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The Economic Survey 2016-17 was charted by Finance Minister Jaitley on August 11 (representational image) Wikimedia
  • Finance Minister Jaitley tabled the second volume of Economic Survey 2016-17 in both Houses of Parliament
  • Second volume to be presented by Chief Economic Adviser Arvind Subramanian and his team

New Delhi, August 12, 2017: The last day of the Monsoon session of the Parliament saw the Indian Finance Minister Arun Jaitley table the second part of Economic Survey 2016-2017.

The survey revealed that a sharp, however balanced decline has been observed in the use of cash after Prime Minister Narendra Modi heralded the demonetization move in November last year. This trend has been observed both, in levels, and as a share of GDP and money.

Before assessing whether the move was a success or a failure, we must first identify what were the objectives behind stalling Rs. 500 and Rs. 1,000 notes,

  • Immediate objective – flush out large amounts of black money that were hoarded in cash at the moment
  • Long term objective – transform the cash-based Indian economy into a digital economy

It was assumed that these objectives would make India an efficient economy with higher tax revenues.

Before the introduction of demonetization, India heavily relied on cash, which in turn led to an unhealthy cash-to-GDP ratio (12 percent) – a trend that was only worsening with time.

The finance minister presented the second volume of Economic Survey 2016-17 in both the houses of the Parliament with demonetization being discussed for a significant part. The following has been revealed in an attempt to gauge the outcome of the move,

  • At present, total cash in holding is Rs. 3.5 lakh crore. This figure is 20 percent less than what it would have been had the economy not been demonetized.
  • Cash as a share of GDP has also witnessed a decline by 1.6 percentage points. Previously it was 11.3 percent of GDP and now stands at 9.7 GDP.
  • Cash as a share of M1 which economically represents liquid portions of money supply, has also declined by five percentage points.

To ease understanding of everybody from a non-economic background, these trends indicate a significant reduction in Indian economy’s reliance on cash since November 2016.

Another bonus point is the huge amount of cash that was previously lying dormant with people and has now entered the banking system.

ALSO READ: Indian Government’s Demonetisation measures did not impede Future Black Money Flows: UN report

When talking about the long term objective of the move- digitalization, a significant movement can be observed across all sectors :

  • The affluent segment of the society has increasingly shifted to mobile banking, online transactions, and app-based banking solutions
  • The middle segment are using their debit and credit cards
  • People from the less affluent segment are slowly joining the digital economy with their Jan Dhan accounts and RuPay cards
  • Pensioners who were previously only undertaking transactions in cash are now being encouraged to use card-based techniques.
  • Farmers, who comprise a significant part of the Indian economy, are also being encouraged to issue and use Kisan credit cards.

The Indian banking sector is not only promoting the issuance of debit and credit cards but also their use.

The question that comes to mind here is, was demonetization successful?

It would be wrong to say that the economy has completely transformed into a digital economy as many people have shifted back to cash. However, digital transactions are higher than pre-demonetization levels, and the overall movement is in the positive direction.

The Indian economy can thus, be rightly considered on the path to a holistic digital economy as the Economic Survey 2016-2017 notes “surge has moderated but the level and pace of digitalization are still substantially greater than before demonetization.”

However, while there is proof that the reliance on cash has declined sharply, it has also been pointed out in the survey that a “definitive judgments can only be passed if current levels of cash relative to GDP persist over time but so far”.


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