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