Can Modi's Digital Drive Overcome The Cash Crunch?

Cashless transactions will bring millions more into the tax net, but are the government’s initiatives to accelerate the digital rollout enough to revive an economy reeling under a cash shock?

- M.G. Arun & Shweta Punj

Monika Mahope, a junior college student in Dhasai, a tiny village of 5,000 in Maharashtra’s Thane district, used a gift card from her parents for the first time on December 6. She bought berries from a local vendor. “It’s very easy and convenient,” she says. Dhasai has seen some radical changes ever since it resolved, on December 1 this year, to become what is touted as the country’s first ‘cash-free village’. With a state owned bank distributing 50 point-of-sale (PoS or swipe) machines to local traders, most of them, except the vegetable vendors, have now gone cashless. Customers, some commuting to work in nearby Thane and a few farmers, have resumed buying after the cash crunch of two weeks following demonetisation. “My daily sales were around Rs 1,000, but I’m now earning an extra Rs 500 after installing the swipe machine,” says grocer Swapnil Patkar. The reason, he figures, is that customers tend to buy goods in bulk with their debit cards.

Stories of more and more traders, transporters, customers, or, in cases like Dhasai, entire villages shifting to cashless or less-cash transactions have come in from many parts of the country after the Narendra Modi government demonetised Rs 15.4 lakh crore worth of Rs 1,000 and Rs 500 currency notes, ostensibly to fight black money in the system—estimated to be around 20 per cent of India’s $2.3 trillion (Rs 156 lakh crore) economy. Demonetisation suddenly sucked out 86 per cent of the total currency in circulation. And by the first week of December only a third of that had been replenished by the new notes. Even if the printing presses work at full capacity, it will take at least another two months before the currency circulation becomes normal again. Assuming that some Rs 8 lakh crore worth of currency will have been printed till December 31, is it possible that digital money can effectively fill the breach?