Demonetization and digitalization: The Indian government's hidden agenda

Cyril Fouillet (), Isabelle Guérin and Jean-Michel Servet

Telecommunications Policy, 2021, vol. 45, issue 2

Abstract: The Indian demonetizations of November 2016 came at an entirely new scale to those of January 1946 and January 1978. This time around, the Narendra Modi government's measures applied to 86.4% of the banknotes and coins in circulation, the equivalent to 11% of GDP. Much analysis has been undertaken on the demonetization. This has largely been critical because of its disastrous consequences on local populations and the most deprived among them. Our paper adopts a different angle: it argues that demonetization has had a key impact on the digitalization of payments. We use data from the Reserve Bank of India from 2014 to 2020 to show that the demonetization period brought about a decline in Automatic Teller Machines (ATM) withdrawals. It equally boosted the adoption of digital means of payments, via Point of Sale Terminals (POS) and mobile banking. Since October 2016, the number of POS transactions has risen almost threefold, while the number of ATM transactions has decreased by almost one-fifth. The current government's rhetoric is to promote digitalization as a means of both formalizing the economy and protecting the poor. Its claim is unfortunately highly debatable.

Keywords: Demonetization; Digitalization; Financial inclusion; Cashless; Mobile banking; Policy implications; India (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1016/j.telpol.2020.102079

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