Electronic Payments

Decline In Electronics Payments After Demonetization Says RBI

On digital transactions, too, RBI data shows that the volume of electronic payments, after peaking in December 2016 at 957.50 million transactions compared with 671.49 million in November, has been on a decline.

When it launched the currency withdrawal in November, the NDA government had outlined four key objectives of the demonetisation exercise: detection of black money, elimination of fake currency, squeezing funds available for terror funding and promotion of a “less-cash” society. The data released by the RBI in its annual report on Wednesday indicates that on most of these counts, the objectives can either be classified as work-in-progress or being simply elusive.

The premise in the days after the announcement was that the currency notes that failed to return to the banking system could largely be categorised as “black money”, a view that was corroborated by the then Attorney General Mukul Rohatgi in the Supreme Court and subsequently by a senior finance ministry official.

Rohatgi had said that of the total estimated money in circulation of Rs 15-16 lakh crore, the government expected people to deposit Rs 10-11 lakh crore. “The rest, Rs 4-5 lakh crore, were being used in northeast and Jammu and Kashmir to fuel trouble in India. That will be neutralised,” he had said. A senior finance ministry official had told reporters in November that the government expected that Rs 3 lakh crore would not return into the banking system.

With nearly 99 per cent of the junked currency having come back into the banking system, that argument doesn’t hold — reinforcing the assumption that the bulk of black money is trapped in sectors such as real estate, gold and held overseas.

On digital transactions, too, RBI data shows that the volume of electronic payments, after peaking in December 2016 at 957.50 million transactions compared with 671.49 million in November, has been on a decline. Even as there was a blip in March to 893.89 million transactions, the volume has since come down to 862.38 million transactions in July. This includes transactions through systems such as NEFT, prepaid wallets, UPI, debit and credit cards, cheques and mobile banking, a 28 per cent growth from November levels.

In value terms, November 2016 recorded Rs 94 lakh crore in electronic payments which grew to Rs 104 lakh crore in December, surged in March to Rs 149 lakh crore, then declined to Rs 107 lakh crore during July — a five-month low.

Elimination of high-denomination fake currency was the third key objective. As per RBI data, the number of counterfeit notes detected during 2016-17 grew 20 per cent to 7.62 lakh pieces from 6.32 lakh pieces in 2015-16. In the year 2014-15, the RBI had detected 5.94 lakh pieces of fake currency notes.

While the intended objectives are still elusive, the exercise imposed significant cost on the Indian economy and the banking system, over and above the reported loss of life of nearly 100 people waiting in lines.

The transfer of surplus by the RBI to the government dwindled down to Rs 30,659 crore for 2016-17 (July-June), less than half the Rs 65,876 crore it had transferred in the previous year, and substantially lower than what the government had estimated in its budget document (Rs 58,000 crore).

The surplus transfer fell as the RBI had to pay interest on the massive deposits the banks kept with the central bank during the demonetisation phase. The RBI’s net income from domestic sources decreased by 17.11 per cent from Rs 52,157 crore in 2015-16 to Rs 43,232 crore in 2016-17 mainly due to higher net expenditure on interest under Liquidity Adjustment Facility on account of absorption of surplus liquidity in the banking system post demonetisation, according to the annual report.

The total expenditure of the Reserve Bank increased by 107.84 per cent from Rs 14,990 crore in 2015- 16 to Rs 31,155 crore in 2016-17 primarily due to increase in expenditure on printing of new notes as a part of remonetisation of currency and provisions, it said.

On the black money issue, the RBI, in its report, has maintained that the trail of deposits of Rs 500 and Rs 1000 notes into bank accounts may provide valuable information to the revenue authorities in tracing unaccounted money. During 2016-17, the number of suspicious transaction reports filed by banks and other financial intermediaries with the Financial Intelligence Unit has seen a massive jump to 4.73 lakh in 2016-17 from 1.06 lakh in 2015-16.

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