India far from being a cashless economy

One year after the government annulled high-denomination currency notes and subsequently replaced them with new notes, the total currency in circulation remains 9 per cent less in value terms. Digital payments have increased in number and value, but fluctuate month to month.

On November 8, 2016, Prime Minister Narendra Modi had announced a surprise withdrawal of Rs 500 and Rs 1,000 notes–which constituted 86 per cent of cash in circulation at the time–a move he said would help weed out corruption, curb money laundering, and remove black money and counterfeit notes from the system.

Soon after announcing the move, the Prime Minister had proceeded on a trip to Japan, inviting much censure. By the time he had returned on November 12 to face widespread demands for an explanation, the government’s spin doctors had affixed the terms “demonetisation” and “notebandi” to the move, claiming a shifting array of motives, as IndiaSpend reported on December 5, 2016, after analysing the Prime Minister’s speeches (in translation).

A year on, currency notes totaling Rs 16.35 lakh crore in value are in circulation (as on October 27, 2017), comprising 91 per cent of the Rs 17.97 lakh crore on November 4, 2016, before demonetisation, according to data released by the Reserve Bank of India (RBI) on November 3, 2017.

Digital payments increased in value to Rs 124.7 lakh crore in September 2017, up 33 per cent from Rs 94 lakh crore in November 2016, but dipped by 20 per cent by October 29, 2017 to Rs 99.3 lakh crore over the preceding month, RBI data on electronic payments system, updated on October 31, 2017, show. Month-wise data indicate similar fluctuations.

 Currency in circulation

The high-denomination notes that were annulled amounted to Rs 15.44 lakh crore, about 99 per cent (Rs. 15.28 lakh crore) of which had been returned to the central bank by June 30, 2017, according to the RBI’s annual report 2016-17, IndiaSpend reported on September 5, 2017.

The currency in circulation has steadily increased since January 2017.  

It cost the RBI Rs 7,965 crore to print new currency notes between July 2016 and June 2017, as against Rs 3,420 crore in 2015-16, an increase of 133 per cent, IndiaSpend reported on September 5, 2017.

Digital payments up, but monthly fluctuations evident

The number and value of digital payments has increased compared with the pre-demonetisation level, but by varying extents each month.

Although there is a 6 per cent increase in the value of digital payments recorded in October 2017 (Rs 99.3 lakh crore) over November 2016 (Rs 94 lakh crore), there is much monthly variation. Digital payments increased in value by 11 per cent in the month immediately after demonetisation–from Rs 94 lakh crore in November 2016 to Rs 104 lakh crore in December 2016. Yet, they declined by 7 per cent in January 2017 and 11 per cent in February 2017 over December 2016, surged 62 per cent (Rs 149.5 lakh crore) in March 2017 over February 2017, and declined 27 per cent in April 20Post-demonetisation, about 57 per cent of credit card holders said they were using credit cards more often than they did a year ago, according to a survey by TransUnion Cibil, a credit information firm, The Indian Express reported on November 1.

The reasons for its success include the fact that BHIM can be used on any phone–and not just a smartphone–and does not require an internet connection, a limitation in vast parts of the country. The latest data from NPCI indicate a 120 per cent increase in the use of UPI transactions in just one month from September 2017 (30.8 million transactions) to October 29, 2017 (67.8 million).

Aadhaar-enabled payments–not added under digital payments in the above calculations–have more than doubled (169 per cent) from 37.8 million transactions in November 2016 to 101.9 million in June 2017.

Meanwhile, payments through mobile banking, for which figures from five banks are available, have also fluctuated month to month, although they shrank in value by almost 15 per cent to Rs 1,05,352 crore in October 2017, as against Rs 1,24,485 crore in November 2016.

Cashless economy a long way off

Despite the uptick in digital transactions since demonetisation, India reports the lowest digital payment transactions per capita per annum (11), as compared with similarly-placed economies such as China (26), Mexico (32), South Africa (70) and Brazil (142), according to NITI Aayog’s January 2017 report.

With the rapid development of digital infrastructure, the number of internet users in the country will double from 300 million in 2015 to 650 million by 2020, according to a July 2016 report entitled Digital Payments.

 2020 by Google and the Boston Consulting Group. “Modified UPI will be a game changer… Digitisation of cash will accelerate over the next five years with non-cash transactions over-taking cash by 2023,” the report said.

 (Mallapur is an analyst with  IndiaSpend.)