Unleashing the power of digitisation is paying off
Digital mode for payments catches on in rural India
In value terms, digital payments during the last five years moved from Rs 1962 lakh crore in 2017-18 to Rs 3021 lakh crore in 2021-22 and Rs 2050 lakh crore as at 31st December 2022. The potential for digital payments is increasing and as per a recent report by PhonePe and Boston Consulting Group, India’s digital payments market will triple from $3 trillion to $10 trillion by 2026.
In a surprising move, the Reserve Bank of India (RBI) on May 19 has withdrawn Rs 2000 denomination banknotes from circulation, even though it will continue to be a legal tender. RBI had introduced Rs 2000 denomination banknote in November 2016 primarily to meet the currency requirement of the economy in an expeditious manner. This was perhaps an alternative arrangement after the sudden withdrawal of Rs 500 and Rs 1000 notes. According to RBI, the objective of alternative denomination of Rs 2000 banknotes was met once notes in other denominations became available in adequate quantities. It was back in 2018-19 that printing of Rs 2000 banknotes was stopped. From that time onwards their circulation also decreased. According to RBI, the total value of these notes in circulation has declined from Rs 6.73 lakh crore at its peak as on March 31, 2018 (37% of notes in circulation) to Rs 3.62 lakh crore constituting only 10.8% of the notes in circulation as on March 31 this year. It is therefore clear that the withdrawal of bank notes of Rs 2000 denomination is not going to have major impact as RBI has ensured that other denominations are available in adequate quantities to meet the requirements of the public.
The central bank has advised members of the public to deposit Rs2000 bank notes into their bank accounts and or exchange them into other denominations by September 30. All other banks have been urged to stop issuing fresh Rs 2000 bank notes with immediate effect.
When the demonetization was announced in 2016 the objective, among other things, was to reduce the money in circulation. However, the currency in circulation, in value terms, has increased from Rs 17.74 lakh crore on November 4, 2016 to Rs 32.42 lakh crore on December 23, 2022. It stood at Rs 31.33 lakh crore in March 2022 from Rs 13 lakh cure in 2014. The currency in circulation, which includes bank notes and coins to GDP ratio stood at 13.7% as on March25, 2022 up from 11.6% as on March 2014.
There has been substantial increase in the use of digital mode for payments and the total number of digital transactions have moved from Rs 2071 crore in 2017-18 to Rs 9,192 crore as on December 31, 2022-23.( source: RBI, NPCI and banks )
There have been considerable efforts by the government, regulator and other stakeholders to enhance and expand digital transactions. New instruments like Bharat interface for Money-Unified Payments Interface (BHIM-UPI) Immediate Payment Service (IMPS) and National Electronic Toll Collection (NETC) have registered substantial growth and have transformed digital payment ecosystem by increasing person-to person (P2P) as well as person-to merchant (P2M) payments. BHIM UPI has emerged as the preferred payment mode and has recorded 803.6 crore digital transactions with the value touching Rs 12.98 lakh crore this January (Source PIB). In value terms, digital payments during the last five years moved from Rs 1962 lakh crore in 2017-18 to Rs 3021 lakh crore in 2021-22 and Rs 2050 lakh crore as at 31st December 2022. The potential for digital payments is increasing and as per a recent report by PhonePe and Boston Consulting Group, India’s digital payments market will triple from $3 trillion to $10 trillion by 2026.
However, in spite of these increases in digital payment transactions, the money in circulation in value terms and also in terms of percentage (GDP) has also grown substantially after the 2016 demonetization. Incidentally, digital payments came in handy during the Covid-induced lockdown. Digital payments were patronised even at the rural and semi-urban levels. It is also to appreciate the efforts of banks to the call of Prime Minister Narendra Modi that Jan Dhan Yojana and JAM (Jan Dhan Yojana, Aadhaar, Mobile) trinity has further led to financial inclusion and DBT (Direct Benefit Transfer), which has facilitated direct credit to the accounts of beneficiaries of various government schemes. As on December 30, 2022, the total balance stood at ₹1,80,857 crore with 47.84 crore beneficiaries out of which, 26.54 crore are women. As on May 10, numbers of total beneficiaries has gone to 48.99 crore with balance of ₹1,97,318.39 crore. Out of this 32.79 crore beneficiaries are in rural/semi urban bank branches. The number of rural-urban female beneficiaries is at 27.22 crore. Number of Rupay Debit cards issued to beneficiaries stood at 33.24 crore. (Source: PMJDY Progress Report). These facts demonstrate the efforts of the government and all stakeholders to progressively bring and enhance financial inclusion and facilitate speedy, direct benefit transfer to eligible beneficiaries without any leakage.
Nearly Rs 6.17 lakh crore was transferred to the beneficiaries in the year 2022-23 as against Rs 6.3 lakh crore in 2021-22. These enablers through JAM trinity have been helping to ensure the end use of funds released by the government and serving the purpose of such a transfer. We hope this would also help them to adopt digital payments and avoid using currency.
It is also credit of India and RBI, who have recently introduced Central Bank Digital Currency (CBDC), the objective of which is to facilitate digital currency payments both in wholesale and retail as E-Money or digital rupee, legal tender in a digital form. These are already getting traction in trial mode and it is expected to ease the pressure of money in circulation and people will opt for digital rupee for all their payments. This will be a speedy and convenient mode of payment. In future it will also facilitate cross-border transactions with ease.
It is expected that these effects narrated above in digital payments eco systems and the central bank digital currency will add to India’s dream of a digital rconomy along with other digital transformation projects undertaken by the government and other stakeholders like digital infrastructure and e-commerce. According to the Union Finance Minister Nirmala Sitharaman, India’s digital economy is expected to witness exponential growth to $800 billion by 2030 on the back of rising internet penetration and increasing income. This is the power of digitisation and digital transformation.
(The author is former Chairman & Managing Director of Indian Overseas Bank)