India would not have been my first guess. Or even my 20th. But they are doing it.
Despite a large proportion of employees not having access to bank accounts and the country relying heavily on cash, India has decided to move toward a cashless economy.
In November, Prime Minister Narendra Modi announced that high-denomination currency would be scrapped to encourage digital payments. Now, the government says there are to be tax benefits for companies conducting cashless transactions.
These are bold moves by the government, though few people fully understand them. A proposal to amend the Payment of Wages Act of 1936 would allow some employers to pay wages by check or through bank account deposits in addition to existing modes of wage payments in coins or currency notes. The government hopes the move would ensure that payments are made for work performed and that minimum wage requirements are met.
Employers are in a particularly challenging place, with many of them paying at least some portion of workers in cash. With the demonetization of 500 and 1,000 rupee notes, payments to weekly labor is more difficult because of a monetary liquidity crisis. Employers now must pay salaried employees monthly but hourly workers are paid twice a month.
In the shift to pay employees electronically, small to medium-sized enterprises may struggle to meet the needs of employees who lack bank accounts.
Other countries with limited access to bank accounts have tried alternatives to cash payments. Kenya, for example, launched a popular mobile phone-based money-transfer service called M-Pesa, which operates through digital text—no banks or ATMs.
India’s government has taken a different approach. In 2014, a program called Pradhan Mantri Jan Dhan Yojana was launched with the goal of establishing a bank account for each household. Since then, bank account ownership increased to more than 50 percent of the population, but India still lags most other major economies.
In 2014, the World Bank found that 43 percent of bank accounts in India were dormant. So despite having accounts, many are not used. That number likely has declined somewhat, but it appears that India still has a long way to go before adopting a cashless economy.
International Payroll Decision Support Network. With more than 90 countries covered, this is your one-stop resource for reliable, up-to-date guidance and analysis in every area of global payroll administration and compliance.
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