INTRODUCTION:

Demonetization policy was first used by the French in years between 1850 -1855 and after that many other countries have used this policy for the disrupt and shadow economies. Demonetization is a step taken towards withdrawal of currency or changing the status of high value currency notes in circulation. On 8^th November, 2016 Prime Minister of India Shri Narendra Modi announced demonetization of currency notes of Rs. 500 and Rs. 1000. He announces that these currency notes will not be treated as legal tenders from midnight. The PM further announces the introduction on new notes of Rs. 500 and Rs. 2000. It is the first time the government of India introduce currency note of Rs. 2000. According to RBI in the end of March, 2016 total amount of currency in circulation was Rs.16, 415 billion of which 86.4% in the form of 500 and 1000 rupee notes.

Rs 500 notes account for approximate 47.8% (7854 billion) and Rs 1000 notes constitute approximate 38.6% (6326 billion) out of total currency in circulation. There are many interesting facts about 500 and 1000 value notes. Rs. 500 note was introduced in Oct, 1987 and Rs.1000 value notes which was first introduced in 1938 and again in 1954 and demonetized in 1946 and 1978 it was third time reintroduced in India in November, 2000 and now demonetized in November, 2016.

Demonetization is done for overall economic development of India (Thilagavathi, P.2016). The main motive behind this decision was to curb terrorism funding, anti money laundering, to eliminate fake currency, to control the black money in the economy and to move towards cashless and digital India policy by increasing e-transactions. Cashless payment system takes a sudden growth after demonetization. After demonetization many researches has been done relating to many economic impacts. This research work has been executed to examine the impact of demonetization on digital payments in India.

LITERATURE REVIEW:

Mehta ET. Al (2016): attempted to examine in this paper advantages and disadvantages of demonetization with its impact on banking sector. This research paper also explores the changing scenario of traditional payment system in India. The results showed that demonetization has provide positive results related to black money and illegal activities like terrorism funding, gambling, money laundering. But it adversely affects the growth of country. The study concluded that many trades and areas are still cash based in India and cannot be digitized.

Das and Aggarwal, (2010), in their article “Cashless Payment System in India: A Roadmap” specify that Cash is used as a mode of payment by large proportion of country. It is an expensive proposition for the Government. The country needs to move towards E- payment system. This will help reduce currency management cost, track transactions, keep a check on tax evasion, boost financial inclusion and integrate the parallel economy with main stream.

Kaur (2017), in this research paper indicated that Indian population hesitating to use cashless transaction system. After demonetization digital payment systems get importance in Indian Market. Cashless transactions increased after demonetization. It moves the country towards digitization. It is a safe and less time consuming mode of Payment and helps to record all transactions for future use.

Singh (2016), in their research paper specify that a slight drop has been noted in Indian stock market after demonetization. Demonetization process was also experienced by many other countries. It produces long and short term implications on many sectors like: money supply, tax, GDP and GVA growth, real estate, banks and modes of payment and various service sectors. It influences overall economy of the country.

OBJECTIVE OF THE STUDY:

The main purpose of this paper is to study the role and impact of demonetization on E- transactions in India.

RESEARCH METHODOLOGY:

The research is based on secondary data. To achieve the objectives of study data is collected from various journals, RBI reports, news papers. Various related websites have been explored to collect data relates with the study.

What is Demonetization?:

Demonetization is the step taken towards taking back the status of currency in circulation as legal tenders. Banknotes and coins are usually defined as legal tender used for medium of payment recognized by a legal system to be valid for meeting a financial obligation (Kaur, M. 2017). After demonetization the currency units which are demonetize will be counted as invalid tenders. This is usually done whenever there is a change of national currency, replacing the old unit with a new one. Demonetized currency will become invalid for monetary transactions.

History of Demonetization in India:

It is not the first time in Indian history when the government ceases currency notes as legal tenders. The process of demonetization was also enacted two times in Indian context before 8^th November, 2016. The first time Indian currency was banned in 1946 and second time in 1978. The highest denomination currency ever ceased by government was 10000 value notes which were introduced firstly in 1938 and again in 1954 and demonetized in 1946 and 1978.

· First Currency Ban in India (1946):

First time on 11^th January, 1946 Indian Government announced the ban on Rs. 1000 and Rs. 10000 notes enforced from 12 January, 1946. The aim of this move was to curtail black marketing. This move of government was called a “death blow” to black. In 1954 both currency notes were reintroduced with some additions. A new denomination currency note worth 5000 was also introduced in 1954.

· Second Currency Ban in India (1978):

Second time demonetization process was performed in India when The Prime Minister Morarji Desai ceased high value currency notes Rs. 1000, 5000 and 10000 as legal tenders on 16^th January 1978. The objective behind this ban was to restraint black money generation in the country.

