By Elton Gomes
Although Prime Minister Narendra Modi’s demonetisation was deemed a failure by many, a global report has said that it increased the growth of world’s electronic payments by one percentage point more than anticipated.
According to Capgemini’s World Payments Report 2018, India is expected to pip Australia and Canada in electronic payments in the coming two years, thus becoming the ninth-fastest country to do so.
What does the report say?
According to Capgemini’s report, global non-cash transactions grew 10.1% in 2016 as opposed to 9.1% forecast in the previous report.
“We could not anticipate the government’s demonetisation programme, which resulted in a 33% growth in noncash transactions,” the report stated, the Times of India reported. The largest contributor to this growth came from debit cards (up by 76.2%), and payments by mobile wallets (up by 76%).
The growth of digital payments in India in 2016 was second only to Russia, which saw an increase of 36.5%. The report predicted that non-cash transactions could post a compounded annual growth rate (CAGR) of 12.7% through to 2021.
The report said that India seems to be defying global trends when it comes to the use of cheques. While the use of cheques continued to decline with the Asia-Pacific region, China, South Korea, and Australia witnessing a decline of more than 20%, the usage of cheques grew by 10% in India.
“Overall, cheques are becoming a US-only phenomenon, with that country alone contributing to about 73.5% of the global cheque volume,” the report said, as reported by the Times of India.
World Bank report gives positive rating to demonetization
PM Modi’s demonetization continues to receive a mixed response. In 2017, the World Bank’s India Development Update concluded that demonetization had many more positives than negatives. The report said that a normal monsoon helped the rural economy, thus mitigating the adverse effects of the badly implemented note ban.
The World Bank’s report states that India’s GDP growth rate witnessed only a marginal decline during demonetization. It estimates that the GDP growth rate was at 7.3% in the first half of the fiscal year, and it fell to a mere one-third of one percentage point in the second half.
The World Bank however admitted that it has no clear means to calculate the impact on the formal sector. But it states that certain parts of the formal economy proved resilient, in that air travel by the urban middle class remained completely unaffected by demonetization.
How has demonetization affected the Indian economy
After Modi announced the surprise note ban in November 2016, the merits of demonetization have been heavily debated. Though the initiative has been lauded for its positives, the government clearly disregarded the nation’s poor.
A positive due to demonetization was the increase in the number of tax returns. The number of income tax returns filed for 2016-17 year grew by 25%. This growth was crucial to ease pressure on public finances, particularly in India where less than 30 million file tax returns while the population is well over 1.25 billion.
Demonetization saw a huge uptick in digital transactions. Digital money is expected to bring in transparency into the system. It is important to note that digital wallet players, particularly Alibaba-backed Paytm, witnessed a huge rise in profits. Paytm reportedly has 250 million registered users – an increase of 105 percent from January 2016.
The short term effects of demonetization however were severe and they disrupted ordinary life for several weeks. People in rural areas were badly affected due to scant access to banking and the internet. A dismal 3% of households in underdeveloped rural areas said they had access to internet in a 2016 consumer economy survey.
Elton Gomes is a staff writer at Qrius
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