Hello,

We noticed you're browsing in private or incognito mode.

To continue reading this article, please exit incognito mode or log in.

Not an Insider? Subscribe now for unlimited access to online articles.

Business Impact

India’s Cashless Economy Gets a Discount

Slashing prices for people using online transactions is meant to speed up what has been a messy transition away from paper currency.

On November 9, Indian Prime Minister Narendra Modi nullified 86 percent of all the cash in circulation at a stroke. The move has led to chaos, with people waiting in line for hours to exchange their now-worthless 500 and 1,000-rupee notes. One estimate suggests the turmoil could lower India’s projected GDP growth by two percentage points this year. Street merchants, factory workers, farmers, and millions of others near the bottom of the economy rely the most heavily on cash, and are most likely to be hit the hardest.

Nevertheless, the government is now doubling down. According to Bloomberg, digital transactions on a range of goods and services, including insurance policies, train tickets, and gasoline, will be discounted, with the highest receiving a 10 percent break for using digital currency instead of physical cash.

India isn’t the first to push for a shift away from bank notes, of course, but what’s unique is that it’s happening by surprise government fiat. Some observers are skeptical that Modi will achieve his stated aim of cleaning up the country’s rampant “black economy,” where the wealthy are thought to hide their money and do business beyond the reach of the state. Since the declaration, India’s equivalent of the IRS has seized millions of dollars worth of cash in a series of raids. But the seizures don’t amount to much compared to the collapse of commerce that has occurred due to an ongoing shortage of cash.

Some early winners are emerging. Local digital payment companies are doing a booming business—particularly Paytm, the country’s most popular service, where people are signing up at 14 times the normal rate. Bitcoin has surged in value, too, which looks like a direct result of a spike in activity in India.

Modi’s government is now scrambling to print new denominations of cash that will replace the voided ones, a process that is expected to take months. It’s unlikely that a subsidy for digital transactions will dull the pain of such a huge shift on its own. But it may mean that once the dust settles, more of the millions of people now experiencing digital money for the first time will decide that it’s better than dealing with dirty paper.

(Read more: Bloomberg, The Economist, The New York Times, Quartz, “Me, My Money, and My Devices,” “A Closer Look at the Future of Money”)

Tech Obsessive?
Become an Insider to get the story behind the story — and before anyone else.

Subscribe today
More from Business Impact

How technology advances are changing the economy and providing new opportunities in many industries.

Want more award-winning journalism? Subscribe to Insider Plus.
  • Insider Plus {! insider.prices.plus !}*

    {! insider.display.menuOptionsLabel !}

    Everything included in Insider Basic, plus the digital magazine, extensive archive, ad-free web experience, and discounts to partner offerings and MIT Technology Review events.

    See details+

    Print + Digital Magazine (6 bi-monthly issues)

    Unlimited online access including all articles, multimedia, and more

    The Download newsletter with top tech stories delivered daily to your inbox

    Technology Review PDF magazine archive, including articles, images, and covers dating back to 1899

    10% Discount to MIT Technology Review events and MIT Press

    Ad-free website experience

/3
You've read of three free articles this month. for unlimited online access. You've read of three free articles this month. for unlimited online access. This is your last free article this month. for unlimited online access. You've read all your free articles this month. for unlimited online access. You've read of three free articles this month. for more, or for unlimited online access. for two more free articles, or for unlimited online access.