Demonetisation drive: PM Narendra Modi’s claim of a digital transaction jump lacks wings

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Updated: February 27, 2017 7:24:30 PM

The demonetisation of Rs 500-1000 notes has hardly altered the dominance of cash in the economy, and digital transactions have remained where they were. Prime minister Narendra Modi needs to pursue a government-supported plan to make digital transactions more convenient than cash, instead of claiming success when there is still little to show.

Even in the case of mobile banking payments, the electronic transactions were Rs 1.24 lakh crore in November last year, increased to Rs 1.36 lakh crore in December, and then came down to Rs 1.2 lakh crore in January—till February 19, it was Rs 0.68 lakh crore. (PTI)

The demonetisation of Rs 500-1000 notes has hardly altered the dominance of cash in the economy, and digital transactions have remained where they were. Prime minister Narendra Modi needs to pursue a government-supported plan to make digital transactions more convenient than cash, instead of claiming success when there is still little to show.

Prime Minister Narendra Modi said in his Mann-ki-Baat on Sunday that, “In the recent days, one can see a lot of emphasis being laid on Digi-Dhan. Gradually, people are shedding their hard currency mindset and moving towards digital currency. Digital transactions in India are witnessing a very rapid surge. The younger generation, in particular, is getting habituated to digital payments through its mobile handsets. I believe this to be a good portent”.

PM Modi is obviously indicating that the demonetisation of old Rs 500-1,000 notes announced on November 8, which continued till December 31, and the government efforts in the last two months to promote digital payments have started yielding good results.

Juxtapose his statement with the transaction data in the last few months and it can be easily seen that not much has changed on the ground.

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Total digital payments in November last year stood at Rs 94 lakh crore—which increased to Rs 104 lakh crore in December, thanks to the problems faced by the people in drawing cash from the banks, and then declined to Rs 97 lakh crore in January this year—and according to the latest RBI data, it was about Rs 63 lakh crore till February 19, suggesting that it will remain below the previous month.

Even in the case of mobile banking payments, the electronic transactions were Rs 1.24 lakh crore in November last year, increased to Rs 1.36 lakh crore in December, and then came down to Rs 1.2 lakh crore in January—till February 19, it was Rs 0.68 lakh crore.

Though the silver lining here is that of payments made through Unified Payments Interface (UPI), which appears to have more than doubled in February this year from the November last year level of Rs 90 crore, but the amount is too small to make any big change.

In a country where, according a PricewaterhouseCoopers report (2015) quoted in the Economic Survey, cash transactions carried out are 68% of the total transactions in value terms, and 98% in volume terms, there is hardly any major visible change as yet.

Even though there is no doubt that promotion of digital transactions is a step in the right direction, it needs to go beyond incentives and prizes—it is the convenience of use that is a major driver of the cash economy, and unless digital modes of payments become more convenient than cash for everyone, the situation is not going to change significantly.

There is no other option than to promote solutions like Aadhaar-based transactions and pre-paid cards, even without a bank account, like the one IndiaPost payments bank is looking at, in a sustained manner.

Instead of claiming success when there is little to show, PM Modi should draw a comprehensive government-supported model to push digital transactions at all levels.

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