in the media. On 27 October 2016,
the Hindi daily Dainik Jagran published a report quoting RBI sources speaking of the
forthcoming of ₹2,000 banknotes alongside withdrawal of ₹500 and ₹1,000 banknotes. On 21
October 2016, The Hindu Business Line had also published a report on
forthcoming ₹2,000 banknote.

The Union cabinet was informed about the plan on 8 November 2016 in a meeting in the
evening called by the Indian Prime Minister Narendra Modi. Soon after the meeting, Modi
announced the demonetisation in an unscheduled live national televised address at
20:15 IST. He declared circulation of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi
Series as invalid effective from the midnight of the same day, and announced the issuance of
new ₹500 and ₹2,000 banknotes of the Mahatma Gandhi New Series in exchange for the
demonetised banknotes.
Information leaks

Prominent businessmen stated after the announcement of demonetisation that they had received
prior warning of the move, allowing them to convert their money into smaller denominations.
A BJP MLA from Rajasthan, Bhawani Singh Rajawat, claimed in a video that wealthy
businessmen were informed about the demonetisation before it occurred. He later denied the
comments.

Cash exchange and withdrawal

The Reserve Bank of India stipulated that the demonetised banknotes could be deposited with
banks over a period of fifty days until 30 December 2016. The banknotes could also be
exchanged for legal tender over the counter at all banks. The limit for such exchange
was ₹4,000 per person from 8 to 13 November, was increased to ₹4,500 from 14 to 17
November, and reduced to ₹2,000 from 18 to 25 November. The exchange of banknotes was
stopped completely on 25 November, although the government had previously stated that the
volume of exchange would be increased after that date. International airports also facilitated
an exchange of banknotes for foreign tourists and out-bound travelers, amounting to a total
value of ₹5,000 per person. Fuel pumps, government hospitals, railway and airline booking
counters, state-government recognised dairies and ration stores, and crematoriums were
allowed to accept the demonetised banknotes until 2 December 2016.

Cash withdrawals from bank accounts were restricted to ₹10,000 per day and ₹20,000 per week
per account from 10 to 13 November. This limit was increased to ₹24,000 per week from 14
November 2016. Limits on cash withdrawals from Current accounts/ Cash credit accounts/
Overdraft accounts were withdrawn later. RBI increased the withdrawal limit from Savings
Bank account to ₹50,000 from the earlier ₹24,000 on 20 February 2017 and then on 13 March
2017, it removed all withdrawal limits from savings bank accounts.

A daily limit on withdrawals from ATMs was also imposed varying from ₹2,000 per day until
14 November, and ₹2,500 per day until 31 December. This limit was increased to ₹4,500 per
day from 1 January, and again to ₹10,000 from 16 January 2017. From 17 November, families
were allowed to withdraw ₹250,000 for wedding expenses. Farmers were permitted to
withdraw ₹25,000 per week against crop loans.
Ordinance and Act

The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was issued on 28
December 2016, ending the liability of the government for the demonetised banknotes. The
ordinance also imposed fines on people found carrying out transactions with them after 8
November 2016, or holding more than ten of them after 30 December 2016. It provided for the
exchange of the banknotes after 30 December for people who had been outside India between
9 November and 30 December. The Specified Bank Notes (Cessation of Liabilities) Act, 2017
was notified on 1 March 2017, replacing the ordinance.

5.3 Objectives and outcomes

The government said that the main objective of the exercise was curbing black money which
included income which had not been reported and thus was untaxed; money gained through
corruption, illegal goods sales and illegal activities such as human trafficking; and counterfeit
currency. Other stated objectives included expanding the tax base and increasing the number
of taxpayers; reducing the number of transactions carried out by cash; reducing the finances
available to terrorists and radical groups such as Maoists and Naxalites; and integrating the
formal and informal economies.

Black money

The government estimated that ₹3 lakh crore, or approximately 20%, of the demonetised
banknotes would be permanently removed from circulation. However, according to a 2018
report from the RBI, approximately 99.3% of the demonetised banknotes, or ₹15.30 lakh
crore of the ₹15.41 lakh crore that had been demonetised, were deposited with the banking
system. The banknotes that were not deposited were only worth ₹10,720 crore. Commentators
concluded that the government failed in its aim of purging black money from the economy.
Evasion

There have been reports of people circumventing the restrictions imposed on exchange
transactions by conducting multiple transactions at different bank branches and also sending
hired people, employees and followers in groups to exchange large amounts of demonetised
banknotes at banks. In Gujarat, Delhi and many other major cities; sales of gold increased post-
demonetisation, with an increased 20 to 30% premium surging the price as much
as ₹45,000 (US$630) from the ruling price of ₹31,900 (US$440) per 10 grams (0.35 oz).
The Enforcement Directorate raided several forex establishments making backdated
entries. Money laundering using backdated accounting was carried out by co-operative
banks, jewellers, sellers of mobile phones, and several other businesses.

The cash deposited into hundis, or cash collection boxes in temples and gurudwaras are
exempted from inquiry by the tax department which is sometimes misused to launder
money. After the demonetisation, there was a spike in donations in the form of the demonetised
banknotes in temples. People had booked large number of railway tickets to dispose of
unaccounted cash. It came to notice of the Indian Railways authorities which imposed
restrictions to check evasion.

Counterfeit banknotes

After demonetisation, there was an increase in the counterfeit banknotes in small denomination
of ₹100 and ₹50. The counterfeit banknote in denomination of old ₹500 and ₹1,000 saw
increase in 2016-17 and decline in 2017-18 because they were already demonetised. But in
2017-18, there was an increase in counterfeit banknotes of new ₹500 and ₹2,000 denomination
banknotes than the previous year. There has been no significant change in the number of
detection of counterfeit banknotes detected. In 2017-18, the number of detection was close to
the level before demonetisation levels. Additionally, after demonetisation, only 0.0035% of
the ₹1,000 banknotes were found to be counterfeit.
Tax collection

The number of income tax returns filing increased from 43.3 million to 52.9 million between
financial year 2016 and 2017 which was not a significant increase compared to increase
between 2015 and 2016. The tax compliance had increased with number of income tax returns
filing increased but majority of them were from salaried and non-business class. The income
tax collections increased in financial year 2017 due to Income Disclosure Scheme 2016. If
adjusted for it, the increase in tax collection was modest. The tax-to-GDP ratio has increased
due to expanding tax base. An analysis of the economic data shows that there has been no
substantial increase in the number of new tax payers or direct tax collection due to
demonetisation.

