Can India meet the target of 2,500 crore digital transactions in 2017-18?

Union finance minister Arun Jaitley in his budget speech this year said, “A mission will be set up with a target of 2,500 crore digital transactions for 2017-18 through UPI, USSD, Aadhar Pay, IMPS and debit cards.” Reiterating the government’s commitment to achieve this objective, Prime Minister Narendra Modi in his Mann ki Baat address last Sunday exhorted people to embrace digital transactions so that the full year target could be reached in half the time. “Our 125 crore countrymen, if they wish to do so, they need not wait for a year, they can do it in 6 months,” Modi said.

“Can 125 crore countrymen resolve to undertake 2,500 crore digital transactions during this year? We made an announcement in budget,” said PM Modi.

How feasible are such targets? Reserve Bank of India (RBI) data on Electronic Payment Systems (EPS) shows that number of digital transactions in FY 17 (figures till January 2017) was 1569.3 crore. This figure was 1512.6 crore for FY 16. Demonetisation did increase the growth of digital transactions. Between November 2016 and January 2017, 545 crore digital transactions happened in India which is 38% higher than the number of transactions in the same period a year ago. These figures should not be taken as normal growth as liquidity shortage caused many people to switch to digital methods. Growth in digital transactions has been coming down with cash coming back in the economy.

Demonetisation’s real success in encouraging digital payment methods would only be known after completion of the remonetisation process. One interesting fact is that the RBI does not expect much change in the amount of currency in circulation after the completion of this process. “I think everyone should keep in mind that the remonetisation is taking place at a very fast pace. We have some way to go, but I think we expect that within two to three months we will reach full currency in circulation. It will be slightly lower, but it is in that ballpark (number)”, said RBI’s deputy governor Viral Acharya in the first week of March 2017. This suggests that there is not much expectation of a reduction in demand for cash. 

In this background it is more useful to look at long-term trends in growth in digital payment volumes and values. We compare values from April to December for each year, since data after January 2017 is still not available. Volume of digital transactions has grown in double digits in the period between FY 13 and FY 16. Interestingly, year-on-year (April to January) growth in volume of digital payments slowed down in FY17 in comparison to FY 16. Several years saw unusual growth rates as newer methods were introduced.

The various channels for digital payments includes Prepaid Payment Instruments (PPI) which includes mobile wallets, Cheque Truncation System (CTS), Retail electronic clearing, credit and debit card usages, Immediate Payment Service (IMPS) etc. We compare overall numbers rather than payment method-wise figures, as some of these were not available in earlier years. It should be noted here that the data provided by RBI is provisional.

At an average of 157 crore online transactions every month in 2016-17 (up till January), a growth of almost 33% will be required in 2017-18 if the target is to be achieved.

Another interesting statistic vis-à-vis usefulness of shifting to digital payments is the growth in total value of transactions. A healthy increase in this value can help establish money trail and prevent tax-evasion.

Value of digital transactions grew by 25.7% in the April to January period in 2016-17, up from a mere 8.1% in 2015-16 during same period. It would be interesting to see whether government’s decision of declaring all cash transactions above ₹ 2 lakh as illegal would lead to a big spike in value of digital transactions.

All discussions on whether or not India can become a country with low cash dependence and popularity of digital transactions should be aware of the fact that we are considerably behind our peers in terms of infrastructure for digital payments. This chart from an earlier Plainfacts column illustrates this point.

Another impediment to making digital payments popular is the glaring digital divide in India. Another Plainfacts column had shown that only 10% of people reported having an internet connection at home in India, with the figure being just 3% in rural India. Just over one in five households have a person who can access internet at any place through a computer or telephone, the article showed. 

There is no denying that change in behaviour has a role to play in shifting to digital payments. But there is reason to believe that better education and digital equality would promote them more than disruptive shocks such as demonetisation.