Often the arguments against demonetization rely on evoking the image of a vulnerable man standing for what seems like aeons to withdraw his money or the singular statistic of more than 99% of cash is back, therefore demonetization is a failure. One is a pure political narrative taken in isolation from any economic analysis, and the other a classic example of misleading statistic deprived of any context.
It is true that demonetization didn’t come without costs, just like any other policy. However, these costs must be viewed in the broader goals of what the policy is trying to achieve – which I broadly want to summarize in three broad categories – the advent of the digital economy, digitization of processes and, formalization.
Demonetization’s biggest and most unchallenged victory has been in fostering an ecosystem of digital payments, a critical aspect of the digital economy. The governments Unified Payments Interface (UPI), which has formed the backbone of digital transactions for multiple global and national platforms in India has grown from a mere 100,000 transactions at the time of demonetization to over 485 million transactions last month alone. UPI is one of the 5 ways in which the average Indian is transacting online, for the new Indian getting connected, there are unique innovations for India such as the USSD code which allows for verified and secure digital banking by dialling 4 digits.
The government has ensured that digital payments aren’t just a tool used by a certain section of the economy for booking movie tickets or paying a ride-hailing service, in fact, the biggest avenue of success has been in ensuring that the rightful beneficiaries of over 434 government schemes get their benefits on a timely basis through Direct Benefits Transfer (DBT). Based on the linking of Jan-Dhan bank accounts to the Aadhaar and using the Mobile as a medium of access, the JAM trinity has fostered the deliverance of benefits to over 41 crore Indians last year alone. The image of long queues at ATM lines must be juxtaposed against the image of beneficiaries, long-suffering with the burden of corruption, inefficiency and palm greasing finally gaining true access to their rights.
There is a reason that this government was able to implement the GST less than a year after November 8th, 2016 when the previous governments were trying to do the same term after term. Demonetization ushered in an ecosystem of digitization, using technology and policy but most importantly, making people aware of the benefits of operating in a technology backed, transparency economy. GST has allowed for the easy tax filing and seamless nationwide business for enterprises who were struggling with the cumbersome state and national taxes. The digital nature of GST has meant that businesses and governments have real-time micro and macro updates and this repository of data has been instrumental in the government being able to approve business loans under 1 crore rupees in 59 minutes.
Over 1 trillion rupees was collected under the GST last month, which proves something bigger – that India is realizing the benefits of operating under the formal economy. Business employees who have transitioned into the formal sector are seeing the benefits of greater financial and social security.
Demonetization led formalization has also meant that there has been a 25% increase in income taxes filed last year alone, the policy has disrupted India’s status quo of operating in the parallel economy which stood for inequality and tax evasion. Demonetization has removed anonymity from the economy and has ensured that the money that is in the system is being traced to ensure the greatest benefit for the greatest number.
The truth of the matter is that if India had to leapfrog into the 4th Industrial Revolution as it is doing today, then the journey would not have been possible without the kickstart of demonetization. The world has equally recognized India’s efforts, research and development in the process of digitization, evident by a record-breaking 2 continuous years of being amongst the top 10 economies of the world working hard towards easing the process of doing business.
India has set out on a new path of the digital-based transparent economy. This will ultimately end up buttressing economic growth and social welfare. The Demonetization acted as a positive nudge to usher this New India of 2022.
Vasudha Thirani is a public policy analyst and an expert in digital economy. She works for the Digital India Foundation.