The use of demonetised banknotes was allowed for the payment of municipal and local civic
body taxes, leading to a jump in their revenue collections. For example, the Greater Hyderabad
Municipal Corporation reported collecting about ₹160 crore (US$22 million) in cash payments
of outstanding and advance taxes, within first four days of demonetisation.

Digital payments

The push for the digital payments was one of the stated intention of the demonetisation. There
was immediate and sharp jump in the digital payments in November–December 2016 owing to
shortage of cash. The debit card point of sale transactions was twice the size of value suggested
by trend before the demonetisation. The value of credit card increased but no sharp growth was
seen. The mobile wallet transactions picked immediately after the demonetisation followed by
dip in mid-2017 due to easing cash shortage. There was again sharp rise thereafter. By April
2018, the volume of the digital payments had doubled. After return of the cash, the growth in
digital payment had been modest.

The currency-to-GDP ratio was 12.1% in 2015-16. It declined to 8.8% in 2016-17 due to
demonetisation but increased again to 10.9% in 2017-18. The currency-to-GDP ratio was only
marginally lower compared to level before demonetisation.

Banknotes in circulation

On 28 October 2016 the total banknotes in circulation in India were valued at ₹17.77 lakh
crore (US$250 billion); what proportion of this derived from ₹500 and ₹1,000 banknotes was
unknown. In its annual report of March 2016, the Reserve Bank of India (RBI) stated that total
banknotes in circulation valued ₹16.42 lakh crore (US$230 billion) of which nearly 86%
(around ₹14.18 lakh crore (US$200 billion)) derived from ₹500 and ₹1,000 banknotes. In
terms of volume, the report stated that 24% (around 22.03 billion) of the total 9026.6 crore
(90.26 billion) banknotes in circulation were ₹500 and ₹1,000 banknotes.

Before demonetisation (November 2016), there were banknotes worth ₹17.97 lakh
crore (US$250 billion) in the market. The demonetised banknotes constituted 86.4% of it. The
banknotes in circulation had reached to the level before demonetisation in March 2018. By
March 2018, there were banknotes worth ₹18.03 lakh crore (US$250 billion) in the market;
increase of 9.9%. New banknotes of ₹2,000 and ₹500 constitute 80.6% of it. So there was only
5.8% increase in small domination banknotes. The volume of banknotes in the market increased
by 2.1%.The banknotes in circulation had further increased to ₹19.5 lakh
crore (US$270 billion) in September 2018 and ₹21.41 lakh crore (US$300 billion) in March
2019, 19.14% higher than the level before demonetisation.

Terrorism and internal security

Initially there was a decrease in the activities and attacks by Maoist and Naxalite radical groups
which was attributed to lack of finance following demonetisation. The surrender rate had
reached its highest. The activities returned within few months. There was a decrease in the
terror activities in Jammu and Kashmir.

5.4 Other effects

Cash shortage

The scarcity of cash due to demonetisation led to chaos, and people faced difficulties in
depositing or exchanging the demonetised banknotes due to long queues outside banks and
ATMs across India. The ATMs were short of cash for months after demonetisation.

During the demonetisation, the unaccounted money worth ₹610 crore were seized by the police
and tax officials across India which included ₹110 crore in new banknotes. Reports in the
media noted that although the general public faced a severe cash shortage, some individuals
were able to amass crores in new banknotes; they thus described the demonetisation exercise
as being futile.
Transportation

The All India Motor Transport Congress claimed that about 800,000 truck drivers and
conductors were affected with shortage of cash, with around 400,000 trucks stranded at major
highways across India. While major highway toll junctions on the Gujarat and Delhi-Mumbai
highways also saw long queues as toll plaza operators refused the demonetised
banknotes. The Ministry of Road Transport and Highways subsequently announced a
suspension of toll collections on all national highways across the country until 2 December as
well as acceptance of demonetised ₹500 banknote as a toll from 2 to 15 December.

Stock market

As a combined effect of demonetisation and US presidential election, the stock market indices
dropped to an around six-month low in the week following the announcement. The day after
the demonetisation announcement, BSE SENSEX crashed nearly 1,689 points and NIFTY
50 plunged by over 541 points. By the end of the intraday trading section on 15 November
2016, the BSE SENSEX index was lower by 565 points and the NIFTY 50 index was below
8100 intraday.] There was a marginal effect on stock market during November–December
2016. A data study (July 2016 - February 2017) of 54 companies across 13 sectors listed with
the NSE showed that companies in cement, cotton and rubber sectors showed an increase in
total trades while companies in automotive, clothing, foods, paper, real estate, retail, steel,
sugar, tea and textiles sectors showed a decrease in total trades after
demonetisation. Demonetisation had a negative impact on stock market returns evidenced from
NIFTY 50 and other NIFTY sectoral indices.

Industrial output

There was a reduction in industrial output as industries were hit by the cash
shortage. The Purchasing Managers' Index (PMI) fell to 46.7 in November 2016 from 54.5 in
October 2016, recording its sharpest reduction in three years. A reading above 50 indicates
growth and a reading below shows contraction. This indicates a slowdown in both,
manufacturing and services industries. The PMI report also showed that the reduction in
inflation in November 2016 was due to shortage in money supply.
The growth in eight core sectors such as cement, steel and refinery products, which constitute
38% of the Index of industrial production (IIP), was only to 4.9 percent in November 2016 as
compared with 6.6 percent a month ago.