· Now this is the third time (in 2016) the process of demonetization executes in India:

Impact of Demonetization:

The impact of demonetization generates mixed results. Demonetization affect every working and non- working section in the country. It affects the various service sectors in the country for long run and for short run. Indian currency has become stronger then currencies of 143 countries after demonetization which was 93 before demonetization. Rupee has became stronger by 0.95% against US Dollar ($) from 66.40 to 65.78 INR per unit US Dollar. Rupee has also become stronger against some popular currencies like Euro, Australian Dollar, Swiss Franc, Singapore Dollar, Japanese Yen, British Pound, Canadian Dollar and Hong Kong Dollar. Indian rupee (INR) became stronger than currencies of other south Asian nations Pakistani Rupee, Sri Lankan Rupee, Bangladeshi Taka. Its influence has shown on real estate, gold, service sector, agriculture sector, small business units and GDP growth of country etc. After government ban on 500 and 1000 value notes people were unable to get sufficient amount of cash currency. 86 % of total currency in circulation was in the form of Rs. 500 and Rs. 1000 notes which was withdrawn by the government without replacing bulk of it. It creates a liquidity crunch in the country. Demonetization demolishes the real estate market and it will result in 50% drop down (Bansal, 2017). Demonetization adversely affects the consumption for some period of time because of liquidity shock. Sale reduced by 25-50 % in country because of interrupted transport system. 20 to 30% reduction had been shown in sale of FMCG products. Since black money is used for illegal activities like terrorism funding, gambling, money laundering and also inflating the price of major assets classes like real estate, gold etc. due to demonetization all such activities will get reduced for some time. An estimated amount of Rs. 400 crore of fake currency was eliminated. It also moves the country towards cashless transactions. After demonetization use of e- payment system grown up in the country. Digital transactions have grown up by 250% after 8 November; 2016. It is a progressive shift towards cashless economy.

Payment System in India:

The payment system of any country is regulated by the central bank of the country. The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) act as the highest policy making body on payment systems in India. The BPSS is authorized to impose policies and setting standards for payment system in India. It is a sub-committee of the Central Board of the Reserve Bank of India. The Reserve Bank has taken many initiatives towards introducing and promoting safe and efficient modes of payment systems in the country to meet the requirements of the public. Payment system in India passed through many stages such as barter system to currency, to digital system. Presently Indian payment system include two modes of payment (1) Paper Based Payment System (like: chaques and drafts), (2) Electronic/Digital Payment System.

Paper Based Payment System:

Paper based payment system is mostly preferred payment mode in India. Approximately 60% of the volume of total non-cash transactions counted for use of Paper-based instruments (like cheques, drafts, cash etc) in the country. RBI has taken several steps to improve fast, safe and secure payment system in India which includes launch of Speed Clearing, introduction of cheque truncation system (to restrict physical movement of cheques and enable use of images for payment processing), framing CTS-2010 Standards (for enhancing the security features on cheque forms).

Digital Payment System in India:

Digital payment system is online mode of payment. Technological advancements play a vital role in providing safe, secure and hassle free payments through digital modes. In digital payments, payer and payee both use digital modes to send and receive money. It is also called electronic payment. No hard cash is involved in the digital payments. In mid eighties and nineties RBI had taken initiatives towards improvement of Payment and settlement system in India. In order to upgrade secure and fast Payment system RBI introduced new modes of payment using technology. There are several modes of digital payment in India including use of Debit-credit Cards, Internet Banking, Mobile Banking, E- Wallets, E- Transactions Apps (like - PAYTM, NPCI etc), Banking Correspondence, Pos machines, Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT), Aadhaar Based Digital Payment Mode (AEPS), Real Time Gross Settlement (RTGS) System, Immediate Payment Service (IMPS). Banks can play a vital role in cash less economy of every country because cashless transactions are done through banks. The digital payment system include following ways of digital transactions.

Electronic Clearing Service (ECS):

ECS is an electronic mode of bank to bank fund transfer. Electronic Clearing System was introduced in 1990s by RBI. ECS can be used for both debit and credit purposes. To handle bulk and repetitive payment requirements like: salary, interest and dividend Payments of corporate and other institutions RBI introduced

ECS credit Scheme. The ECS Debit scheme:

Was introduced to provide a faster method of collecting utility bills like, electricity bill, telephone bill, EMIs, for government and private institutions. ECS system functions in a decentralized manner. At present it is operational at 74 locations to facilitate easy payments and collections for repetitive and bulk transactions.

Real Time Gross Settlement (RTGS) System:

this electronic transaction system was introduced in 2004. It was introduced to settles all bank to bank payments and customer transactions which exceeds from Rs. 2 lakhs. The payments through RTGS are final and irrevocable. RTGS facilitates the transfer of money from one bank to another on real time and gross bases without bunching or netting with any other transaction.

National Electronic Fund Transfer (NEFT):

To facilitate one-to-one fund transfer requirements of individuals/corporate sectors RBI introduced a more secure payment system in Nov, 2005 called as National electronic fund transfer (NEFT) system. The banks and their branches that support electronic transfer of money have to participate in NEFT network. Customer with internet banking account can use the NEFT facility to transfer funds nationwide on their own. In NEFT system settlements takes place in batches at hourly intervals.

