When Prime Minister Narendra Modi began a national address on November 8, 2016, only a handful of India’s 1.3 billion people had an inkling of the economic bombshell he was about to deliver. Modi calmly announced that 500-rupee and 1,000-rupee notes would no longer be legal tender, removing 86 per cent of the country’s money in circulation in terms of value with immediate effect. He used the term “black money” – referring to unaccounted money hidden from India’s tax authorities – 18 times in his hour-long address.

It has been two years since Modi’s controversial demonetisation scheme, and none of the stated goals – including the eradication of counterfeit currency, curbing terrorism and reducing bribery – has objectively been achieved. Yet, there is one sector that has benefited immensely from the much-disparaged move: digital payments services.

Buttressed by the government’s emphasis on the sector, India’s digital payments market is forecast to be worth US$1 trillion by 2023, up from its current value of US$200 billion, according to Credit Suisse.

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This rise has left the likes of Google Pay, Amazon Pay, RuPay and BHIM locked in an intense battle to control the market. Although this has been more of an incidental benefit from the demonetisation, rather than one of its intended outcomes, the Modi administration has not been shy in claiming it as an achievement.


In early November, Finance Minister Arun Jaitley heralded the upsurge of locally developed payment systems, which enable quick interbank money transfers using mobile phones.

“Today, Visa and Mastercard are losing market share in India to the indigenously developed payment system of UPI [Unified Payment Interface] and RuPay Card, whose share has reached 65 per cent of payments done through debit and credit cards,” said Jaitley, referring to the volume of transactions.

In terms of value, a significant majority still takes place via Visa and Mastercard. India’s monthly payment transactions were worth US$51 billion in August, as per central bank figures.

Modi has urged Indians to use the six-year-old RuPay system, calling it a “service to the nation”.

The National Payments Corporation of India (NPCI), an umbrella organisation of retail-payment operating systems formed by state-backed banks, has been spearheading the push for home-grown digital payments networks.

RuPay, which was developed by NPCI, now accounts for more than 500 million debit and credit cards in India. From a market share of just 0.6 per cent in 2013, RuPay now has more than 50 per cent of the market. And from 2017 to this year, RuPay’s use in e-commerce websites jumped 137 per cent while its value of payments grew 180 per cent.

When RuPay was first rolled out in 2012, only 32 bank branches were able to issue debit and credit cards, but now 1,100 banking facilities can distribute RuPay-powered cards.

A major boost came in 2014 when the Modi administration recommended RuPay cards for all new bank accounts opened under the “Pradhan Mantri Jan Dhan Yojana” scheme, which aims to provide affordable access to financial services.

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A high-level source from NPCI, who did not wish to be identified, emphasised the government and central bank’s commitment to pushing home-grown digital payment gateways.

“Having an indigenous digital payment ecosystem is extremely important for any country,” the source said. “Would you like any other country to supply cash in your country? This is very similar to that.”

The source added that the indicators of growth of local services were stable. “We’re only scratching the surface. UPI currently processes half a billion monthly transactions now. In the next two to three years, it will be a billion transactions a day,” he said.

NPCI, the source went on to say, has global ambitions. Currently, the bulk of RuPay cards are used domestically and less than 10 per cent of users have made requests to use their cards internationally.

Mastercard, which reportedly protested to US regulators against Modi’s preferential treatment of RuPay in June this year, said it “fully supports” the Indian government’s initiatives.

“We share a common vision to lift people and society by empowering economic participation and advancement,” its spokesperson said. “Between 2014 and 2019, Mastercard has invested almost 6,500 crore (US$903.2 million) in the Indian economy to build a digital payments ecosystem.”

However, the spokesperson did not answer questions about the American financial services corporation’s ongoing battle with home-grown entities in India. Visa is also yet to respond to queries.

“The domestic card payment scheme has proved to be a big democratisation force in the country,” said A.P. Hota, the former chief executive of NPCI and the man responsible for propelling the growth of RuPay and UPI.

Hota’s time in charge of the NPCI from August 2010 to August 2017 was a crucial phase, during which home-grown digital payments services gained a foothold in the economy.

“RuPay has brought smiles to the face of millions accessing facilities like ATMs and POS [point-of-sale systems] for the first time,” Hota said. “Card payment systems, which were only for elite customers, are now a convenience for everyone.”

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Some local reports have suggested almost all towns with populations of more than 1 million people have doubled their digital payments since Modi’s 2016 demonetisation.

For a price-sensitive country like India, transaction fees as low as 5 rupees (70 US cents) could play a critical role in the success of a particular payment network – even more than a user-friendly interface or brand values.

“For online payments, I think it’s really user-friendly, in that I don’t need to enter a username, password or 16-digit card number. It’s just like email,” said Ankit Mohan, a start-up founder who has been extensively using UPI. Many users pointed out that government-backed payment systems often enjoy a certain amount of credibility, which the profit-driven private players lack.

“My experience is good so far. Still, I look forward to an increased transaction limit,” said Vinay Khare, a college professor, referring to the state-backed BHIM mobile app’s daily transaction ceiling of 20,000 rupees (US$277).


Curiously, although the number of mobile and online transactions has grown sharply over the past two years, the vast majority – more than 70 per cent of overall transactions by value, according to Credit Suisse – are still made in cash. The country’s rich and vibrant informal economy, which was entirely dependent on cash, was the worst hit by the demonetisation.

Leading the attack on the programme have been Modi’s political opponents, the Indian National Congress. Its president, Rahul Gandhi, called the demonetisation a “self-inflicted, suicidal attack that destroyed millions of lives”, while Congress called November 8, 2016, a “black day” for Indian democracy.

This view is shared by many prominent economists, including former prime minister Manmohan Singh, a Congress member himself.

“The havoc it unleashed on the Indian economy and society is now evident to everyone,” Singh said.

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About 99.9 per cent of the demonetised cash has since come back into the banking system, well above the government’s initial estimate of 75 per cent, as people rushed to deposit the demonetised notes.

Monitoring bodies have outlined how demonetisation and its botched implementation have resulted in serious unemployment, decimated business sectors and slowed the country’s economic growth.

A study conducted by private research firm Centre for Monitoring Economy estimated there were 1.5 million job losses in the four months after demonetisation, as a direct result of the measure. Modi came to power in 2014 with a promise of creating 10 million jobs annually, and adverse employment figures are bound to hurt his administration.

The bungled roll-out of a goods and service tax (GST) in mid-2017 further debilitated the economy. When the Indian economy was still recovering from the shock of demonetisation, the GST was introduced with a still rickety infrastructure. In the 12 months since its introduction, the government made as many as 400 changes to the system.

The government’s recent claims – such as the expansion of its taxpayer base and the formalisation of the economy as direct consequences of demonetisation – have also been punctured by critics and economists.

Newspapers ran scathing editorials this month lambasting every aspect of demonetisation, including the loss of more than 100 lives two years ago – some due to shock and suicides over some people’s life savings being suddenly rendered worthless, and some cases where people were unable to pay medical bills in cash – and Modi’s failure to acknowledge the programme’s shortfalls.

Fuelling the concerns, both the government and central bank are unwilling to reveal key figures pertaining to demonetisation, such as total costs incurred by the exchequer or the compensation paid to those who lost their savings.

Demonetisation is bound to become a vital campaign talking point for Modi’s opponents when India goes to parliamentary polls in mid-2019. It is unclear if RuPay and UPI will offer Modi and his supporters any sort of boost as he bids for a second term.