Demonetization Digitization Impact: Cash in Circulation At Par with France and Germany

It is fashionable to ding the Modi government for their work on Demonetization.  However, apart from the ills it impacted, which we will share in a subsequent post – it has pushed the Indian economy towards two things – (1) more people under the taxability umbrella and (2) Cashless transactions rising higher.

As over 9 million new taxpayers joined the system, the percent growth in taxpayers in the country grew by 24%.  Given that the future growth in the economy is predicated on growth and contemporarization of the infrastructure, it is important that Government gets more money to deliver that.

It is of course heartening to know that tax revenues are not the only source of money that the government is tapping to create the infrastructure.  It is using creative financing to make that happen.  Watch this interesting video of Nitin Gadkari explaining his smart ways to grow the roads and infrastructure.

Now, coming to growth in digitization and ecommerce.  RBI has come out in its latest report to say that the Currency in Circulation (CIC) has fallen now to 8.8% from 12.2% which is now in line with Germany and France.

The Reserve Bank of India’s annual report for the year 2016-17 says demonetisation has helped the country’s currency in circulation (CIC) to GDP ratio compare with advanced economies like Germany and France.

Last year, the cash to GDP ratio in India was 12.2%. It came down to 8.8% by the end of March 2007 as demonetisation hit the total high value currency in circulation. The demonetisation decision announced by the government on November 8 had scrapped old high-value currency notes of Rs 500 and Rs 1000.

In the weeks following demonetisation until December 31, 2016, the RBI pumped in 23.8 billion pieces of bank notes into circulation, which was Rs 5,540 billion in value. By the end of March 2017, CIC had reached 74.3% of the peak. ”

The increase in ecommerce transactions based NOT as much on credit cards, but on Aadhaar card – those transactions are easier for rural masses to use and easier and cheaper for local merchants to implement – has meant more financial inclusion.  This is over and above the inclusion brought about by the bank accounts opened for the rural.

As we move towards more stable financial structure of the economy and more inclusive growth, we are also looking at leveraging the huge potential of digitization. This can bring a multiplier impact to the economy. Towards this, let us listen to this very interesting discussion between Piyush Goyal and Ajay Banga, President and Chief Executive Officer, Mastercard, USA.