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How Demonetisation Affects The Digital Economy In India

Opportunity for all to experience convenience. Debit card transaction saw enormous spike in the last two weeks since note ban, over 71 crore debit cards exist in India, out of which only 2% are used at least once a month


A decade ago, when I received my ID card from Indiana University of Pennsylvania in US, there was a pleasant element of surprise, the ID card also acts as a debit card that be used at both ATM and merchant establishment; more so, if you need a photocopy or printout, you'll have to walk up to college library and spot a copier machine, swipe your card first to a POS terminal attached to it and proceed to make copies in a truly American DIY style. Students can also get this card linked to their bank account or alternatively use the add cash machine to load money into the card. And nope, you can't pay the librarian cash for your copies or printouts, it has to be a card swipe.

It was the first time for me and many fellow Indians to experience a cashless life offered by the digital economy which was at a mature state anywhere we went within the US. We were amused to swipe our card for transactions lesser than 25 cents (worth Rs. 10 at that time) at college food court, and over a period of time we got so habituated to the convenience of plastic money that we seldom carried cash in excess of ten or fifteen dollars for occasional tips to cab drivers or pizza delivery folks. I continue to live this way till date, carrying a meagre amount of currency notes.

I have two genuine reasons for this lengthy anecdote in what is supposed to be an article about economics, firstly I'm a marketer and I tell stories for a living, so you can expect Not to read mouthful jargons like 'internet economy is like conduit to a crowd based capitalism'; secondly, once you experience a cashless way of living it is difficult to grow back dependency on carrying cash around.

My story above makes me an outlier in being cashless for last ten years but right at this moment, thanks to demonetization, the whole nation has a huge opportunity to pull me back among averages and end my outlier privileges. Here's are a few way I feel the digital economy will get a shot in the arm due to demonetization.

Let's spend a second on understanding the digital economy, which feels like separating noodles from spaghetti. This simple definition may help 'digital or internet economy refers to business conducted through markets whose infrastructure is based on the Internet and World Wide Web'. So any transaction people do on a POS terminal (card swipe machine you see at shops), on an e-commerce site like Flipkart, a cab booked on Ola, a movie watched on Netflix, a room booked on Oyo, a mobile phone recharge done through Paytm, etc., are some of the business transactions under digital economy.

From evolution to revolution here's how the numbers speak for themselves, the Pradhan Mantri Jan Dhan Yojna, through which millions of bank accounts were opened for improving economic inclusion (poor people will have bank accounts and get swags like cheque books ATM cards) has seen a surge of 30X or 3200 per cent in deposits! This is around Rs 21,000 crores of money deposited in their own accounts. These deposit figures used to be yearly, now it took only just 14 days since November 9th.

If not for demonetization, these unprecedented figures would have taken decades to arrive at, by which time the world would have probably moved on to a more advanced form of currencies like Bitcoins. Government estimates suggest that the banned notes of Rs. 500 and Rs. 1000 made up 86 per cent of the cash economy of the India that was. Say it after me again, India that was.

Opportunity for all to experience convenience. Debit card transaction saw an enormous spike in the last two weeks since note ban, over 71 crore debit cards exist in India, out of which only 2 per cent are used at least once a month. Guess what, in last two weeks, the usage has gone up by 2000 per cent. India's poster boy digital wallet Paytm recorded a 435 per cent increase in its overall traffic within hours since the announcement of note ban, it added over 5 million people to cross the 150 million user mark and saw a GMV (total sales value) of $5billion which is four months ahead of its projected targets.

There are numerous arguments and political dramas unfolding on how people are losing out on income and wages due to standing in long queues at banks and ATMs as opposed to being working somewhere. Here's a counter thought, not too long ago in Silicon Valley of India where I grew up, we used to stand in queues twice every month to pay power and landline bills, if not for internet banking many average Indians would still be doing the same today. Going cashless and embracing digital economy is getting used to sending emails, once you know how awesome it is, you no longer have pen friends through snail mails, but you add them on Facebook and swipe right on Tinder.

User adoption, the curse of innovation: Consider this, last year Kunal Shah of Freecharge said 'of the nearly 75 million mobile recharges that happen in the country every day, only 2-3 million are done online'. Why is the user adoption so slow for something so essential like a phone recharge and most of all so liberative of one's time? It is because humans resist change of any order, we stay in our habituated zone even if know change is better for us. I know a lot of people who frowned and cursed when the central government banned smoking in public places and offices, benefits of demonetization stands no chance amidst this people, who'd not stop until they rant their gut out. People ask for innovations but complain if things change; we humans are truly a unique race, after all, there's still a lot of people out there, who resist change, actively running the flat earth society.

Egg first: a significant reason for people not going completely digital on transactions were due to the breakage in the pipeline; for example, my newspaper vendor now accepts cheque or Paytm transfer, he would have snubbed and laughed at me for these type of transactions before November 8th. Now that he and I have gone digital, there's no going back to cash. In this classic chicken or egg first problem, the government has laid out the eggs first for the chickens to be hatched by players of the digital economy - you and me, who proudly wield our debit cards filled with hard-earned white as snow money.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
economy Demonetisation digital economy narendra modi atms

Sreeraman Thiagarajan

Sreeraman Thiagarajan is Vice President at Publicis Beehive

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