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Is India really headed towards a Digitised Society?
Fri, 21 Apr Pre-Open

The government's notebandi drive has changed the way how India spends money to a great extent. The cash crunch, dried ATMs and hassles with the Rs 2,000 note have led many people towards digital transactions.

And as days go by, many seem to expect that India will now move inexorably in the direction of becoming a cashless economy.

In fact, if one looks between February 2017 and March 2017, the total number of digital transactions has jumped by around 16% to 69.9 crore. What is driving this increase?

There are primarily two reasons for it.

First, if we look at the rate of increase in the currency it has come down dramatically during the month of march 2017.

Second, there is a seasonality factor. March is the last month of the financial years and the payment of taxes (advance income tax and service tax) is not in cash. Thus, it boosts the non-cash transactions.

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My Colleague Vivek Kaul recently wrote an interesting piece explaining the same. Here's Vivek:

  • For the week ending March 30, 2017, the currency in circulation increased by just 1.7 per cent. Hence, even though the currency in circulation is going up, the rate at which it is going up has slowed down dramatically. For the week ending January 13, 2017, it had grown by 5.9 per cent.

    This slow growth of currency in circulation wasn't enough to satiate the demand of the public and to a large extent explains why ATMs have generally been running dry. And this to some extent explains the increase in digital transactions.

    Take a look at debit and credit card usage at point of sale terminals. After falling dramatically in between January and February 2017, they have jumped up again by 8.5 per cent during the course of March. This is a good indicator of the fact that the shortage of currency forced people to use digital money.

    Over and above this, there is a seasonality factor as well. March is the last month of the financial year and digital payments seem to go up during the course of the month, as people pay their taxes (advance income tax and service tax) as well as settle business payments between them.

Now, in April 2016, the total number of digital transactions fell by around 4.4%. Given this, once April 2017, data comes out, we will get a much clearer trend on the impact of demonetisation and shortage of cash on digital payments.

Keep watching this space.

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