Agriculture

Transactions in the agriculture sector are heavily dependent on cash and were adversely
affected by the demonetisation. Due to scarcity of the new banknotes, many farmers have
insufficient cash to purchase seeds, fertilisers and pesticides needed for the plantation of rabi
crops usually sown around mid-November. Farmers and their unions conducted protest rallies
in Gujarat, Amritsar and Muzaffarnagar against the demonetisation as well as against
restrictions imposed by the Reserve Bank of India on district cooperative central banks which
were ordered not to accept or exchange the demonetised banknotes.

The shortage of cash led to plunge in demand which in turn led to a crash in the prices of crops.
Farmers were unable to recover even the costs of transportation from their fields to the market
from the low prices offered. Some farmers dumped their produce in protest against the
government.

Demonetisation resulted in the relative erosion of agricultural wages and weak bargaining
power of farmers for their produce.

Real GDP growth rate

Global analysts cut their forecasts of India's real GDP growth rate for the financial year 2016-
17 by 0.5 to 3% due to demonetise India's GDP in 2016 is estimated to be US$2.25 trillion,
hence, each 1 per cent reduction in growth rate represents a shortfall of US$22.5 billion (₹ 1.54
lakh crore) for the Indian economy. According to Societe Generale, quarterly GDP growth rates
would drop below 7% for an entire year at a stretch for the first time since June 2011.

The Q4'16-17 rate was 6.1% as against a forecast of 7.1% by economists. The rate for the
financial year 2016-17 was 7.1%, a reduction from the 8% in 2015-16. This drop was attributed
to demonetisation by economists.

The GDP growth rate for Q1'17-18 dropped to 5.7%, compared to 7.9% a year ago, the lowest
since March 2014. This drop was attributed to demonetisation as well as inventory drawdown
by companies due to the forthcoming implementation of the Goods and Service Tax. The GDP
started to recover from Q2'17-18 and clocked 8.2% in Q2'18-19.

There was a loss of jobs and decline in wages due to demonetisation, particularly in the
unorganised and informal sector and in small enterprises. Migrant workers were adversely
affected by demonetisation. There was according to the report prepared by Centre for
Monitoring Indian Economy (CMIE), the number of employed people was 401 million in
January–April 2016, 403 million during May–August 2016, 406.5 million in September–
December 2016. After demonetisation in November 2016, the number fell to 405 million in
January–April 2017. So there was fall of 1.5 million in number of people employed. CMIE
also reported that the number of persons employed was 406.7 million in 2016-17 which fell by
0.1% to 406.2 million in 2017-18. So the employment had stagnated which resulted in
employment rate decline. The employment rate fell from 42.59% in 2016-17 to 41.45% in
2016-17. The unemployment rate also declined from 7.51% in 2016-17 to 4.66% in 2017-18
because of the shrinking employed force. The number of employed force fell from 439.7
million in 2016-17 to 426.1 million in 2017-18. CMIE attributed the impact to demonetisation
as well as implementation of Goods and Services Tax in July 2017.

Cost to bank

Before demonetisation, the RBI had spent ₹3,421 crore to print banknotes in 2015-2016 (July
to June). The cost of printing new banknotes escalated to ₹7,965 crore in 2016-17 and ₹4,912
crore in 2017-18. This resulted in a decline in the dividend paid to the government
from ₹65,876 crore in 2015-16 to ₹30,659 crore in 2016-17 and ₹50,000 crore in 2017-18. It
was estimated that this decrease in income for the government could cause the fiscal deficit for
the financial year 2016-17 to increase from the targeted 3.2% to 3.4%. The Indian Air
Force was paid ₹29.41 crore to move banknotes after demonetisation.

The banks incurred the cost in collection, storage and movement of banknotes across the
country as well as in re-calibrating the ATMs.
Welfare schemes

Demonetisation negatively impacted the Midday Meal Scheme due to shortage of funds.

Deaths

Several people were reported to have died from standing in queues for hours to exchange their
demonetised banknotes. Deaths were also attributed to lack of medical help due to refusal of
demonetised banknotes by hospitals. By the end of December 2016, political opposition leaders
claimed that over 100 people had died due to demonetisation. In March 2017, the government
stated that they received no official report on deaths connected to demonetisation. Later in
December 2018, Jaitley reported in parliament that four people, three bank personnel and one
customer of the State Bank of India, died during the demonetisation.

5.5 Reaction

Reactions of economists

Most economists across the ideological spectrum, except some prominent ones, were broadly
critical of the demonetisation as an economic policy.

Indian-American economist Jagdish Bhagwati praised the demonetisation. Nobel

laureate Amartya Sen, severely criticised the demonetisation move calling it a "despotic action"
among other things. Former Senior Vice-President and Chief Economist of the World
Bank, Kaushik Basu, called it a 'major mistake' and said that the 'damage' is likely to be much
greater than any possible benefits. Pronab Sen, former Chief Statistician and Planning
Commission of India member, called it a "hollow move" since it did not really address any of
the purported goals of tackling black money or fake currency. Prabhat Patnaik, a former
professor of economics at the Jawaharlal Nehru University, Delhi called the move 'witless' and
'anti-people'. He criticised the simple way in which black money was assumed as "a hoard of
cash", saying that it would have little effect in eliminating "black activities" while "causing
much hardship to common people."

Economist and journalist, T. N. Ninan wrote in the Business Standard that demonetisation
'looks like a bad idea, badly executed on the basis of some half-baked notions'. Steve
Forbes described the move as 'Sickening and Immoral'. He stated that "What India has done is
commit a massive theft of people's property without even the pretense of due process--a
shocking move for a democratically elected government.” Nobel laureate Paul Krugman said
that it is difficult to see gains from demonetisation, while there may be significant costs to
it. Economic analyst Vivek Kaul stated in a BBC article that "demonetisation had been a failure
of epic proportions."

