What good or bad demonetisation has brought to the country is still a conclusion that remains too distant, but industry experts opine the move has set a tone for formalising the economy predominantly run on cash.
Exactly a year ago on this day, Prime Minister Narendra Modi in his address to the nation had announced the scrapping of Rs 500 and Rs 1,000 banknotes, citing corruption, fake currency, terror funding as threats to the country.
A bone of contention between the government and the Opposition parties, the note ban was a highly secret move that shook the whole nation, drawing both criticism and praise from different quarters.
However, the goalpost on its objective was gradually shifted, with the government saying that the note ban decision would lead to formalisation of cash economy as money flow through digital means can be tracked easily.
“It is now a year after the event and, on reflection, I feel that the impact for the banks has been largely positive. Besides, the fact that banks picked up deposits, during the demonetisation drive, a lot of small loans got paid off, many of which were sticky,” said Parthasarathi Mukherjee, MD & CEO, lakshmi Vilas Bank.
A spin-off from demonetisation has been the overall increased emphasis on digital transactions and that channel has seen a multi-fold growth, he added.
Bank unions, however, expressed their anguish on the anniversary of demonetisation, saying the government failed to compensation employees for the additional hours put in by them for two months.
The National Organisation of Bank Workers said employees are feeling cheated as the government has not heeded to their demand for compensation against the overtime.
It further said that the efforts of bank employees made demonetisation a success but they were left high and dry, it said. Sounding optimistic, Ashishkumar Chauhan, MD & CEO of BSE, said it was definitely a bold and timely move.
“We have seen a considerable impact in the year that followed. The main objective of bringing unaccounted money within the system, and widening the tax base will definitely impact the economy positively going forward by making activities more formal and accountable,” Chauhan said.
Aviva life Insurance Chief Financial Officer Karni Singh Arha said that soon after demonetisation, the industry witnessed a sharp spike in cash payment of premium.
“Over time, we have seen even households from tier-2 cities that preferred cash getting comfortable with NEFT and ECS mandate. This huge behaviour change has significantly improved contactibility and will reduce unclaimed funds,” he said.
Microfinance firm Village Financial Services MD and CEO Kuldip Maity said there was a fall in the number of clients and loan disbursals post note ban compared to three quarters pre-demonetisation, but recovery seems to be returning in coming quarters.
“There were issues related to both loan disbursement and repayment...Amidst all these pains, we have to see the long-term benefits also. Post demonetisation, technology and digitisation have now become a priority for MFIs. Digital transactions got a major boost. The whole industry is thinking about gradually going paperless,” Maity said.
How dependent is the Indian economy on the paper money is evident from the fact that the old Rs 500 and Rs 1,000 banknotes that were termed invalid from midnight November 9, 2016 formed almost 86 per cent of total cash in circulation.