MUMBAI: The Reserve Bank of India’s Digital Payments Index also reflects the spread of digital keeping in view the growth in payment infrastructure. Out of the four major objectives of demonetisation, India has done well on three. Digital transactions have increased.
Apart from this, counterfeit notes have also come down. Detection of counterfeit notes fell from 3.1 lakh in FY19 to 2.9 lakh in FY15 and 2 lakh in FY21. There are also signs that the economy is becoming more formal.
According to Soumya Kanti Ghosh, chief economist at SBI Group, there are indicators that the informal economy has shrunk to 20% of GDP from 50% a few years ago. This is on par with Europe and much better than Latin American countries where the size of the informal economy is estimated at 34%.
“The growth in GST collections despite shrinking GDP clearly shows that formalization has ensured that fiscal policy can be used as a counter-cyclical fiscal policy tool when revenues fell due to the pandemic. This is a clear break from the past as fiscal policy in India has always been used as a cyclical fiscal policy tool,” Ghosh said.
Recent data shows that although there has been a resurgence in economic activity, there has not been a proportionate increase in currency in circulation. The high degree of digitization has given the economy the ability to grow without a corresponding increase in cash.
“The increase in formality and the increase in currency under circulation are not mutually exclusive. Stakeholders in the formal economy are also consumers. While they may have more cash with them, more transactions are now being captured through digital footprints,” Ghosh said.
According to Ghosh, even the post-pandemic growth in cash is an aberration. “If we compare the currency/GDP ratio in FY11 (pre-pandemic) with FY2011, the numbers are really low. For example, in FY20, it was at 12.1% and in FY11 it was at 12.4%. So actually, we are becoming more digital and probably need less cash,” Ghosh said.
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