Reactions of industrialists

The decision met with mixed initial reactions. Several bankers like Arundhati
Bhattacharya (Chairperson of State Bank of India) and Chanda Kochhar (MD & CEO of ICICI
Bank) appreciated the move in the sense that it would help curb black
money. Businessmen Anand Mahindra (Mahindra Group), Sajjan Jindal (JSW Group), Kunal
Bahl (Snapdeal and FreeCharge) also supported the move adding that it would also accelerate
e-commerce. Infosys founder N. R. Narayana Murthy praised the move.

Deepak Parekh (Chairman of HDFC) had initially appreciated the decision of demonetisation,
but later said that the move had derailed the economy, and expressed skepticism about its
outcome. Industrialist Rajiv Bajaj criticised the demonetisation, saying that not just the
execution, but the concept of demonetisation was wrong in itself.

Political reactions

The Indian National Congress spokesperson Randeep Surjewala welcomed the move but
remained skeptical on the consequences that would follow. Chief Minister of Bihar Nitish
Kumar supported the move. The demonetisation also got support from Chief Minister of
Andhra Pradesh Nara Chandrababu Naidu. Former Chief Election Commissioner of India S.
Y. Quraishi said demonetisation could lead to long term electoral reforms. Indian social
activist Anna Hazare hailed demonetisation as a revolutionary step. The former President of
India Pranab Mukherjee welcomed the demonetisation move by calling it bold step. Chief
Ministers of several Indian states like Mamata Banerjee, Arvind Kejriwal and Pinarayi Vijayan
have criticised and led major protests against the decision in their states and in parliament.
Initially, the move to demonetise and try to hinder black money was appreciated, but the
manner in which it was carried out by causing hardships to common people was criticised.

A Parliamentary panel report in April 2017 stated that rural households and honest taxpayers
were the worst hit by demonetisation. It said that it was not just the poor that suffered, but the
manufacturing sector was impacted too. According to the panel, demonetisation created
significant disruption throughout economy, because it was carried out without prior study or
research. A Indian National Congress led opposition which includes 13 political parties,
opposed the government on the issue of demonetisation in the Winter Session of the Indian
Parliament.

On 16 November 2016, Mamata Banerjee led a delegation comprising political parties

of Trinamool Congress, Aam Aadmi Party, BJP ally Shiv Sena and National Conference
to Rashtrapati Bhawan to protest against the decision of demonetisation. A memorandum was
submitted to the President of India Pranab Mukherjee demanding rollback of the decision.

Prem Chand Gupta, a member of the Rashtriya Janata Dal, questioned a statement of Modi
from the unscheduled TV broadcast on 8 November, "If it was planned 10 months ago, how
did RBI Governor Urjit Patel sign on new note?." Praful Patel, a member of the Nationalist
Congress Party, stated that "the government was not even prepared to recalibrate the ATMs
while announcing the move. People's sufferings are unimaginable. Nobody is questioning the
government's intention, but you are unprepared to execute the move". Later, the former Chief
Minister of Uttar Pradesh Mayawati stated the situation to "a financial emergency", by saying
"It looks as if Bharat has shut down." Also, Sitaram Yechury from Communist Party of India,
questioned the government on the demonetisation move by stating "only 6% of black money
in India is in cash to drive his point that demonetisation won't curb illicit wealth."

On 17 November 2016, a rally against demonetisation, led by the Chief Minister of

Delhi Arvind Kejriwal and his West Bengal counterpart Mamata Banerjee at Azadpur Mandi,
the biggest vegetable and fruits wholesale market in New Delhi was organised.

On 24 November 2016, the former Prime Minister Manmohan Singh said "this scheme will
hurt small industries, the farming sector. The GDP can decline by about 3 per cent due to this
move". He termed the demonetisation as”organised loot, legalised plunder of the common
people".

Strikes were organised across India. Opposition parties like Indian National Congress, Bahujan
Samaj Party, Trinamool Congress, DMK, JD(U), AIADMK, Nationalist Congress Party,
Left, Rashtriya Janata Dal and the Samajwadi Party decided to observe 'Akrosh Diwas' as, a
protest campaign day on 28 November and launch protests in front of banks, demanding that
money be returned to people. In the state of Bihar, 15 trains were blocked and stranded, while
the states of West Bengal, Maharashtra and Uttar Pradesh saw protest marches and rallies led
by opposition parties. In the state of Kerala, shops and business establishments were shut, with
school and colleges closed throughout the state, while movements of private vehicles were also
disrupted in Northern Kerala.

Former Indian Chief Election Commissioner, O. P. Rawat stated that 'the note ban had
absolutely no impact on black money', and that record amounts of money had been seized in
polls held after demonetisation.

International reactions

By and large, initial international response was positive which saw the move as a bold
crackdown on corruption. The International Monetary Fund's spokesperson Gerry Rice told
that it supported the efforts to fight corruption and illegal finances but cautioned about the
disruptions.

Chinese state media Global Times praised the move and termed it as "fierce fight against black
money and corruption." Former Prime Minister of Finland and Vice-President of European
Commission Jyrki Katainen welcomed the demonetisation move stressing that bringing
transparency will strengthen Indian economy. BBC's South Asia Correspondent Justin
Rowlatt in his article praised the move for its secrecy. Tim Worstall termed the demonetisation
as welcome macroeconomic effect in his article in Forbes magazine. Swedish Minister of
Enterprise Mikael Damberg supported the move by calling it bold decision.

The demonetisation also came in for sharp criticism from media outside India, with the New
York Times saying that the demonetisation was "atrociously planned" and that it did not appear
to have combatted black money, while an article in The Guardian stated that "Modi has brought
havoc to India". The Harvard Business Review called it "a case study in poor policy and even
poorer execution" The frequent change in the narrative on objectives of the demonetisation to
its visible impact on the poorest of the poor made other critiques calling government's narrative
as spins in view of the "pointless suffering on India's poorest."

