Paper

Demonetisation and Digitisation - A Diagnostic Study

Studying the impact of the Indian government's demonetization policy

On 8 November 2016, the Government of India (GoI) withdrew the legal tender status of INR 500 and INR 1,000 denomination banknotes with the stated objectives of reducing black money stashed in cash, stifle counterfeit Indian banknotes and to curb terror funding. In addition to these objectives, GoI promoted the use of cashless and digital methods.

MicroSave conducted this diagnostic study to understand the impact that demonetization has had on the income, expenses and cashless solutions adoption of four segments – agriculture and allied sector earners, self-employed, informal sector workers and salaried and their dependents. The study also aimed to understand the impact of demonetization on individuals' primary source of income, their expenses, coping mechanisms adopted and the change in the mode/channel used for conducting financial transactions.

Key takeaways from the study were:

  • Debit cards and checks are the most popular cashless solutions among people. However, post-demonetization, the uptake of checks and mobile wallets has significantly increased, while that of debit cards has largely remained the same;
  • 66% of the people using digital solutions are likely to transition permanently, given sufficient access points and training is provided;
  • Demonetization had varied impact across segments. Consequently, the coping mechanisms deployed by each segment differed;
  • Significantly more concerted efforts are required from multiple stakeholders (a) to enhance customer awareness in practical terms (product features, pricing, safety and security measures of payment instruments) and (b) for readiness of last mile infrastructure (POS devices, network connectivity, electricity) in order to drive higher uptake and regular usage of DFS products.