Why Demonetisation and Cashless Economy May Lead India into an Economy of Debt

A simple incident at a local cafe in Dehradun struck a light bulb in my mind and got me thinking. Today, there is so much talk of demonetisation in the country. The need of the hour is to turn India into a cashless and digital economy. This means that the main mode of buying and selling of goods will cease to be cash and we will use electronic means to transfer currency. It can be through internet banking, credit or debit cards, or even mobile applications such as Paytm. Cash, as such, will go out of business and these so-called ‘invisible modes’ will be used to buy and sell goods.


Standing in queue to take limited amounts of money from own accounts.

Now although on the ground, this looks a better thing to do. It cuts out corruption and safeguards the economy from black money. There are better transparency and accounting process. The digital footprint created can be used to trace transactions. All this is fine and bodes well for the economy. But what of the psychological impact of a cashless economy? We were all used to taking money out from our bank or ATM and putting it in our purse. We pay for goods by counting our cash and then giving it to a particular merchant. We could feel the notes at the tip of our fingers. This touch-and-feel mode of payment has suddenly disappeared. I, for one, feel a pinch when I use it to buy something expensive with cash. Just counting it and giving it away gives me a feeling of ‘oh, here goes my hard-earned money’. This pinch, this feel, has suddenly disappeared. In its place, there is a digital mode of just-a-click on my laptop or mobile phone that transfers the funds into someone else’s account. I no more think twice before buying something. The consumer buying decision has hastened. The use of credit cards will also drive me to buy things I may not really want. The human element that was there with cash has been changed to a digital and more cyborg-like experience.


Exchanging for new currency.

This is a big shift in consumer behaviour and also a psychological one. I think with the digital economy, we will tend to buy more, consumerism will rise, spending will rise, but most of all, we will be spending more than we earned. Therefore, debt will also rise. I believe in the long run, we might be headed just like South Korea or the American economy which will be burdened by huge debt which the banks and the financial system will have to leverage. Digital economy will lead to consumerism and then saddle us with debt which we will have to subsequently fight with. Think about it.



Did you know that the Reserve Bank of India commenced its operations on April 1st of 1935 during the British Rule?

Take a look at an article written by my friend Anna Kucirkova A Digital Economy for an Increasingly Connected World that details more information on Digital Economy.

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