India’s Demonetization: One Year Later

It’s been one full year now since India pulled the plug on almost 90 percent of its cash, and the full impact of the move is being calculated up. The world was shocked—perhaps India itself most of all—to hear Prime Minister Narendra Modi announce 500 and 1,000 rupee notes were soon to be worthless in the country, a move designed to rein in tax cheats. What happened afterward, though, was almost as unexpected as the actual announcement.

Mobile payments proved to be the big winner of this move, as stunned Indians sitting on cash hoards rushed to get said cash into the bank before it lost its value. In many cases, bank lines were so extensive and banks only so willing to accept said soon-to-be-worthless cash that customers couldn’t get in.

But mobile payment systems like Paytm were only too willing to take that cash in and give users credit accordingly. The result was a massive upswing in both user numbers—as new users stepped into the field—and in transaction numbers as well. Estimates from late last year said that the total mobile payment transaction value in India would hit around $32.8 trillion US as of 2022, which looks all the more credible given the lack of cash in the country. Just this year alone, the use of mobile wallets has nearly doubled.

However, there’s still plenty of cash in use despite the demonetization; the Reserve Bank of India says that the amount of cash in circulation is just nine percent under the level before demonetization. So even as mobile payments spike, there are still plenty of people swapping bills.

So here we are, one year later, and the Indian government has been almost aggressively backing mobile payments to the point where some wonder if it’s not trying to push for a cashless society before Sweden reaches it. Yet at the same time, even as India rapidly takes to mobile payments, it’s still quite clearly clinging to cash. It’s funny how the two concepts, which are essentially opposed to one another, are interacting fully here; cashless systems are taking off as cash only sees a slight drop.

The next year for India should be a sight to see; it’s already been big by any standard, and it’s not likely to slow.