India uses too much cash for transactions. The ratio of cash to gross domestic product is one of the highest in the world—12.42% in 2014, compared with 9.47% in China or 4% in Brazil. Less than 5% of all payments happen electronically.

Some studies show that cash dominates even in malls, which are visited by people who are likely to have credit cards, so it is no surprise that cash dominates in other markets as well.

A cashless economy is one in the flow of cash within an economy is non-existent and all transactions have to be through electronic channels such as direct debit, credit and debit cards, electronic clearing, payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer and Real Time Gross Settlement in India. 

Benefits of Cashless economy

• Reduced instances of tax avoidance because it is financial institutions based economy where transaction trails are left.

• Curb generation of black money.

• IT will reduce real estate prices because of curbs on black money.

• It will place universal availability of banking services to all as no physical infrastructure is needed other than digital.

• There will be greater efficiency in welfare programmes as money is wired directly into the accounts of recipients. 

• Reduced cost of printing notes, instances of their soiled or becoming unusable, counterfeit currency.

• Reduced costs of operating ATMs.

• Speed and satisfaction of operations for customers as no delays and queues, no interactions with bank staff required. 

• A Moody’s report pegged the impact of electronic transactions to 0.8% increase in GDP for emerging markets and 0.3% increase for developed markets because increased velocity of money.