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1. Demonetisation And Cashless Economy

  • On November 8, 2016, the Government demonetised currency notes of two denominations Rs.500 and Rs.1000. Together they constituted 85% of total value of notes in circulation:


1.1. Reasons for Demonetization in India

  • Burning problems of black money

  • Reducing the Holding unaccounted wealth those who hold black

  • Problem of counterfeiting currency

  • Setting up of egalitarian society

  • Dream of cashless economy and all further transactions to be kept in check

  • Push to Digital India

  • Flow of counterfeiting notes from across the border that fed terrorist activities are to be stopped

  • Advantages of Demonetisation and cashless economy

  • It will check money hoarding and as result more money will come to the banking system. The savings will push up investment and lead capital formation

  • The opening of bank accounts for depositing banned currencies shows that it has promoted banking literacy among general Payment is hassle - free, risk free, whereas, there are always safety issues with the physical cash.

  • if the economy move towards cashless economy. cash can be utilised for other welfare

  • The deposit of huge amount of money in Jan Dhan Bank account and opening up of new bank accounts clearly shows that people who were earlier scared of bank and lacking banking habit are being brought to banking system

  • It will enhance the flow of FDI to economy as investment requires corruption free environment

  • It will check outflow of illicit money,Big blow to terrorists decrease many anti-social and illegal activities like drug trafficking, prostitution, financing of terrorism and money laundering,

  • It has strengthened the banking system as many bank branches were facing acute problem of Non performing assets The rise in savings in banks will increase their lending capabilities

  • The excess income deposited in banks can generate taxable income for the government which can be spent on various welfare programmes for poor in different sectors of economy

  • Money unearthed through demonetization if spent prudently and honestly for the upliftment of poor will help to reduce poverty and inequality in society

  • If demonetisation is done at regular intervals will check political corruption and spending in elections

  • Reduce size of informal economy Promote social and cultural development in society Will help the nation to achieve a real and cleaner economic growth rate

  • People who have earned black money through unfair means will be exposed Earning through unearthing of black money will help reduce fiscal deficit


Government took a lot of initiatives to boost digital economy by starting various schemes and provide incentives and measures

  • The central petroleum PSUs shall give incentive by offering a discount at the rate of 0.75% of sale price to consumers on purchase of petrol/diesel if payment is made through digital method

  • No service tax will be charged on digital transactions charges /MDR for transactions upto Rs. 2000 per transactions

  • For the payment of toll plazas on National highways using RFID card/ fast tags a discount of 10% will be available to users in the year 2016-17

  • Vittiya Saksharta Abhiyan (VISAKA) scheme and appealed to student community to pay their fees and dues in digital means.

  • RuPay, the Indian version of credit / debit card is launched to cater the needs of Indian population.

  • Starting schemes like Digi Dhan Vyapar Yojana and Lucky Grahak Yojana

  • Ministry of Finance, reviewed the existing limit of Rs. 10,000 prescribed regarding e-payment to suppliers etc. it has now been decided to lower threshold limit from Rs. 10,000 to Rs. 5000

  • TRAI has decided to reduce the USSSD charges from current 1.50 per session to Rs. 0.50 per session

  • Central government through NABARD will also support RRBs and cooperative banks to 4.32 crore kisan credit card holders

  • BHIM (Bharat Interface for money) App which requires only the phone number, which is linked to the Bank account for transactions, which are facilitated through the unified payment interface (UPI).

  • Central government departments and central PSUs will ensure that transactions fee /MDR charges associated with payment through digital payements should not be passed on to consumers and borne by PSUs

  • Expand digital payment infrastructure in rural areas, the central government through NABARD will extend financial support to eligible banks for deployment of 2 POS in each 1 lakh villages

  • All railway passengers buying online tickets shall be given free accidental insurance cover upto Rs. 10 lakhx

  • The Aadhaar payment App which links Aadhaar Number to bank accounts and it requires biometric reader for paymentsRailways to provide 0.5% incentives if tickets booked via digital method Public sector insurance companies will provide incentive by the way of discount or credit


2. From A Cash Economy To A Less-Cash Economy .

  • A cashless economy runs on credit/ debit cards, electronic funds transfer, or online shopping instead of cashThe idea of cashless economy is actually a revolution from fiat money to digital money, generally adopted with aim of curbing black money and increasing transparency of flow of cash


2.1. Steps Towards a cashless economy

  • Lucky Grahak Yojana : Lucky Grahak Yojana for consumers and Digi Dhan Vyapar Yojana for merchants

  • Rupay cards : Push to usage of Rupay cards, USSD, UPI, AEPS and digital wallets

  • Vittiya Saksharta Abhiyan: launched to encourage people to adapt to digital economy and cashless mode of transaction.

