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Ecoscope : Has demonetization led to higher digital payments?

  • One of the key structural benefits expected from the historic demonetization announced in November 2016 was a shift towards digital payments. However, the aggregate value of all transactions under electronic payment systems (EPS)has failed to witness significant increase even six months post demonetization.
  • Further, while the value of transactions in retail digital modes (PoS, PPIs, IMPS and UPI) increased sharply in December2016,  it    has stabilized at higher levels since then (up to May 2017). Similarly, while the volume of retail digital transactions doubled by December 2016, there are no new net additions since then.
  • Finally, after falling by more than 60% in the last months of 2016, cash withdrawals   from ATMs have moved back to pre-demonetization levels.  All these data points raise doubts over the desired structural shift towards digital payments post demonetization.Demonetization was seen as a boost to digital payments, since ~90% of transactions were believed to be taking place in 'cash'. Eventually, digitalization was expected to help reduce tax evasion and corruption. However, available/estimated data up to May 2017 raises doubts over the increased digitalization in the economy.