The first anniversary of demonetisation is here. It is time to evaluate the impact of demonetisation on the economy in terms of curbing black money and bringing more people and businesses under formal banking and digitisation system.
India has been a cash-driven economy. Many argue that the cash economy aided India to avert the worst of the financial crisis in 2008. However, a cash-driven economy has its own side-effects one of these are the shadow economy and black money in circulation tend to grow. Curbing black money was expected to give rise to tax collection and re-capitalise banks, as money would find its way back into the formal banking system. Increased tax collection would help shrink the nation’s fiscal deficit thereby strengthening structural strength of the economy and lowering inflation. With money flowing into banks as deposits, the banks could make loans cheaper by reducing interest rates, thereby boosting business sentiment. However, all these benefits are expected to accrue in the long-term.
It is difficult to gauge the impact of demonetisation on contraction of black money. However, we cannot ignore the definite move towards achieving a less-cash economy. There has been noticeable surge in debit and credit cards usage. The number of e-returns filed by individual tax payers till August 5, 2017 increased to 27.9 million from 22.2 million returns filed during the corresponding period in 2016, thereby registering an increase of 25.3%. Collection of advance tax under personal income tax as on August 5, 2017 registered a growth of 41.8% over the corresponding period in 2016.
Whatever critics say, the majority gives credit to demonetisation for rise in digital mode of payments. Post demonetisation, there has been increased penetration of electronic payment methods, more credit/debit card transactions, increase in digital payments, mobile payments and online banking. The Government of India has initiated digital transaction platforms like Bharat Interface for Money (BHIM) app; POS (Point of Sale) machine deployment, etc to realise the vision of Digital India.
The launch of the government’s Start-Up India, Bharat Bill Payments Systems (BBPS), Pre-paid Payment Instruments etc. encourage shift to a less-cash society with its push for digital payments. The Jan-Dhan Yojana, Aadhaar, Mobile Connectivity, Digital Consent, Payment Banks and Small Finance Bank in combination will enable digitisation and simplify everything from bank account creation to security, from voting and subsidy distribution to tax filing and refunds across the country.
According to Assocham, mobile commerce will become more important as most of the companies are shifting to m-commerce. Mobile already accounts for 30-35% of e-commerce sales, and its share will jump to 45-50% by the end of 2017. Paytm turned into the true advanced wallet for a huge number of traders and millions of users across the country as cash became scarce and they were forced to transact digitally. By March 2017, Paytm had 218 million wallet users. While Mobikwik had 30-35 million users in the pre-demonetisation days, a year after the note ban it has reached 65 million.
In the years to come, voice-based payments, biometrics and iris verification through mobiles, QR codes, wearable gadgets and Internet-of-Things (IoT) will play a critical role in driving digital payments.
However, it is important to dispel doubts regarding security of transactions to drive digitisation. It is equally important to induct the younger generation in the digital payments space at an early age. This reinforces the need for awareness through workshops and demonstrations on digital payments especially for population who are not native to smartphones, internet or banking which mainly include the elderly and rural population.
The speed with which technology is progressing, currency may soon denote digital-currency.