The coronavirus pandemic has put forward real challenges in front of the economies across the globe. But for India, it seems to have done what the honorable Prime Minister failed to do when he announced demonetization.
Digitalisation due to the COVID-19 pandemic vs Digitalisation due to Modi’s demonetisation policy
The ill-conceived demonetisation was announced in the late 2016. The step was taken to reduce or minimize the black money or the unaccounted money held by people as well as to spread the vision of a more digitalized economy.
A survey on the same was conducted by a community social media platform LocalCircles. The survey covered as many as 15,000 individuals across 300 districts in India.
The report shows that there has been a 50% reduction in the number of people who prefer cash transaction in 2020 from 2019 alone. The reason? The pandemic.
Simply, in the socially distanced world people were stuck at home with only the internet to fulfil their needs. People were forced to flock the online stores for everything they needed to survive from medicines to food to clothes.
On statistical grounds, the survey showed that there is nearly a 50% drop in the number of people who do the majority of their monthly purchases without receipts in 2020. Around 14% of citizens in 2020, it said, carry out 50-100% of their monthly expenditures without a receipt as against 27% in 2019. This means that half of the people who made majority of their monthly purchases without a receipt in 2019 have not withdrawn the practice.
Moreover, the survey showed that not only this but the quantum of digital transactions has also jumped up and widened to cover up more and more aspects of human life in the corona time. The people who were surveyed said that now they use cash only for a few purposes such as paying salaries to domestic staff or eating out. Out of the respondents only 3% used cash to make payments for their rent, purchasing properties or for payments of house repairs. What is quite interesting is that only 7% respondents claim to have paid “bribes in cash.”
Sachin Taparia, chairman of LocalCircles, said that “Over the years, India has witnessed a tremendous rise in the usage of digital payments, which has eventually led to an increase among consumers getting a digital receipt to their purchase.
The data published in the month of October by the Reserve Bank of India also shows that india has witnessed a huge jump in the volume of digital payments in the financial year 2020. The country has seen digital payments jump to 3,434.56 crore. As per the data from the last five years, we have seen an annual growth rate of 55.1% in terms of transactional volumes and 15.2% in terms of value in digital payments.
The UPI-payments also hit a record high of 207 crore transactions in October.
When these respondents were asked about their thoughts on dealing with the problem of black money they were of the view that it existed everywhere. Red tape activities in the economy are rampant and can basically be found everywhere. Many people also believe that steps by the government such linking of Aadhar Card with all property ownerships, mandatory disclosures of the balance sheets and personal properties owned by all the government ministers, their family member and their employees, levying transaction tax as well as the demonetising Rs. 2,000 currency notes could further control or reduce of black money supply in the economy.
Therefore, we can clearly say that for introduction of any new technology in the Indian subcontinent (or for anywhere in the world) a crisis provides better scope and opportunity in comparison to a regular policy framework or step by the government (no matter how drastic it is).
Did the demonetization of 2016 solve the problem of black money?
After the demonetization of Rs. 500 and Rs. 1,000 notes, the black money problem was cured for a while but now, many experts argue that black money is back and with double the amount. How? Simple. The biggest problem with black money is not receiving it but storing it. The most critical problem, as also shown in thriller movies, is finding a warehouse for your millions of notes painted in black. The demonetization brought out all the money in these storage godowns. And that was good.
But, the release of Rs. 2,000 currency note in economic circulation poses another bigger problem. We all know that gaining and holding black money is a continuous process and cannot be done away with. So, now, with Rs. 2,000 note value in circulation, which is by far the highest monetary value note issued by the Indian government, the economy offenders would be able to store double the amount of black money in the same storage warehouse.
For example, if I deal in black money transactions and I have a secret place with a capacity of storing 1 lakh notes, then that meant that I could store Rs. 1 thousand lakhs in that place using Rs. 1,000 notes which were of highest value before demonetisation. But now, after Rs. 2,000 notes are introduced, I can store an amount equal to Rs. 2 thousand lakhs in the same place. Do you now get what the problem is?