How demonetisation has pushed India towards a digital economy

The demonetisation drive has forced millions of Indians to not just queue up at ATMs but also fall in line with the Narendra Modi government's digital push, even as online payment services firms are laughing all the way to the bank.

In a nation where most consumers have hitherto been dealing in cash, the currency switch has provided the Centre an opportunity to give a big push to electronic transactions to improve transparency and weed out black money.

At present, digital payments account for 15 per cent of the $1.5 trillion worth of consumer spending in this country. This could rise to 60-70 per cent of overall consumer spending in the next two years, said Mrinal Sinha, operations head at e-wallet company MobiKwik. The scope appears to be reflected in the sudden surge in transactions of e-wallet companies such as Paytm, MobiKwik and FreeCharge

The government expects the move to pay off as cash-starved consumers are taking the plunge to cross the psychological barrier of switching to digital transactions with which they were uncomfortable until now.

A senior Finance ministry official told MAIL TODAY that with more transactions coming online there will be greater transparency, which will make it possible to ensure a higher degree of tax compliance. Mobile payments and commerce platform Paytm claimed it crossed seven million transactions worth Rs 120 crore on November 22.

The immediate impact of demonetisation is visible in the national Capital where even small traders took to digital modes of payment including e-wallets. Tea sellers, vegetable vendors and neighbourhood grocery stores started accepting money through e-wallets after the government banned Rs 500 and Rs 1,000 notes, sweeping away 86 per cent of India's total currency in circulation.

Tea and vegetable sellers in most parts of the city began transaction through digital wallets while the parking lot operators particularly in malls too accepted payments through cards of e-wallets. Similarly, patients had the option of paying doctors' fee through e-wallets at many private clinics and hospitals.

Even as the ruling AAP in Delhi went all guns blazing against the demonetisation move, auto-rickshaw drivers, a key vote bank of the party, supported the ban. Several auto rickshaw unions in Delhi took out march in support of demonetisation. They said with App-based taxi services going cashless, fewer people opted for auto rickshaws.

The consumer class too appeared happy with the currency ban as they saw prices of commodities like pulses, edible oil, fruits and vegetables coming down in retail market. "The apple which was selling at Rs 180 per kg till the first week of November is easily available at prices as low as Rs 120 per kg. Similarly, cash crunch has resulted in low demand as hence prices of vegetables too have come down," said a trader at Gazipur mandi.

Paytm with its latest app update on Wednesday announced a feature for small and medium businesses to accept payments from consumers using all bank's debit/credit cards and UPI apps. This is expected to further accelerate the pace of digital transactions.

MobiKwik claims a five-fold growth in downloads of its smartphone app and a 20-time growth in usage of its platform this month.

FreeCharge has seen wallet load transactions grow eight times and a nine-fold growth in consumer transactions. The government, on its part, has asked banks to install 10 lakh additional point of sale (PoS) terminals within four months to give a fillip to digital transactions across the country Banks have placed orders for 6 lakh PoS machines and another 4 lakh are likely to be ordered in the next few days.

There are about 15 lakh PoS terminals currently across different merchants to facilitate card based payments. As part of the plan to expand the digital payments ecosystem and facilitate the move towards cashless transactions, the government has decided that an additional one million new PoS terminals should be installed by March 31.

The RBI has made it easier for users to use their credit / debit cards for online transactions below Rs 2000 without second authentication. "This will improve success rate of online transactions, which will grow both online commerce and cashless payments in India," said Govind Rajan, CEO of FreeCharge.