Fate of 'Cashless' in the Post-Demonetisation Era

Wed, 15 Mar Pre-Open

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Back in November when the Prime Minister surprised the nation with a blanket note ban, now popularly known as notebandi, 'cashless' and 'digital' transactions were in the limelight. There was a notable increase in digital wallet transactions; people couldn't stop talking about Paytm, Freecharge and other digital payment apps.

Four months down the line however, the surge in digital transactions which sustained for just over two months, is fast fading away.

The government, in the past four months tried to push cashless and digital payments in a big way by organizing massive events such as 'Digi Dhan Mela', launching new applications and transaction channels such as BHIM, Unstructured Supplementary Service Data (USSD), Bharat QR and the like.

The government left no stone unturned in pushing the masses towards the adoption of digital means of transactions using mobile wallets and the Unified Payments Interface (UPI).

Third party digital apps had a field day, adding thousands of new users over the past four months.

With such emphasis on digital transactions during demonetisation in India, it is easy to assume that digital transactions would naturally increase in the post-demonetisation period.

However, it is not the paradigm shift the government expected.

According to Reserve Bank of India (RBI) data, cashless transactions have gone down by 21.3% in February, as compared to December last year. From a peak of Rs 104 trillion worth digital transactions in December, the figure has come down to Rs 92.6 trillion in monthly cashless transactions in February.

Even on the digital wallets front, transaction values have gone down considerably over the last few months. While four major wallet companies in India claim a combined 12 million merchants have joined their platform, transactions have gone down from Rs 21 billion in January to Rs 18.7 billion in February.

The reasons for this decline?

Most importantly, increased money supply. Although the supply of cash in the economy is nowhere near the pre-notebandi levels, it has certainly increased from the date when 86% of the currency in circulation was demonetized.

Further, the RBI has been steadily lifting withdrawal limits imposed during notebandi. RBI lifted all limits on savings account cash withdrawal post notebandi.

In a two-stage process, the weekly withdrawal limit per account had been raised to Rs 50,000 from Rs 24,000, with effect from February 20. Further, all limits on ATM withdrawals also ceased from March 13.

In addition to this, small traders who were quick to adapt alternate transaction channels such as mobile wallets and other payment gateways switched back to cash as transaction costs in these channels proved to be a deterrent.

It is evident that India has a lot of ground to cover to become a truly digital economy. However, creating a proper infrastructure for digital transactions, laws on fraud and transaction security, and similar policy changes will go a long way in making India a cashless society.

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