6. Digital Economy

Digital economy or the internet economy is increasingly influencing our social and economy
activities and even the way we live. The internet and its accessory activities including
Information and Communication Technologies have given birth to new products, services,
jobs, enterprises and even markets. World’s largest firms – Google’s Alphabet, Facebook and
Amazon are from the digital world.

Besides the internet and the internet of things, several new inventions are about to alter the way
we live and economically engage. Artificial intelligence, machine to machine communication,
sensor technology, robotics, big data, cloud computing, 3 D printing etc., indicate that the role
of digital technologies in economic activities are going to rise. In this context, there is
increasing attempts to identify the size and importance of the digital economy in terms of its
output, job creation, enterprise creation etc.
According to the OCED, “Digital economy is an umbrella term used to describe markets that
focus on digital technologies.” It refers to the full range of our economic, social and cultural
activities supported by the Internet and related information and communications technologies.
“These typically involve the trade of information goods or services through electronic
commerce. It operates on a layered basis, with separate segments for data transportation and
applications” (OECD 2012).

The term ‘Digital Economy’ was coined in Don Tapscott’s in his best-seller ‘The Digital
Economy: Promise and Peril in the Age of Networked Intelligence’ (1995). Academicians and
institutions are fine tuning the concept as well as boundaries of digital economy since then. A
widely-accepted understanding about digital economy is its activities on and around the digital
world.

Thomas Mesenbourg (2001) has provided three main components for Digital Economy.

e-business infrastructure (hardware, software, telecoms, networks, human capital, etc.),

e-business (how business is conducted, any process that an organization conducts over
computer-mediated networks),

e-commerce (transfer of goods, for example when a book is sold online).

Digital economic activity results from billions of online connections among people, businesses,
devices, data, and processes. The backbone of the digital economy is thus hyper-connectivity
which creates interconnectedness of people, organisations, and machines that based on the
Internet, mobile technology and the Internet of Things. The internet of things, which is known
as the infrastructure of the information society connects physical devices, smart devices,
buildings, and other items embedded with electronics, software, sensors etc. to engage in the
exchange of data.

As social media, virtual reality and cloud services are expanding, the boundary between the
traditional economy and digital economy is getting difficult to be identified. The OECD has
included both ICT goods and services under digital economy. This means that software services
are also part of the digital economy. India is the second largest (after Ireland) exporter of ICT
services (mostly software) according to the UNCTAD. In the case of ICT goods export, China
is the unquestionable global leader with 32% share.
 7. Consumer behavior towards cashless economy

The presentation of coins in India around sixth Century B.C. brought first institutionalizes
methods for monetary trade amongst purchasers and dealers. Later the happening to paper cash
in 1770 and Paper Currency Act of 1861 facilitated working together further. Money or fiat
cash had been the undisputed ruler of purchaser installment showcase for a long time. Until the
point that the current improvements in installment card businesses and computerized
installments framework began moving restraining infrastructure of paper notes. Most recent 10
years saw advancement of another area of customers in India; this present gathering's
inclinations being innovation sharp and they demonstrate slant to cashless methods for
monetary exchange. A substantial segment of this gathering is urbanized working populace
(Age 15 - 60) with access to private saving money, installment cards, and they have everlasting
fraternity with web and Smartphone. They are the most favored customers of Dalal Street and
business reacted with capital venture and mechanical interest in zones relating to their need
and inclinations. Cashless India is a mission propelled by the Government of India driven by
Prime Minister Narendra Modi to diminish reliance of Indian economy on money and to bring
crowds of reserved dark cash lying unused into the managing an account framework. The
nation left upon this move to a cashless economy when the administration made the progressive
stride of demonetisation of old money notes of Rs 500 and Rs 1000 on November 08, 2016.
Nonetheless, the advantages of this move have now begun streaming in with an ever increasing
number of individuals changing to computerized methods of accepting and making installment.
India is slowly transitioning from a money driven to cashless economy. Advanced exchanges
are traceable, accordingly effectively assessable, ruling out the course of dark cash. The entire
nation is experiencing the procedure of modernisation in cash exchanges, with e-installment
administrations increasing extraordinary energy. A substantial number of organizations, even
road merchants, are presently tolerating electronic installments, provoking the general
population to figure out how to execute the cashless path at a speedier pace than any time in
recent memory.

Purchaser conduct is the investigation of how singular clients, gatherings or associations select,
purchase, utilize, and arrange thoughts, merchandise, and administrations to fulfill their
necessities and needs. It alludes to the activities of the buyers in the commercial center and the
fundamental thought processes in those activities. Customer conduct mixes components from
brain research, humanism, social human studies, showcasing and financial aspects, particularly
behavioral financial aspects. It analyzes how feelings, dispositions and inclinations influence
receiving administrations conduct. qualities of individual buyers, for example, 3
socioeconomics, identity ways of life and behavioral factors, for example, utilization rates, use
event, dedication, mark support, eagerness to give referrals, trying to comprehend individuals'
needs and utilization are altogether researched in formal investigations of shopper conduct. It
additionally tries to survey impacts on the shopper from gatherings, for example, family,
companions, sports, reference gatherings, and society when all is said in done. The
investigation of customer conduct is worried about all parts of receiving and utilizing
administrations conduct and also all people required in embracing choices and utilizing
administrations exercises. Research has demonstrated that buyer conduct is hard to foresee,
notwithstanding for specialists in the field. Aside from the innovative issues, there is a
behavioral change that is being normal in individuals from utilizing money as a medium of
trade to utilizing other money substitutes both for making installments and getting installments.
This move expects people to roll out two improvements in their conduct: one, specialists need
to move from unmistakable means which can be seen and felt to shapes which are less
substantial or not unmistakable, and second, they need to figure out how to depend on
innovatively propelled apparatuses to attempt general everyday operations. The last expects
specialists to be taught to the degree of fathoming the substance of exchanges. On the off
chance that this move is not appropriately overseen, operators may be enticed to move to non-
official money substitutes Shopper conduct in cashless exchanges are the choice procedures
and the demonstration of the general population required in purchasing and utilizing items or
making the installments. It is the comprehension of buyer contemplations, emotions and
activities to the cashless installments. It alludes to activity and choice procedures of the general
population to utilize cashless installment modes for individual utilizations. It additionally
alludes to the mental and enthusiastic process and physical action of the general population
who utilize cashless installments to fulfills specific needs and needs by acquiring, utilize
merchandise and ventures. The present investigation will concentrate on the components which
impact people groups to go for cashless exchanges and research will likewise center to think
about most favored cashless exchange mode. Display research will likewise attempt to consider
connection between the financial and statistic profile of respondent and cashless exchange. At
that point no one but conclusion can be drawn about purchaser conduct towards cashless
exchanges in genuine sense.

