India currently has the seventh-largest economy globally. Boasting an estimated demographic of 1.34 billion people, it is a fast-growing economy despite having a GDP of 5.7% in the 2nd quarter this year. According to the World Economic Forum, it will become the 2nd largest economy by 2050 with China in the frontline.
In 2016, under the ruling of Narendra Singh Modi, the country demonetized two of its most popular bank notes. The two notes accounted for 86% of the money circulation in India. This was no less than a punishment for tax evaders and made individuals with heaps of black money to return them to the bank before transferring them elsewhere.
Despite being a strategic move to make India adopt digital transactions and limit wealthy tax evaders from paying taxes, it was the typical Indian population that suffered the most.
The plan resulted in a significant money crunch and led to thousands of people standing in queues to return the demonized notes.
But the bright side was the sudden increase in digital transactions as reported by the World Economic Forum. The demonetization allowed the government to keep track of all the cash flow.
Even today, cryptocurrency transactions and exchanges aren’t a popular means of money transfer in India.
Only 0.5% of people indulge in Bitcoin. In September 2018, The Reserve Bank of India proposed plans to launch a new platform for Blockchain. If this becomes a reality, we can expect increased tax payments and move towards a cashless economy.
Can a Cashless Economy and Blockchain Converge?
It can, but there are a few obstacles and limitations. The Indian government will need to develop lasting solutions for issues like monetary addition, setup costs, transactions times and expenses.
Although minute, there is still a fraction of the population that doesn’t like to associate themselves with financial institutions of any kind. In order to promote cashless economy stance, these people will have to create checking accounts. But if blockchain proposals do succeed, there will be no need for financial institutions to intervene.
What about the Transaction and Other Costs?
Transactions costs are currently high in India. To set up a card-swiping terminal, a merchant has to invest anywhere from $61.5 to $123. This may not seem inconvenient for big merchants running big stores but can be a little demanding for someone who runs a smaller business. Not to forget, it is these small business owners who are really taking the economy of India forward. This is another reason why the country still chooses to pay via cash rather than with digital currency. The expenses are higher.
Will Blockchain Reduce Transaction Times?
In order to go cashless completely, the economy will have to focus their efforts on reducing waiting times between a processed transaction and an accessible one. This will, of course, encourage people to opt for digitalized currencies.
BitIndia is a blockchain project that aims to support the proliferation of digital transactions. Its long-term vision is to help a typical Indian embrace digital currency while reducing transaction times, transaction fees and the need for intervention from financial institutions.