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Why India's prime minister wants a cashless society

Indian prime minister Narendra Modi defended his government's demonetization drive over the weekend, saying the move would protect the poor and middle class. 

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    A security guard reads a newspaper inside an ATM counter as a notice is displayed on an ATM in Guwahati, India, on Nov. 27, 2016.
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Prime Minister Narendra Modi defended his government's push to demonetize India this weekend, saying a cashless society would protect the vulnerable poor and middle class. 

Speaking on Friday, the prime minister emphasized the need for demonetization at a time when the "common citizen of India has become a soldier against corruption and black money." 

"Black money and corruption has looted the middle class and deprived the poor of their rights," he said, as reported by Asian News International. "I want to give the poor their rights. I am doing everything possible to ensure the middle class is not exploited and the poor get their dues." 

The defense came weeks after Prime Minister Modi's controversial decision on Nov. 8 to invalidate 86 percent of currency in circulation, a move denounced by many in a country where roughly half the population does not have a bank account. One recent poll found that more than 60 percent of Indians feel their nation is not ready to go cashless. 

Supporters of the push for demonetization say cutting out cash will reduce corruption and immoral transactions. But critics argue that the drive isn't practical in a cash-dominated country, and express concern that such a system could be exploited by the government. 

"India was, I think, where the use of cash was leading to the mass of people regarding the system as unfairly biased. Thus a less cash society should be welcomed," writes Tim Worstall for Forbes. "But a cashless society would be to swing too far the other way, increase the powers of the State to an unwelcome level. And thus is not a desirable goal at all." 

Some research suggests that a shift away from cash transactions in India may have been imminent without the push from Modi. A report by Google India and The Boston Consulting Group published earlier this year predicted that by the year 2020, nearly $500 billion worth of transactions will happen digitally in India through online wallets and other digital payment systems – ten times the current level. 

But some critics question whether the government's push is practical today in a country where, last year, 78 percent of consumer payments were made in cash. It may prove especially difficult to spread plastic money to rural areas, where mobile internet access is weak, many cannot afford the high cost of bank transactions, and literacy levels are lower, writes Ankur Bhardwaj for Business Standard.

"The beauty of cash is that it just works," Mr. Bhardwaj writes. "Even in the remotest locations of India, where the State might not be present with all its paraphernalia, its writ runs in the form of currency notes that people use to do business on a daily basis." 

"Cash transactions are not necessarily immoral transactions," he adds. "They are a highly refined way in which human beings, having evolved from the barter system prevalent in the ancient period, transact business today. Cash in itself represents order and evolution." 

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