Seeded during demonetisation, digital adoption has been accelerated by Covid-19. It will eventually help India get economically stronger
By Sharad Kumar
I have been a conservative Indian native as far as medium of exchange while transacting in this increasingly consumer-oriented world is concerned. Even the unique experiment of demonetisation could not move me to the digital economy, which incidentally has happened now during Covid-19. It is the call of choosing between the two evils and obviously using digital payments suits the time—reminds me of Odysseus’s plight, caught between Scylla and Charybdis.
The seed that germinated during demonetisation is now a full-grown tree. Demonetisation was a success or not is debatable; critics refer to it as an experiment that could not help curb black money. But the bright spot has been the acceptance of digital economy.
Post-demonetisation, the government’s resolve to ensure that digital payment reaches everyone got a shake-up with the Unified Payments Interface (UPI). Although PayTM, by virtue of its earlier launch in 2010, had managed to penetrate the market, UPI came as a respite to those who believed in a safe and secure medium that allows them to transact from their bank account and not through a prepaid wallet. The BHIM (Bharat Interface for Money) app later filled the void, especially in rural and semi-urban areas.
UPI can be construed as a path-breaking initiative that educated people about the benefits of electronic payment. Be it wallet-based providers like PayTM, MobiKwik and Amazon Pay or mobile payment apps such as Google Pay, PhonePe and BHIM, all became popular.
Even if we simply annualise FY21 data on a conservative basis based on Q1-FY21 data, the growth trend has been phenomenal for UPI. The CAGR for the last five years has been 434% on volume basis and 337% on amount basis. On a month-on-month basis, too, growth in UPI transaction has been good. The full lockdown month of April 2020 saw a sharp dip, but growth seems to be recovering again.
The initiative of making RTGS and NEFT transactions, which form the bulk of digital transactions, free was another step towards digital economy.
The future of digital economy appears strong, if we look into the vision document of RBI. In January 2019, RBI constituted a special committee headed by Infosys co-founder Nandan Nilekani with a vision to strengthen digital payments ecosystem in India. The committee submitted its report in May 2019 and an important vision the committee gave was to increase the percentage of digital transaction value to 1,500% of GDP by December 2021 from 769% in 2018.
Covid-19 has taught us to focus on health, hygiene, sanitation and social distancing; I would say the usage of digital money and not relying on cash/currency is another important learning. Social distancing norms have played an important role in pushing up digital transactions, which I am sure would multiply manifold in the coming days.
While the adoption of online payments during demonetisation was due to shortage of cash, Covid-19 is seeing increased digital penetration due to the scare of using cash. One striking similarity between demonetisation and Covid-19 is that people have avoided activities such as discretionary purchases of consumer goods, real estate activity, expensive automobiles, etc.
With real estate, hospitality, heavy purchases being virtually deferred in these times, it is the consumer good nondurables, followed by durables and FMCG that will see the maximum spend and this would bring in the use of e-commerce, other retail platforms and digital channels in a big way. Even high-end shops selling apparels, footwear, personal care products, etc, have understood that recovery may take some time and it is, therefore, advisable to make a serious entry into the digital world. We are witnessing times where even a vegetable vendor is using Google Forms to take orders and using wallets or UPI-based interfaces to accept payments.
This challenging period reminds me of title of Robert H Schuller’s book ‘Tough Times Never Last, But Tough People Do!’ It is our internal energy, positive mindset, illuminated and receptive minds, and proper understanding of the situation that can help us tide the crisis. There is always something positive out of a situation. India is one of the youngest countries with a favourable demographic dividend. The adoption of social distancing norms, health and hygiene, the realisation by the government to increase the health expenditure from 1.28% to 2.5% of GDP by 2025, the increasing demand for self-reliance and the adoption of digital economy are key takeaways of this crisis situation, which, I am sure, would help India emerge economically stronger.
The author heads Economic Research Function at BFL. Views are personal