Digitalization and Digital Financial Literacy: A Happy Ending to Demonetization?

Abstract

The surprise move by the Prime Minister to invalidate billions of 500- and 1000-rupee notes on the 8th of November 2016 has been in the news ever since and has evoked mixed reactions.
Demonetization, which aimed to curb black money, terror funding, and counterfeiting in the first place, was later projected as the government’s push for a digitalization drive. This study attempts to show the effect of demonetization on digital payments, viz. debit card usage (volume and value), credit card usage (volume and value), mobile banking transactions (volume and value), RTGS transactions (volume and value), and NEFT transactions (volume and value). A comparative study of the value and volume of digital payments before and after demonetization has been put forth, the results of which demonstrate that digitalization, in true terms, has made progress only after demonetization. The data on mobile banking transactions and credit and debit card usage is secondary. Moreover, the study further demonstrated that demonetization has led to an increase in Digital Financial Literacy. Digital Financial Literacy has been defined based on three parameters- an increase in the volume and value of Payment System Indicators (2011-2019), digital transactions per capita in India, and increased use of technology in investments of mutual funds. Plausible measures to promote Digital Financial Literacy have been provided to move forward India's march towards a faceless, paperless, and cashless economy.

Keywords: Demonetization, Digitalization, Mobile Banking, Digital Financial Literacy, Payment System Indicators, Digital Payment.