How India Transacted Through the Demonetisation Era...

Fri, 13 Jan Pre-Open

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Demonetisation is done. But its effects are still felt.

Its implementation came with many challenges and costs for the common man and businesses. Long queues at ATMs, hassles at bank, slowdown in business environment, etc. have been the norm for the past two months. The economy at large has felt the brunt.

The exercise also gave special privileges to political parties.

Today, there are both positive and negative reports on how the fight against black money has fared.

But how has India coped with the withdrawal of old notes?

Are the trends we see today with a reduced stock of currency lasting or just transient?

Here's some data that points to answers.

The 'payment systems indicator' ata for November released by the Reserve Bank of India (RBI) could be helpful here. It presents a detailed look on how India transacted in November post demonetisation. An article in the Livemint presents the following observations from the data-:

• Debit cards were swiped at point of sale 234 million times in November. This was nearly twice the monthly average for the first nine months of the calendar year.
• Use of prepaid payment instruments also went up - November saw 169 million transaction using these. This was more than double the average of 77 million transactions per month in the first nine months of the year. (Prepaid payment instruments include mobile wallets, paper voucher, smart cards, etc.) However, the value of such transaction dipped in November. This meant many people used these instruments for small transactions.
• The use of credit cards, surprisingly, didn't see any momentum. However, people did use credit cards for smaller transactions. The average ticket size of a credit card sale fell to Rs 2,700 for November as against Rs 3,000 recorded over the first nine months of the year.
• November also saw a rise in the number of cheques written. People used cheques for smaller amounts as well, with the average amount falling to Rs 63,000, compared to Rs 73,000 earlier in the year.
• Mainstream electronic payments such as NEFT and IMPS saw a drop in transactions while ATM withdrawals dropped on the back of cash shortage and withdrawal limits.

Going by the above information, there is evident change in the use of payment mechanisms. While many people have shifted toward digital transactions, the change is not spectacular. And while the number of digital transactions has increased, their value has not.

Furthermore, we still don't know whether the above shift is structural or just a phase. The rise in volume of digital transaction was due to the shortage of cash in hand. Will this continue when the dust settles and there is enough money in the system?

We wait for the January data to answer that.

Regardless of the above findings, it remains a fact that India is not ready to go digital as yet.

The move towards a cashless society could mean a positive development for India - lower costs, improved transparency in transactions, save time, and open up opportunities for some companies.

But if things stay as they are today, the road leading to a cashless economy will remain a long one.

Some first step the government can take is to make the financial system more secure and easy to operate.

For insight on how digital India is related to the global war on cash, read this recent edition of The 5 Minute WrapUp titled Is Digital India Also Made in China?