ISAS Insights

Has demonetisation provided a boost to the quest for a less cash-intensive economy in India? The Indian government embarked on several initiatives to incentivise, persuade and compel the citizenry to adopt cashless means of payment. This was grounded in the belief that, aside from entailing high costs, cash transactions cannot be detected by fiscal authorities or, indeed, by any wing of the government, thus enabling a large segment of the economy to evade taxes. It also challenges policymakers assessing the impact of monetary, fiscal and other regulatory initiatives on the ‘unmeasurable’ informal economy. The shift to non-cash transactions offers a number of other benefits that could eventually help the pursuit of growth with equity. The most significant among these may be digital ‘Direct Benefit Transfers’ – payments to the poor under the federal and state governments’ social welfare programmes. If rendered effectively, this could curb a major avenue for corruption, become a catalyst for a shift to digital payments and radically enhance the efficiency of benefit programmes. India is rapidly developing the infrastructure to facilitate this transition, with some of the props already in place. Demonetisation, at best, may have helped expedite this transition.