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Digital Transactions were Growing Faster Before Demonetisation

Jun 12, 2017


The finance minister Arun Jaitley recently said: "Through demonetisation, the government created a new normal, with a big step in removing the earlier scenario of cash economy and shadow economy."

If this is true then there should have been a substantial jump in digital transactions in the recent past. If people are not carrying transactions in the cash economy, then they should be carrying out transactions digitally. But is that true?

Let's first look at the number of digital transactions (i.e. volume of digital transactions) that have happened every month between November 2016, when the demonetisation of Rs 500 and Rs 1,000 notes was announced, and May 2017, the latest monthly data available. All the digital data used in the column deducts the transactions carried out through Real Time Gross Settlement system simply because it is not a retail mode of digital transactions, which is primarily what we are looking at here. The minimum amount that can be transferred through this mode is Rs 2 lakh.

Take a look at Figure 1. This basically plots the total number of digital transactions that have happened between November 2016 and May 2017.

Figure 1:

As is clear from Figure 1, the volume of digital transactions peaked in December 2016, when the impact of demonetisation was at its peak. With very little currency available to carry out transactions, people had no option but to use digital modes of settling transactions. In May 2017, the total number of digital transactions was down by 11.4 per cent in comparison to December 2017. This clearly tells us that fewer people are using digital modes of transactions in comparison to the period right after demonetisation.

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Now take a look at Figure 2. In this we look at the total value of digital transactions carried out every month between November 2016 and May 2017.

Figure 2:

From Figure 2, it is clear that the total value of digital transactions peaked in March 2017, and has fallen by 20.2 per cent since then. Past data shows that the digital transactions tend to increase in the last month of the financial year as people settle their dues and pay their taxes. Having said that, the total value of digital transactions in May 2017, was higher than that in December 2016. But with volume of transactions being lower, what this means that people who were already on the digital bandwagon are spending more digitally. And that is one piece of good news for a government looking to increase the proportion of digital transactions in the overall economy.

This comparison just tells us how things have evolved on the digital front after demonetisation. How do things look, if were to stretch the timeline a little more? Let's compare May 2017 data with May 2016 data (In this case I have ignored the data for United Payments Interface and Unstructured Supplementary Service Data (USSD). I could not find this data for May 2016 and May 2015. This will not have any impact on the overall result because the USSD form of digital payment is close to zero and can be effectively ignored.

When it comes to UPI even in May 2017 with all the push and promotion by the government, it made up for 1.1 per cent of the total digital transactions by volume and 0.1 per cent by value (of course we have ignored RTGS here).

Take a look at Table 1. It has the total digital transactions both by volume and value, over the years.

Table 1:
Digital transactions May 2017 May 2016 May 2015
Volume (in millions) 831.5 726.3 491.2
Value (in Rs billion) 20,901.5 15,364.6 12,173.9
Source: Author calculations on Reserve Bank of India data

What does Table 1 tell us? Between May 2016 and May 2017, the total number of digital transactions (i.e. volume) went up by 14.5 per cent. In value terms, the digital transactions jumped by 36 per cent. So, doesn't this tell us that demonetisation had a positive impact on the digital transactions? Before we jump to that conclusion, let's look at how the situation was between May 2016 and May 2015, when there was no demonetisation to contend with.

Between May 2015 and May 2016, the total number of digital transactions grew by 47.9 per cent in volume terms, which was significantly faster than the increase between May 2016 and May 2017. Of course, the low-base effect is at work, but even with that the jump in percentage terms was significantly more last year.

This also tells us clearly the negative effect that demonetisation has had on the overall economy, with the larger section of the economy going slow on spending. This ultimately reflects in the slower jump in digital transactions.

How do things look in terms of value? In terms of value, the jump between May 2015 and May 2016 stood at 26.2 per cent, which is lower than the jump between May 2016 and May 2017. (I did not look into data from May 2014 and before, because the structure of the digital data changes dramatically, with the importance of ECS increasing in comparison to NACH today).

What does this tell us? It tells us that demonetisation has led to those who were already on the digital mode to spend more digitally. It also tells us that the better-off haven't been impacted much by demonetisation. Nevertheless, the main aim of demonetisation was to increase the total number of digital transactions (the dream of a cashless society i.e.), which was happening anyway and seems to have slowed down after demonetisation.

The fact that digital transactions in India were growing at fast pace even before demonetisation, isn't surprising given that India is one of the youngest nations in the world. More than 54 per cent of India's population is under 25 years of age. Youth take on to new technology faster than others. Hence, the digital transactions in India will continue to grow in the years to come, as they had before demonetisation.

This brings us back to the question was demonetisation necessary? The useful idiots of Narendra Modi (with due apologies to Thomas Sowell who coined the term for a different context) through their WhatsApp forwards and analysis in the media, would like us to believe that. But as more and more data comes out, it is becoming more and more clear that demonetisation was a more or less whimsical decision carried out without any due-diligence. Of course, it needs to be defended now.

