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Demonetization: Has India moved towards being a cashless society

By on July 7, 2017 in Trade Policies with 1 Comment


November 8, 2016 : Prime Minister Narendra Modi announces demonetization of 500 and 1000 rupee notes in an effort to curb black money and move India towards being a cashless society.

 It’s been over eight months since that landmark event, an event touted by some to be the biggest economic reform since independence. Although the Reserve Bank of India is still to give definitive details about the effects of demonetization, looking through various indices and spending patterns of people, we can somewhat come to a conclusion for the major question, has India moved towards being a cashless society? Lets look at it in detail.

Demonetization: The aftermath and teething issues:

Since the demonetization move was all of a sudden ( this was necessitated to ensure black money hoarders do not get any leeway and make alternative arrangements), people all across India did face some troubles. In the days after November 8, long queues outside Banks and ATMs were the norm, with some political parties already terming the move a massive failure. However, after some days normalcy began to return and by mid January, things were pretty much back to normal. The banks deserve all the credit for quickly sorting out all the pressing issues and being able to bring things back to normal in a country as large as India ( which was a herculean task to say the least ).

How people reacted:

In the initial days, despite having to face troubles and interruptions in their busy day to day life, the fact that people were willing to stand in long queues to get their own money was heartening. Across India, you would have found people appreciating the move, hoping that it would curtail the passage and usage of black money, in spite of the visible discomfort they were having. Although beginning December, some people did start to get frustrated, still the percentage of such people was very less compared to those who were still prepared to face troubles.

The rise of mobile wallets:

Perhaps the biggest beneficiaries of the demonetization move were mobile wallets such as Paytm, MobiKwik etc. The fact that people could make payments through just scanning a bar code at any restaurant, shop was very convenient. Although Paytm had already spread out and reached brick and mortar stores in all major cities in India, the demonetization move gave Paytm an unprecedented push. The exponential growth of the firm along with around 5 percent rise in valuations was primarily due to the demonetization move. Paytm was not alone, other mobile wallets such as mobikwik, citrus etc. had similar kind of windfall, all be it on a much lesser scale due to Paytm having the first mover advantage. As of today, even after banks and ATMs getting back to normal functioning, the rise in usage of mobile wallets has continued.

Growth of mobile wallets

Growth statistic for mobile wallets after demonetization

Source – Agrud advisors


A marked increase in card transactions:

While some analysts were saying in jest that India seems to have skipped the age of plastic money and went straight to mobile wallets, figures suggest otherwise. Almost all major banks reported a minimum increase of 30 percent in card transactions after demonetization. A large portion of these card transactions were not through credit cards but through existing debit cards. Moreover, a lot of commercial facilities also did start using card swiping machines, resulting in increased card usage. The government also wasn’t left behind and announced a slew of incentives for using card transactions. As with mobile payments, although card transactions haven’t kept on surging after things got back to normal but compared with the time period before demonetization, card transactions are being increasingly preferred.

Card transactions

Source – Appknox blog

Has the usage of cash reduced:

The usage of cash has lessened to a certain extent. It would be foolhardy to think that India will become a cashless society overnight, since becoming a cashless society will need continuous incremental steps towards it. Since demonetization, some considerable progress has been made in this direction. If we look at empirical evidence as well as reliable figures, there’s pretty much to suggest that Indians are gradually shifting away from using cash. As about black money and large transactions in cash, it’s been also affected to some extent. Although the practice of cash transactions in sectors such as construction still persist, people involved in such sectors are more careful than ever before, indicating an uneasiness about continuing to use cash. Moreover, the other practice of paying employees through cash has also been discontinued by countless firms across India, most of whom are SMEs. Out of all the changes that have taken place since demonetization, this is perhaps the most positive one.


All this brings us to our moot point, has India become more cashless since demonetization? The answer to this question would be a straightforward yes. As mentioned above, people and firms that were formerly averse to using digital payments now use it for almost every transaction. As expected, there will always be naysayers who will churn out innumerable figures to dispute this narrative but the fact remains that transactions in cash have declined and with the government continuing to incentivize digital transactions, this reduction is only expected to continue further. Moreover, another piece of information is that after demonetization, 91 lakh people have been brought into the tax net. For a country like India which has one of the lowest tax compliance figures , this is great news.


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