Demonetisation has pushed up digitisation
1. The withdrawal of high denomination currencies of Rs.500/- and Rs.1000/- announced by the Government of India on November 8, 2016, widely known as 'demonetisation" became one of the most controversial economic policy decisions the Modi Government took since it came to power in 2014.
2. The decision announced by Prime Minister Modi in a nationwide speech at 8.00PM on November 8, 2016 was kept in total secrecy and came as a surprise to the nation.
3. Prime Minister Modi set out three goals in that speech.
a. Rooting out black money. Currency notes of Rs.1000/- and Rs.500/- constituted 85% of the nation's currency in circulation.
b. Eliminate counterfeit currency in circulation.
c. Eliminate funding of terrorist activities
4. The decision evoked contentious debate in the country with arguments for and against demonetisation and it continues even 5 years after the momentous policy initiative.
5. Many felt that although the motives behind the initiative were honourable,vit backfired because of faulty implementation resulting in prolonged cash shortage and disruption of the day to day life of the people. Long queues were seen in front of every bank branch by people seeking to exchange their invalid currencies for new notes.
6. The major component of the Indian economy is the unorganised sector employing 94% of the workforce.The sector consists of micro and small scale units which work with cash and not through banking. This segment faced a deep crisis and thousands of business units were paralysed.
7. In an anti climax to the whole exercise, RBI announced later that 99.37% of the junked Rs.500/- and Rs.1000/- currency notes have been returned to the banking system.This meant that just Rs.10,720.00 crores of the junked noted did not return to the banking system.
8. However, the most valuable outcome of demonetisation, which the Prime Minister did not even mention as one of the objectives in his historic speech on November 8,2016 was the huge push it gave to digitisation.That economy has steadily grown in the subsequent 5 years creating fundamental changes in the Indian economy.
Today armed with just three things-a bank Account, a smart phone and a digital identity like the Aadhar- anyone can meaningfully transact a bank loan, learn a skill,find a job, invest money and all of that. It has massively formalised the informal economy leading to significant reduction in the black money. The new digital India may be evolving more from the disruptions caused by the pandemic than by demonetisation. Yet, the initial thrust towards a cashless economy, has, undoubtedly come from the demonetisation of November 2016.
(The author is Senior Fellow, London School of Economics. He is currently based in Singapore)