Doing payments via mobile phones has been in use for many years and is now set to explode.
Also mobiles are increasingly being used by consumers for making payments. “Digital Wallet
“has become a part of consumers which are nothing but smart phones which can function as
leather wallets. Digital wallet offered many benefits while transferring money such as
convenience, security and affordability. Growth in technology has opened many modes of
payments through which consumers can do transactions which are more convenient, accessible
and acceptable, consumers have an inclination towards mobile payment apps usage. Offering
various benefits such as flexi payment digital wallet brands are providing extra convenience to
consumers. Major factor in adoption of digital wallet is convenience in buying products online
without physically going from one location to another location. There has been many studies
conducted in past on mobile payment application to find consumer interest and they found
consumer has positive inclination for the same.
The factors such as perceived ease of use, expressiveness and trust affect adoption of digital
wallet as payment method. These factors are termed as facilitators and plays crucial role in
adoption of digital payment solution. Usage of digital wallet among youth in the state of Punjab
was found to be associated with societal influence and usefulness, controllability and security,
and need for performance enhancement. Premium pricing, complexity, a lack of critical mass,
and perceived risks are the barriers to adoption of digital payment systems.
A comprehensive model ‘Payment Mode Influencing Consumer Purchase Model’ was
proposed by Braga and Mazzon. This model considered factors such as temporal orientation
and separation, self-control and pain of payment constructs for digital wallet as a new payment
mode. Consumer perspective of mobile payments and mobile payment technologies are two
most important factors of mobile payments research. Mallat studied consumer adoption of
mobile payments in Finland. Study found that mobile payment is dynamic and its adoption
depends on lack of other payments methods and certain situational factors.
Digital wallet payments bring extra convenience to shoppers by offering flexible payment
additions and accelerating exchanges. Shin and Ziderman tested a comprehensive model of
consumer acceptance in the context of mobile payment. It used the unified theory of acceptance
and use of technology (UTAUT) model with constructs of security, trust, social influence, and
self-efficacy. The model confirmed the classical role of technology acceptance factors (i.e.,
perceived to users’ attitude), the results also showed that users’ attitudes and intentions are
influenced by perceived security and trust. In the extended model, the moderating effects of
demographics on the relations among the variables were found to be significant. Digital wallets
offer the consumers the convenience of payments without swiping their debit or credit cards.
Instant Cash availability and renders seamless mobility is also a unique feature of these digital
apps, for instance the balance in your Paytm wallet can be very easily transferred to your bank
account as and when you want. Following are some other advantages of making transactions
through e wallets:

Saves time: digital wallets hold the amount in the electronic form so as to ease the payment
process where users can make online payments without entering any card details.

Ease of use: As digital wallet is like one click pay without filling details about card viz card
number and passwords every time, It allows user to link digital wallet to accounts and pay right
away so that the consumers face no issues to enter the details every time a transaction happen.

Security: There is a good amount of security when payments are made through e wallets since
the wallet does not pass the payment card details to the website. These virtual wallets allow
users to lock their wallet.
Convenient and information stored under one roof: As digital wallets helps to eliminate
need to carry the physical wallet they are highly convenient. Also a better management is
possible as there is synchronization of data from multiple platforms like bank accounts, credit
and debit cards, mobile accounts and billing portals.

Attractive discount: Cash back and discounts are being offered by most of the players along
with providing offline wallet balance top up known as 'Cash Pickup' service. This service is
being offered by Mobikwik that will facilitate cash to be directly added to MobiKwik wallet
where consumers of even smaller towns can be benefited.

As per Ministry of Finance Report (December 2016) on Digital payment, financial inclusion is
one of the foremost challenge facing India. 53 percent of India population had access to formal
financial services. In this context, digital payment can act as accelerator to financial inclusion.
Increasing availability of mobile phone, availability of data network infrastructure, rollout of
3G and 4G networks and large merchant eco system are the critical enablers of digital payment
in India. It is further supported by the coordinated efforts of industry, regulator and
government. As per RBI’s report ‘Vision 2018’ four pronged strategy focusing on regulation,
robust infrastructure, effective supervisory mechanism and customer centricity has been
adopted to push adoption of digital payment in India.
The percentage of cash for transactions has seen a rapid decline in the past few years in India.
In 2010, the percentage of cash in all payments was 89% compared with 78% in 2015. This
rapid decline is a result of an increased adoption of non-cash instruments such as cards and
digital payments such as mobile wallets, electronic transfers, etc. Stored value instruments like
mobile wallets (Paytm, Mobikwik, Citrus, etc.) and prepaid and gift cards have made payments
though internet devices convenient and easy. India represents one of the largest market
opportunities for digital payments. With a population of 1.25 billion, India accounts for roughly
18% of the global population. The two key drivers of digital payments-mobile phones and
internet users are already well established in India. To date, India has about 1.0 billion mobile
phone subscribers and 300 million internet users, ranking 2nd on both metrics globally.
 8. Theoretical Framework

Meaning of Cashless Transaction:

Cashless Transaction can be defined as a situation in which the flow of cash within an economy
is nonexistent and all transactions must be through electronic channels such as direct debit,
credit cards, electronic clearing, and payment systems such as Immediate Payment Service
(IMPS), National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS)
in India.