  • BHIM (Bharat Interface for Money): Aadhar based mobile payment application will allow people to make digital payments directly linked with bank account and hence can transfer money at click of button,

  • Rupay: Indian version of credit/debit card and similar to international cards such as Visa or Mastercard. NPCI launched Rupay under Jan Dhan

  • Aadhar Payment App: on 25 december 2016, government launched an aadhar payment app linked to aadhar number of individual


3. Demonetisation And Election

  • State funding with the condition of genuine inner party democracy

  • With a proactive expenditure control division, a supportive voter education division and watchful media and civil society, manupilating expenditure to avoid the electoral code of conduct

  • Illicit money is spent in elections in organizing rallies and purchasing votes

  • Most famous committee on elections i.e. Indrajit Gupta committee set up in 1999 which had members Dr. Manmohan Singh, Mr. Somnath Chatterjee etc suggested partial state funding


3.1. State funding sources

  • Corporate funds, Small donations ,sale of coupons, membership fee ,interest on deposits , rental and revenue income . Demonetization and digital payments can be blessing for conducting free and fair elections


Impact on Black Money:

  • According to a 2015 report by Price water house Coopers, it pegs cash transactions at 98% of consumer transactions in value terms and 68% in volume terms much higher than China, Brazil, South Africa

  • The parallel economy which has no transparency and thrives on anonymity of currency has taken a back seat as people have option

  • If all transactions are electronic then all transactions can be chased, recorded & checked

  • In cyclical pact it will also reduce real estate prices because of curbs on black money is invested in real estate prices which inflates real estate prices

  • RBI has also recently unveiled a document- “Payments and settlement systems in India: Vision 2018” setting out a plan and mood to encourage electronic payments enabling India to move towards a cashless society

  • Corruption will automatically drop as cash will easily be traced. Universal availability of banking facility will be easier


India and the world:

  • RBI has recently unveiled a document- “Payments and settlement systems in India: Vision 2018” with aim to encourage electronic payments by all sections of society enabling India to move towards a formal sector economy, increase tax base, reduce black money and cash funding for terrorism

  • In 2015, share of cash in circulation in economy as a percentage of GDP of India was 12.3% compared to 3.8% in Brazil, 5.6% in South Korea and 1.7% in Sweden

  • In 2016 more than 68% of transactions in India were settled in cash one of the highest in world after Indonesia and Russia

  • Among developing countries Kenya has taken measures for online payments for government services etc

  • Like Kenya used innovative measures Indian government has launched UPI under NPCI

  • Some key areas that need immediate attention are cash payment for retail and wholesale transactions, payment to workers in informal sector and payment to agricultural labourers


To move with less cash economy government should ensure

  • Neutrality of mode of payments

  • Security of information

  • Setting up a robust physical and technological infrastructure

  • Lower taxes

  • Roust e commerce policy


4. Cashless Rural Economy

  • Recording financial transations have many advantages

  • It aids the government to collect appropriate tax revenues Can effectively detect and curtail illicit money

  • It will give better estimate and understanding of huge unorganized sector

  • India is largely an agrarian based on rural economy with a predominant unorganized sector and 68.84% of population in rural areas

  • Over 93% of people in rural India has never done digital transaction


4.1. Challenges of cashless rural economy

  • Currency dominated economy: nearly 13% of GDP

  • Transactions nearly in cash: 95% of total transactions

  • ATM use mainly for ash withdrawals not online settlement

  • Limited availability of point of sale terminals

  • Mobile internet penetration remains weak in rural India

  • Less bank branches in rural areas

  • Lack of bank literacy among villagers


Cashless Economy Way Forward

  • JAM trinity can encourage digital culture

  • Government should make digital transactions mandatory for certain transactions

  • High transactions costs to be removed

  • Government should assure basic necessities in rural areas and focus on developing infrastructure

  • Special drives through scholls, panchayats etc

  • Financial literacy is must

  • Linkage of all welfare activities with bank accounts

  • A strong banking base is the basic prerequisite for cashless economy

  • Improve financial skills and credit management


Steps taken by Government of india

  • Government has signed DTAA with Switzerland, Mauritius, Cyprus, Singapore

  • BHIM (Bharat Interface for money) launched and named after Dr. B R Ambedkar. BHIM is a biometric payment system app using Aadhar platform and UPI to facilitate e payments. Payments through BHIM app can be made using thumb impression after linked with Aadhaar gateway.

