When demonetisation was announced by Prime Minister Narendra Modi, it took India by storm. Two high value notes of Rs 1,000 and Rs 500 were demonetised in an ostensible bid to combat black money.
Prior to demonetisation, 85% of the country’s transactions were dealt with in cash. Post November 8, 2016, the country faced a severe cash crunch. There was a massive surge in non-cash transactions after almost two-thirds of the currency out of circulation. This phenomenon gave rise to the popularity of e-wallets. From remote villages to 3-tier cities; from a small fruit vendor to a big supermarket, everyone has opted for cashless transactions. Companies were also able to keep a track of customer’s preferences thus creating a loyal customer base.
Amidst all these advancements, has India managed to trump cash transactions entirely? Reports say that those who dealt in cash earlier went back to their old habits as soon as new notes were in circulation. The months of November, December 2016 and January 2017 saw the highest amount of transactions via debit and credit cards. In October 2016, debit card transactions were at Rs 21,941 crores and those of credit card at Rs 29,942 crores. In December 2016, debit card transactions saw a hike to Rs 58,000 crores and credit card at Rs 31,150 crores.
However, 10 months down the line, August 2017 transactions for debit card and credit card dropped down to Rs 36,000 crores.
As cash flow increased, many smaller stores stopped keeping online payment options and started dealing entirely in cash.
The major disadvantage faced by mobile payments apps is that a majority of India’s population don’t have access to either smartphones or internet. Thus a crucial segment of the population is out of reach.
P.S.M Rao, deputy general secretary of Andhra Pradesh and Telengana Bank Employees Federation, said, “Demonetisation was not at all well planned. The government had not printed the quantum of notes when announcing demonetisation. Thus there was a shortage of cash. There was credit and debit card usage but as soon as cash inflow increased, people switched back to cash. The public lost faith in the government as there were several restrictions imposed upon transactions.”
“Before demonetisation, small and big traders would deposit several lakhs of rupees in cash on a daily basis in current accounts. But after the government imposed Rs 3 lakh daily withdrawal restrictions, the traders stopped depositing cash as a result of which banks are now starving for cash. Banks ended up not having enough cash to supply to the customers and ATMS as well”, he said.
Another bank official said, “After demonetisation, people opted for cashless transactions due to shortage of cash. The government has issued rules and regulations promoting online transactions but has not announced any guidelines regarding exemptions on digital transactions. Banks took advantage of this situation and started imposing heavy digital transaction charges.”