A year after the Indian government’s dramatic demonetization move, which temporarily removed a significant amount of cash from the country’s economy, its citizens are taking stock of the results.
India’s Prime Minister Narendra Modi has stated several purposes for the policy, primarily rooting out corruption and counterfeit money.
But he has also said that it was intended to boost the country’s digital payments usage and reduce the country’s reliance on cash. On that point, the economy may still be finding its equilibrium.
While digital transactions are on the rise in India, cash remains the dominant payment method.
An article in the Economic Times cites Reserve Bank of India (RBI) statistics saying that cashless payments still make up less than 5% of the Indian economy.
According to Livemint, a research report from Chrome Data Analytics & Media found that 40% of mobile wallet users had switched back to cash.
But while cashless transaction volume understandably spiked immediately after demonetization and then decreased significantly once cash returned to the economy, volume is again climbing, the Economic Times article said.
And digital payments methods may be gaining a hold in certain niches. The Livemint article quotes Pankaj Krishna, chief executive officer and founder of Chrome Data.
“Demonetisation took away nearly 86% of the currency in circulation, creating a huge cash crunch in the economy, forcing a digital economy push. However as we near the year-long anniversary of demonetisation, cash has once again started gaining momentum. The usage of e-wallets has decreased drastically,” Krishna said. “However, people continue to use e-wallets for electricity charges, payments of online food chains and cab-hailing services due to the convenience it offers.”
Laying the groundwork for digital payments has led to significant growth for companies that have been able to capitalize on the rush to cashless payment methods.
One company often considered one of the largest beneficiaries of this drive is Paytm, which plans to invest another $1 billion in its payments business, according to the Times of India.