Consumer Behaviour:

Consumer behaviour is the study of how individual customers, groups or organizations select,
buy, use, and dispose ideas, goods and services to satisfy their needs and wants. It refers to the
actions of the consumers in the marketplace and the underlying motives for those actions. It is
critical to understand consumer behaviour to know how potential customers will respond to a
new product or service.
Why Cashless India?

Its main objective was to curb black money in Indian Economy and to stop the flow of fake
currency notes. Then there started an issue how is Cashless Economy possible when money is
the major source to run daily life. In such case, the economy might have been a torment if it
was implemented 10 years ago. But, we live in a digital world now where the internet is an
essential need everywhere. We carry our credit and debit cards everywhere we go. So,
technically Cashless Economy is a wellplanned scheme according to today’s technology where
no liquid money is used. We can make our nation get rid of corruption and fake notes with the
help of this scheme. There is hardly any way to suspend black money in an anonymous source.
8 The scheme was easy but knowledge of “Why Digital Economy is essential for the
development our country” became important. Though the scheme had disadvantages like
unnecessary threat due to the shortage of notes, lack of knowledge about online transactions,
inadequate internet connections, etc but taking action on such disadvantages patiently,
awareness and education on this scheme we could become a Fruitful Economy from Cashless
Economy.

9. Review of literature

Review of literature paves way for a clear understanding of the areas of research already
undertaken and throws a light on the potential areas which are yet to be covered. Keeping this
view in mind, an attempt has been made to make a brief survey of the work undertaken on the
field of Cashless economy. The reviews of some of the important studies are presented below.
Cashless economy is not the complete absence of cash, it is an economic setting in which goods
and services are bought and paid for through electronic media. According to Woodford (2003),
Cashless economy is defined as one in which there are assumed to be no transactions frictions
that can be reduced through the use of money balances, and that accordingly provide a reason
for holding such balances even when they earn rate of return. In a cashless economy, how much
cash in your wallet is practically irrelevant. You can pay for your purchases by any one of a
plethora of credit cards or bank transfer (Roth, 2010) observed that developed countries of the
world, to a large extent, are moving away from paper payment instruments toward electronic
ones, especially payment cards. Some aspects of the functioning of the cashless economy are
enhanced by e-finance, e-money, e-brokering and e-exchanges. These all refer to how
transactions and payments are effected in a cashless economy (Moses-Ashike, 2011). Marco
and Bandiera (2004) argue that increased usage of cashless banking instruments strengthens
monetary policy effectiveness and that the current level of emoney usage does not pose a threat
to the stability of the financial system. However, 10 it does conclude that central banks can
lose control over monetary policy if the government does not run a responsible fiscal policy.
According to a 2015 report by Price Water House Coopers, India’s unbanked population was
at 233 million. Even for people with access to banking, the ability to use their debit or credit
card is limited because there are only about 1.46 million points of sale which accept payments
through cards. A study by Boston Consulting Group and Google in July noted that wallet users
have already surpassed the number of mobile banking users and are three times the number of
credit card users Ashish Das, and Rakhi Agarwal, (2010), in their article “Cashless Payment
System in India- A Roadmap” Cash as a mode of payment is an expensive proposition for the
Government. The country needs to move away from cash-based towards a cashless (electronic)
payment system. This will help reduce currency management cost, track transactions, check
tax avoidance / fraud etc. enhance financial inclusion and integrate the parallel economy with
main stream. Deepika Kumari, (2016), in her studies of Cashless Transaction: Methods,
Applications and Challenges concluded that the as the demonetization applied by government
of India, Government trying to aware its people for cashless transaction by various kinds of
advertisement method but still a large number of people are awaiting for the introduction of
cashless transaction. This paper is a study of cashless transaction its different methods,
advantages and challenges. This paper will help to understand the basic of the cashless
transaction.
 10.Objectives of study
The purpose of this study:

 To know the public awareness on Cashless Transaction.

 To assess the respondents’ trust and confidence in Cashless Transaction.

 To analysis the problems faced by the consumers while using Cashless Transaction.

 To assess the public perception on benefits and challenges of cashless economy.

Descriptive research design has been adopted for this study. Population of Study involves the
citizens of india. During the period of survey, there were 75 respondents were approached.
Non-probability sampling technique was adopted. The samples were drawn using convenience
sampling technique for survey.
 11. Research methodology

11.1 Research design

The study aims to study public perception about the benefit and challenges of cashless
economy, descriptive research design was found suitable as the study is based on primary data.

11.2 Research plan

Population of the study:

Citizens having varied background with respect to education qualification, age, profession,
etc.

Type of study:

Since it is not possible to cover each and every unit of population in the given time frame, a
Sample Study will be conducted to achieve the objectives of the study.

Sample size:
Approximately 75 responses have been collected.

Sample design:

Non-probability sampling technique has been adopted.

Sampling method:

The samples were drawn using convenience sampling technique for survey.

11.3 Sources of data

Primary data:

The data which the study has produced is primary in nature. Primary data has been collected
with the help of standard questionnaire.

Secondary data:

Secondary data has been collected from available online information and journals, research
papers and various other research websites.

11.4 Data collection

Data collection tool:

Structured Questionnaire has been used as a tool for data collection. Questionnaire contains
demographic characteristics of the respondents, benefits of cashless economy and problems of
cashless economy.

Data collection method:

Electronic (Google form) and Field Survey method shall be adopted to circulate the
questionnaire among the citizens of Vadodara.

