New Delhi: One of the reasons for implementing demonetization was to convert India’s economy into a “Low Cash” OneAccording to Prime Minister Narendra Modi. However, what demonetisation could not do in this regard is being achieved by the COVID-19 pandemic.
fear of the virus and the resulting behavioral change mean that amount of money ATM withdrawals have remained around Rs 2.6 lakh crore for almost two years since the nationwide lockdown was widely lifted in October 2020.
Contrary to what happened after demonetisation, where ATM withdrawals recovered quickly and reached ex-note ban levels within a year, and then exceeded them in the subsequent 2.5 years until the lockdown.
Also, transactions on unified payment interface (UPI) also grew strongly amid demonetisation and the lockdown, but it was only during the COVID-19 period that UPI payments really dwarfed the growth of the past.
In other words, while demonetisation and subsequent policy decisions attempted to reduce the use of cash and increase the adoption of digital transactions, the real change happened only once the pandemic hit.
“Both these trends are actually happening, where ATM withdrawals are declining and UPI payments are witnessing a strong growth,” Madan Sabnavis, Chief Economist, Bank of Baroda, told ThePrint. “It can be said that the pandemic has given a strong push to the government’s efforts towards demonetisation and beyond.”
Economist Rishi Shah said, “The past few years have seen a marked change in behavior as people become comfortable using digital means of making payments.” “The success of the overall initiative can be traced to the number of payment apps and widespread acceptance among vendors irrespective of their size.”
The impact of the pandemic in promoting digital transactions has also been highlighted by the State Bank of India, with the bank’s research team issuing a statement. report good On Thursday on the changing dynamics of cash in practice and digital banking.
“Innovations in technology have transformed the Indian payment system,” the report said.
It noted that over the years, the Indian cash-based economy has shifted to a smartphone-based payments economy.
“The COVID-19 pandemic has caused disruption in the adoption of contactless digital transactions, especially for day-to-day transactions, as people try to protect themselves from the virus. With the increasing acceptance of digital payments in the country, the over-dependence on cash is gradually decreasing,” it said.
What is the currency in circulation?
However, there is a difference between the amount being withdrawn from an ATM and the currency in circulation. Currency in circulation refers to all the cash that has been printed by the RBI, which it has canceled, so it also includes cash in banks.
The currency in circulation as a percentage of GDP has been increasing over the past five years. Although the latest data for 2021-22 shows a decline, that year’s level is still the second highest level in 14 years.
Currency in circulation is something that SBI researchers have also observed in their report. However, he noted that although the currency in circulation as a percentage of GDP is increasing, the growth rate on an annual basis is much slower than previously thought.
“While digital transactions through UPI and e-wallets are on the rise, demand for cash is declining,” the report said. “If we look at the CIC figures, [currency in circulation]While this is increasing with the growth in the economy, the trend is decreasing… In particular, there has been a replacement from currency and much of it has moved towards digital modes of payment.
However, there is a chance that the simultaneous increase in ATM cash withdrawals and UPI payments could lead to a slightly different change in behavior, Sabnavis pointed out.
People may be withdrawing large amounts of cash as a precaution in the wake of the pandemic, but doing small transactions on UPI.
“It is important to note that while the cash in circulation is increasing, no significant change has been observed in the amount withdrawn from ATMs,” he said. “It may happen that people are withdrawing cash directly from banks as they are withdrawing more amount than allowed by ATMs. It is a more accurate statement to say that the pandemic has very strongly encouraged a behavioral change – especially among the younger population – away from ATMs and towards UPI. ,
Government’s thrust for UPI
That said, it is also important to acknowledge that the steps taken by the government to enable digital transactions and create platforms like UPI provided the foundation for the behavioral shift towards digital payments that the pandemic encouraged. The SBI report also mentions this.
“The success of the digital journey is mainly due to the relentless effort by the government to formalize and digitize the economy,” the report said. “In addition, interoperable payment systems like UPI, wallets and PPIs have created simpler and cheaper ways to transfer money digitally, even for those who do not have bank accounts. Over the years, the system has expanded rapidly with new innovations such as QR codes, NFC, etc., and has also seen the rapid entry of large tech firms into the industry. ,
“The pandemic really helped catalyze a change in behaviour, which was not supported by the safe and secure payment infrastructure created by the government,” Shah said.
(Edited by Therese Sudeep)