The massive positive effect of Demonetisation
This is not to argue whether Demonetisation is good or bad overall but to settle one important question- Did Demonetisation lead to sustainable increase in digit transactions? The answer is YES
My attention is focussed on the less sexy POS usage of Debit cards. Two reasons, one, enough analysis has been focussed on pre-paid instruments (PPIs are smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers). Two, Debit card usage at POS in 3.7 times higher than PPIs (February 2017), it was 3.5 times higher in October 2016 (Pre-demonetisation). It means, not only that debit cards usage at POS is many times higher than PPIs, it is also growing in usage at a faster pace than PPIs
First, let us look at how debit cards have increased over time. Thanks to the Jan Dhan Yojana, there was a massive increase in debit cards issued between 2014 and 2015. With a higher base and slowing issuance, the pace of growth reduced to 22%. However, between Feb 2016 and Feb 2017, the pace of growth has picked up again.
It would be fascinating to see what happened between Feb 2016 and Feb 2017 in greater detail
While the banks were adding 10 million debit cards a month from March 2016 to Ocober 2016, the whole game changed from Nov 2016 onwards. The average number of debit cards issued went up more than 2.5 times a month to 25 million a month. These additions occurred probably due to 2 reasons. - To be able to beat the queues at the branches (cheque withdrawals) and secondly to beat the RBI's debit card ATM limits.
What happened to usage?
Between, 2014 and 2015, the massive addition of debit cards led to drop in point of sale usage per card (using card to shop - Online or stores) probably due to lack of understanding of usage or not having deposited money in the accounts. However, this picked up quite well in Feb 2016. But the biggest jump came between Feb 2016 and Feb 2017. Average card usage per month at point of sale went up 2.2 times in a span of just 12 months (versus just 0.3 times the previous year). But is this because of demonetisation?
Usage went up from 197 in February to about Rs 219 per month in September. It then went up massively to Rs 297 in October (Dussehra, Durga and Pre-Diwali spend). However, if one corrects for the Puja upsurge (It was Rs 229 in 2015), the average for September and October comes to about Rs 258. So in 8 months between Feb 2016 and October 2016, the increase was about Rs 61 Rs (31%) and in the next 4 months (due to demonetisation), this went up by Rs 169 per month to Rs 427 (66% jump in just 4 months). The number could have been even higher if not for the fact that February has only 28 days. Not to forget that this massive increase has come on the back of 100 million debit cards added to the system in a span of 4 months.
In sum,
a. Multiple metrics agriculture, GDP and debit card usage all show that demonetisation had a minimal impact on many parts of the economy. However, segments like housing and others that involved significant cash usage have been negatively impacted. My own study on the ground interacting with political parties during recent elections show ZERO IMPACT on CORRUPTION or Black money. In fact, the average cost of buying a voter (payments in cash) in many constituencies across the country may have gone up more the 2 fold between 2014 and 2017 (a shocking increase probably due to higher voter awareness and competition)
b. As demonetisation picked up, consumers were forced to shift to non-cash options (Cheques, NEFT, ECS, Debit Cards and PPIs). Debit card usage at point of sale per month increased 2.2 times over a 12 month period (versus just 0.3 times increase between 2016 and 2015)
c. While there has been a serious discussion around the more glamorous PPIs (Mobile), the real shift occurred in other non-cash options Cheques, ECS and Card usage. As far as digital transactions are concerned, Debit card point of sale usage shot up significantly (66% per card in just 4 months) inspite of a massive addition in debit cards during and after demonetisation period. The massive addition of debit cards was probably- to beat queues for cheque based withdrawals (first time user) or to access multiple accounts to beat ATM card limits.
d. The latest data suggests that Debit card usage has sustained over March and April . While mobile usage growth has tapered down quite a bit, debit card transactions at POS continue to grow (more so due to ATMs running out of cash again). It is likely now that customers have developed a habit of using debit cards at point of sale and the explosive growth is likely to continue. This is perhaps the real digital transactions increase story
PS: I have not been able to account for debit card transactions that transfer money to PPIs. Therefore some of the growth (may be as much as a quarter) for debit card POS usage could have come from PPI transfers. However, it is difficult to put a number and in no way takes away the positive story (or forced usage) around debit cards.
All statistics are sourced from the monthly bulletin of the RBI
Consultant in Engineering & Management
7 年Rakesh Reddy has stated the correct fact about demonetisation.
Sales -B2B || Market Research || Product Dev. ||Vender Management || New Biz || Smartphone || Tablets || Servers || NB || IoT ||Smart Device’s ||
7 年Really good to read , informative .. thanks
Associate at Siva Shankar Associates
7 年why Kattapa killed Bahubali will be known by 28th April, when will we know out of the 15 lakh crores, how much 500/1000 currency did not come back into the system? what was real benefit of Demoratization? will Modi/Rbi tell officially ever? so much of sacrifice inc. 100+ lifes lost was done, is Modi/Rbi not responsible to tell...
Technical Recruiter at TechnetLLC
7 年"The massive positive effect.." to the Govt or to the public?? On what basis have u designed those statistics/numbers?? Neither U nor Modi nor RBI would compensate the loss incurred by many of the common people.. We still find the long queues infront of the ATMs and almost 90% of the ATMs that I find everyday have the board of "NO CASH" While trying to make any online/ mobile banking/debit card swipe transactions, it says "the transaction is failed" but the amount gets debited.. It takes more than 15 days for the amount to be credited back..Hell lot of problems we are facing ..and u say its a positive effect??? GO N PLAY YOUR DRAMAS IN ANY TV SERIALS..
US IT Staffing Recruiter at RealSoft Technologies
7 年Now i get it, U r from political background and posting this rubbish articles which is not related to any of the growth which can be beneficial to the public. Get over from there and see how much destruction had happened through out the whole nation where a common man/woman had suffered a lot. I wonder how much u have made on posting this....