Should India credit Modi’s demonetisation for digital boom?

Indians are still reeling from their leader’s decision to remove high denomination bank notes from circulation

But two years on, he’s claiming glory, crediting the move for boosting digital payments

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Published: 8:00am, 19 Nov 2018Updated: 8:14am, 19 Nov 2018

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.

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.

MODI VS MASTERCARD

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.