  • “Legal tender” is the money that is recognized by law of the alnd. RBI act of 1934 which gives central bank the sole right to issue bank notes.

  • “Non Legal tender money” is form of money which is generally accepted but legally is not bound to be accepted. Such as cheques, bank drafts, bills of exchange, postal orders etc.

  • Vittiya Saksharta Abhiyan is under Ministry of HRD

  • Sweden is the first country to promise to go 100% cashless by 2020

  • National Voters day celebrated on 25 January every year

  • North Eastern Institute of Ayurveda and Homeopathy inaugurated in Shillong, Meghalaya

  • First all electronic transaction in India demonstrated in Hyderabad in 2001. Payment was through e-cheque issued by Andhra Bank to resident account holder, water board who made their bills presentment and payment in collaboration with Andhra Bank

  • Global Findex Report released by World Bank

  • In india only 17% of adults had smart phones in 2016 compare to 88% in South Korea and 26% in Kenya

  • In india 7.8 bank branches for every 100,000 people in India less than 3 branches per 100 square kilometer

  •  ‘Swachh Swasth Sarvatra’ an inter ministerial joint initiative between Ministry of Drinking Water and Sanitation and the Ministry Of health and family welfare launched in New Delhi, it is to build on achievements of Swachh Bharat and Kayakalp

  •  ‘Swasth Bacche Swasth Bharat’ between Ministry of Health and Family welfare and Ministry of HRD

  • Corruption Perception Index is published by Transparency International. Rank 1 is of Denmark & NZ, 3rd Sweden. India ranks 76th.


Demonetisation and agricultural impact

  • It was well known that demonetisation of high value currency notes was bound to hard hit farmers and rural economy. Nearly 65% of country’s population depends on rural economy and cash is the preferred mode of transaction in rural areas.

  • After two year drought, farmers across India were hopeful of a good year because of above-normal monsoon which had pushed the vegetable production during winter. However, the withdrawal of Rs.500 and Rs.1000 posed a big challenge to farmers.


Legal Tender Money

  • Denomination of a country’s currency by law must be accepted as a medium of exchange and payment for a money debt. The RBI Act of 1934 gives the central bank the sole right to issue bank notes and shall act as the legal tender at any place in India.

  • The legal tender money is of two types:

  • Limited Legal Tender Money: This is a form of money, which can be paid in discharge of a debt up to a certain limit, and beyond this limit a person may refuse to accept the payment and no legal action can be taken against. Coins are limited legal tender in India.

  • Unlimited Legal Tender Money: A person who refuses to accept this money, a legal action can be taken against. Paper notes / currency are unlimited legal tender in India.


Non-Legal Tender Money

  • It is a form of money which is generally accepted, but legally it is not bound to accept it. Cheques, bank drafts, bills of exchange, postal orders etc are not legal tenders and are accepted only at the option of the creditor, lender or seller.

  • It is also called the optional money because it does not have legal backing and their acceptance is optional.


5. Cyber Security

  • First such system i.e. all electronic transaction was demonstrated in Hyderabad in 2001

  • Aim of Information Security is to provide confidentiality, integrity and availability of information.

  • These (CIA) three parameters are also called security goals or security services.

  • Other security objectives also include parameters as authenticity, authorization, accounting & nonrepudiation

  • Cyber security is a process, technique or procedure to ensure information security goals

  • Information security goals- different views

  • Confidentiality

  • Integrity

  • Availability

  • Authentication

  • Accounting

  • Authorization

  • Privacy

  • Integrity

  • Non repudiation

  • Attempts to extract credentials is called phishing

  • Cyber security is a skill based technology and thrives on knowledge of underlying infrastructure, operating systems, computer networks and applications which are built using programming languages

Yojana February 2017

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