Much of the conversation surrounding the release of the Reserve Bank of India’s annual report last week focused on the return of demonetized currency to the system – a confirmation, in the eyes of critics, that the policy of demonetization did not work as intended.
However, while critics and supporters of Prime Minister Narendra Modi debate over the impact the dramatic move had on India’s economy overall, the report reinforces the argument that one goal, which resulted in significant growth for payment facilitators in the region, was achieved.
At the time of the demonetization event, Modi said a primary intent of the policy was to address corruption and root out “black money.”
When the central bank’s annual report indicated that 99% of the demonetized currency had returned to the system, some critics pronounced it a failure that was not worth the hardship it caused many of India’s citizens.
But supporters of the policy were quick to defend it. Finance Minister Arun Jaitley argued that the point was never about whether the money would return to the system, the Business-Standard reported. Instead, demonetization was intended to formalize the economy and increase the country’s tax base, among other purposes, areas where the policy had seen positive results.
One piece of the argument is that the attempt to jumpstart digitizing the country’s primarily cash-based economy has been successful. It is this goal that payment facilitators such as Paytm have supported, scrambling to onboard millions of merchants quickly.
The information released by the RBI reflects a lower demand for cash overall.
“Currency demand appears to have attained a new normal (currently around 87 per cent of the pre-demonetization peak) in view of the sharp increase in electronic modes of payments since demonetization,” the report says.
The report pointed out that growth rates for electronic payments increased after demonetization, shooting to a high of 123% in December. After that, the report said, “the growth rates have moderated but remain high.”
“Going forward, the Reserve Bank would continue its efforts towards migrating to a less-cash economy while ensuring safety and enhancing the efficiency of the payments system,” the report said.