11.5 Data analysis and interpretation

The data has been analysed and interpreted after performing simple percentage analysis and
Mean Score Analysis for 5 – point Likert scale was used.
 12. Analysis of data and interpretation

12.1 Graphical presentation and interpretation through pie chart of personal

data of respondent
 Interpretation:

 51.4% respondents are female

 48.6% respondents are male
 Interpretation:

 69.4% respondent falls under the range of 15-25 years

 19.4% respondent falls under the range of 26-35 years
 8.3% respondent falls under the range of 36-45 years
 Interpretation:

 50% respondent falls under other category of occupation

 25% respondent falls under salaried person category of occupation
 11.1% respondent falls under professional category of occupation
 8.3% respondent falls under businessman category of occupation
 5.6% respondent falls under homemaker category of occupation
 12.2 Graphical representation through pie charts and bar graph and
Interpretation of questions asked in questionnaire to respondents

Interpretation:

 79.2% of respondent support cashless economy

 16.7% of respondent maybe support cashless economy
 4.1% of respondent does not support cashless economy
 Interpretation:

 45.7% respondent prefer debit card for cashless transactions

 18.6% respondent prefer Google pay for cashless transaction

 15.7% respondent prefer net banking/ online banking for cashless transaction

 11.4% respondent prefer paytm for cashless transaction

 5.7% respondent prefer credit card for cashless transaction

 1.45% respondent prefer cheque for cashless transaction

 Interpretation:

 73.6% respondent agree with the concept of cashless economy

 22.2% respondent does not agree with the concept of cashless economy
 4.2% respondent may be agree with the concept of cashless economy
 Interpretation:

 81.7% respondent prefer cashless mode of payment

 18.3% respondent prefer cash as a mode of payment
 Interpretation:
 2.8% respondent rated 1
 2.8% respondent rated 2
 13.9% respondent rated 3
 36.1% respondent rated 4
 44.4% respondent rated 5
 Interpretation:
 41.7% respondent may be find digital method risk free
 34.7% respondent find digital method risk free
 23.6% respondent does not find digital method risk free
 Interpretation:

 47.9% respondent thinks india is not completely ready for cashless economy
 33.8% respondent thinks may be india is completely ready for cashless economy
 18.3% respondent thinks india is completely ready for cashless economy
 Interpretation:

 59.7% respondent find factors such as poverty, illiteracy and population hurdles in the path of
cashless economy
 25% respondent may be find factors such as poverty, illiteracy and population hurdles in the
path of cashless economy
 15.3% respondent does not find factors such as poverty, illiteracy and population hurdles in
the path of cashless economy
 Suggestions given by respondents for implementing cashless economy:

 Still india needs time for cashless

 Better internet connection
 Corruption free india
 To lessen the risk factor, etc
 13. Suggestions

 The Government of Gujarat along with banks should be organize intensive awareness
programme about the benefits and need of cashless transaction or digital payments to students
of colleges, higher educational intuitions.

 The government should continue and give some incentive benefits to those are using regular
digital payments because it will motivate not only the regular user but also new user.

 As most of respondents are concerned about the security of cashless payments, the security
system should be strengthening so that people won’t scare about their money and transactions.

 The banks should organize camp at village to educate the people about digital payment system.
 14. Conclusion

If we look at the overall scenario of establishing the cashless economy, its benefits and uses in
the present system it can be said that cashless economy is the need of the hour. It has become
not only important but necessary for the country to go cashless for the systematic development
in the economy. This is to be done in a very systematic way some of the initiatives that should
be taken are:

1. People should be educated adequately. The use of cards in the ATM should be described
to the people so that they can easily use the card.

2. Proper infrastructure should be developed in the remote

areas so that this facility should be taken to the rural and remote india.

3. People should be made aware so that they can utilize their money effectively through
cashless means. Buyers and sellers both should be made aware about the benefits of the cashless
transactions.

By following some of the points it can be said that we can effectively implement the cashless
transactions in the country. It will be better to say that India at this point of time has to go for
less cash economy rather than cash less economy. The continuous march towards less cash
economy will lead to cashless economy in the country.
 15. Annexure

NAME

Your answer

GENDER

 Male
 Female
 Prefer not to say

AGE

 15 - 25 YEARS
 26 - 35 YEARS
 36 - 45 YEARS
 46 AND ABOVE
Option 2

OCCUPATION

 STUDENT
 BUSINESSMAN
 PROFESSIONAL
 SALARIED PERSON
 HOMEMAKE
 OTHER

Q. Do you support cashless India?

 Yes
 No
 Maybe

Q. Which mode of payment do you prefer for cashless transaction ?

 Cheque
 Debit Card
 Credit Card
 Paytm
 GooglePay
 Net Banking/ Online Banking
 Other:

Q. Do you agree with the concept of cashless economy ?

 Yes
 No
 Maybe

Q. Which mode of payment do you prefer ?

 Cash
 Cashless

Q. Rate cashless mode of transaction

Least
 1
 2
 3
 4
 5
Most
 Q. Are digital method risk free according to you ?

 Yes
 No
 Maybe

Q. Do you think India is completely ready for cashless economy ?

 Yes
 No
 Maybe

Q. According to you, are the factors such as poverty, illiteracy and population hurdles in the
path of cashless India ?

 Yes
 No
 Maybe

Q. If you were to give suggestion or make changes in implementing cashless economy, what
would they be ?

Your answer
 16. Bibliography

 https://www.globallogic.com/gl_news/cashless-india-leveraging-possibilities-and-facing-
security-challenges-in-the-mobile-space/

 https://en.m.wikipedia.org/wiki/Cashless_society

 https://www.mbauniverse.com/group-discussion/topic/business-economy/cashless-economy

 http://cashlessindia.gov.in

 https://www.researchgate.net/publication/318484701_Public_Perception_on_Cashless_Transaction
s_in_India

 https://yourstory.com/2016/11/demonetisation-impact-common-man

 https://shodhgangotri.inflibnet.ac.in/bitstream/123456789/5766/1/synopsis%20sunil.pdf

 http://www.iaeme.com/MasterAdmin/UploadFolder/IJMET_09_07_010/IJMET_09_07_010.pdf

 https://www.academia.edu/36409929/A_Research_Study_on_the_Effects_of_Cashless_Transaction
s_on_Peoples_Spending_Behavior.docx