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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10 Responses to "Digital Transactions were Growing Faster Before Demonetisation"


Nov 17, 2018

Excellent analysis with RBI data. Bhakts would want us to forget demonetization but how will we forget the businesses that closed down, the reduction in jobs (with increase in talent pool). Demonetization was doomed from the start like any other project that is executed without planning, without expert help and without conducting a proper study. When I see bhakts supporting demonetization it just indicates that most of the supporters are probably not educated or if they are educated they do not understand how to execute projects. So when you see people blindly supporting DeMoNeTiZaTiOn just ignore the poor ignorant creatures



Jun 19, 2017

The demonetization is past history. If we start analyzing what it's effect now, can be consider that I have plenty of time to do worthless analysis.
We wish the Economists should come forward to guide how to use the money which has come in the banking channel. We want Economists should use their knowledge to suggest the schemes and procedures by which tax can be recovered for the progress of the nation, from the people who were avoiding the taxes for many years.



Jun 14, 2017

all i can point out was the typo error which says december 2017 instead of 2016 in the para explaining
"Figure 1:" ... else all is as usual.. people trying to con people for various reasons...!!!


N Krishna

Jun 13, 2017

Before Demonetisation, my grocer used to accept card swipes without any charges. Since Jan-Feb he has started charging 1.5% on the transaction. Though i tried to explain him that the charges are to be borne by him and not passed on to the consumer, he was in no mood to listen and the reason why he started charging was the side effect of demonetisation. Earlier 3-5% of his consumers would pay him digitally but post demonetisation, more people started using digital payment and he was loosing his margin. So he started passing on the burden to the consumer. I moved from paying digitally to cash transaction with my grocer.



Jun 12, 2017

According to data released by the National Payments Corporation of India (NPCI), which runs the UPI platform, UPI transactions surged to 9.2 million in May from 6.9 million in April and 92,000 in August. The total value of UPI transactions shot up to Rs 27 billion in May from Rs 7 billion in December, a month after the government demonetised high-value banknotes.

BHIM app's share of the total volume of UPI transactions dropped to 42% in May from 44% in April. In value terms, the app's share of transactions increased marginally to 46% in May from 45% in April, but that was its slowest pace of growth since January. BHIM has registered 20 million downloads since launch. According to NPCI and online payments industry experts, the decrease in BHIM's share of transactions by volume is because of the expanding UPI network, with 50 banks being live on the platform as of may as compared to 21 banks in august ..

according to june 8th economic times total value or upi transactions itself is 2700 crore per month and at this rate we are speaking about 35000 crores a year and yet u r blabbering nonsense in this article. moron u hav blocked quoting links here. by hook or crook with u dimwit u r now in a position to rant all u want stay at that dont show ur mathematical and data illiteracy at the drop of hat. have a life cretin.



Jun 12, 2017

The month saw total digital transactions worth Rs111.09 trillion, up 1.4% from Rs109.60 trillion in April, according to the data. The value is still the second highest after the peak recorded in March.
Payments using National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) rose by around 9.33% and 9%, respectively, in May from April. and u said u didnt take RTGS into account moron after limiting buying of articles for more than 2 lac higher end motorcycles, cars,gold and apartments have to be done through either rtgs or cheque and dd payment and u said u didnt take that into account.
this is the rbi data published in all leading news papers including economic times and livemint and u speak of paltry billions dont know where u get ur data in utopia?



Jun 12, 2017

A nice article tearing apart the bogus claims of this government.Demonetization only caused harassment to common folks and monetary loss also.For example , my mother died last July. I filed for death claim with a PSU bank for money in her account . Last month the bank asked for my mother's identification papers.While searching for it I discovered that she had kept four rupees five hundred currency notes in her purse , presumably for exigencies.It being too late for exchanging them , I asked the bank manager if any thing can be done.To my surprise the manager had also suffered the same fate.Her mother had 'safely' kept some money which was worthless now ! Through Mr Narendra Modi's website I wrote directly to him suggesting that people like me or bank manager may at least be allowed to donate these notes to say Sainik kosh or even Prime Minister's relief fund so that it gets utilized for a noble cause.I got an auto generated reference number on my email and registered mobile.Although considerable time has passed I am yet to get any reply.

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Jun 12, 2017

//Between May 2015 and May 2016, the total number of digital transactions grew by 47.9 per cent in volume terms, which was significantly faster than the increase between May 2016 and May 2017. Of course, the low-base effect is at work, but even with that the jump in percentage terms was significantly more last year.// u r speaking like a greade a moron when the base is 10000/- a 10% increase is 1000/- but when its only 100/- even a 100% increase amounts to 100 only ur 47.9% increase led to only 3190 crores approx but 36% increase from 2016-17 5560 crores approx which is nearly 75% more than the previous year.u need basic maths understanding before delineating data. u r saying bihar is richer than haryana since its growth rate is higher than haryana. go to school and learn basic maths moron.

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Nayan Kamat

Jun 12, 2017

I am somehow seem to see a trend in Mr Kaul's Diary. He has been continuously trying to make one single point and it looks mre like a ego issue and nothing. I do not know about data points but from personal experience, without demonetization none of the small business/traders would have opted for digital payments. Today even the tailor who sits in a makeshift shop and does alterations also displays a digital payment option, same is the case with the roadside paani puri and manchuri vendors. Just by continuously stating one thing again and again does not change the facts on the ground. I am no bhakth ( as they call people who are pro govt).

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Raju Naik

Jun 12, 2017

The author seems to have a rabid bias against schemes of Modi Govt and Demonetisation in particular. If those who support Demonetisation are "Ueseful Idiots", then the author is just another "Idiot"

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