National Electronic Clearing Service (NECS):

In 2008 Shri V. Leeladhar, Deputy Governor of RBI launched National electronic Clearing Service (NECS) at a function of RBI’s National Clearing Centre (NCC), Mumbai in order to centralize the ECS operation and bring in uniformity and efficiency to the system. NECS (Credit) facilitates multiple credits to beneficiary accounts with destination branches across the country against a single debit of the account of the sponsor bank. On the other hand NECS (Debit) facilitates multiple debits to destination account holders against single credit to user accounts.

Regional Electronic Clearing System (RECS):

RECS launched during 2009, it is a smaller version of NECS. Under RECS system the validate data containing credit/debit instructions will be upload through secured web server of RBI by sponsor bank to the customers of core banking solutions (CBS) bank branches spread across the jurisdiction of the regional office of RBI.

Other Payment Systems:

There are other prepaid modes of digital payment systems in India which are given below.

Mobile Banking System:

Mobile banking is a revolutionary mode of payment under digital payment system. In 2008, RBI brought out a set of operating guidelines for mobile banking with the penetration of mobile phones. Only those banks which are licensed and operational in India are allowed to provide mobile banking facility after acquiring permission from RBI. The uses of mobile-banking for cross-border transactions have been strictly prohibited. Banks are permitted to offer mobile Banking service through: short message service (SMS) Banking, USSD or Mobile banking application, E-wallets etc.

ATMs/Point of Sale (POS) Terminals/Online Transactions:

ATM is a automated teller machine which facilitate the customer to withdraw cash for five times in a month without being charged for the same. ATM provide the 24/7 facility to withdraw cash. Point of Sale (POS) terminals facilitate the customers to make payments by way of debit or credit cards for purchase of goods and services. Customers are also allowed by bank to withdraw cash from POS terminals through debit card. The POS for accepting card payments also include online payment gateways used for enabling online payments for goods and services. Digital transaction has shown a prompt growth in India. The recent payment system trends clearly show the direction of market towards less papers and more electronic payments.

Effect of Demonetization on Growth of Digital Payment System in India:

Cashless transactions are become popular these days among all developed and developing nations. India is also moving towards emergence of digital payment system. The Prime Minister Narendra Modi’s Demonetization move has been a windfall for India’s E-Payment system. After demonetization E-banking gained importance in the country. Low availability of cash opens the door for digital transactions in India. Digital transactions have grown up by 250% after 8 November; 2016.

FINDINGS:

1. The table-I for National Electronic Fund Transfer (NEFT) the total outward Debit and credit has shown healthy growth both in terms of no. of Transactions and Amount of usage. The Total Outward Debit and Credit growth rate increased in month of December, 2016 by 35.16% (166.31 million) in terms of no. of transactions and Amount increased by 31% (11537.63 billion) after demonetization in November, 2016. After December, 2016 it shows a continued decline in amount and transactions of total outward credit and debit.

ANNEXURE

Table-I. NATIONAL ELCTRONIC FUND TRANSFER (NEFT) (SEPTEMBER 2016- MARCH 2017)

Month	Total Outward Debit				Total Outward Credit
Month	No. of transactions (Millions)	Growth rate (%)	Amount (in billions)	Growth Rate (%)	No. of transactions (Millions)	Growth rate (%)	Amount (in billions)	Growth Rate (%)
Sep-16	120.15	-	9880.17	-	120.15	-	9880.17	-
Oct-16	133.21	10.87%	9504.50	-3.80%	133.21	10.87%	9504.50	-3.80%
Nov-16	123.05	-7.63%	8807.88	-7.33%	123.05	-7.63%	8807.88	-7.33%
Dec-16	166.31	35.16%	11537.63	31%	166.31	35.16%	11537.63	31%
Jan-17	164.19	-1.27%	11355.08	-1.58%	164.19	-1.27%	11355.08	-1.58%
Feb-17	148.21	-9.73%	10877.91	-4.20%	148.21	-9.73%	10877.91	-4.20%

https://rbi.org.in/scripts/NEFTView.aspx

Table-II RTGS INWARD and OUTWARD (SEPTEMBER 2016- FEBRUARY 2017)

	Volume	Growth rate (%)	Value (in billions)	Growth Rate (%)	Volume	Growth rate (%)	Value (in billions)	Growth Rate (%)
Sep-16	8467531	-	86687.35	-	8467531	-	86687.35	-
Oct-16	9006720	6.37%	76473.29	-11.78%	9006720	6.37%	76473.29	-11.78%
Nov-16	7874669	-12.57%	78479.19	2.62%	7874669	-12.57%	78479.19	2.62%
Dec-16	8840374	12.26%	84096.48	7.16%	8840374	12.26%	84096.48	7.16%
Jan-17	9330505	5.54%	77486.07	-7.86%	9330505	5.54%	77486.07	-7.86%
Feb-17	9104185	-2.43%	74218.81	-4.22%	9104185	-2.43%	74218.81	-4.22%

https://rbi.org.in/scripts/NEFTView.aspx

Table-III MOBILE BANKING TRANSACTIONS (SEPTEMBER 2016- MARCH 2017)

Month	Volume (in Millions)	Growth Rate (%)	Value (in Billions)	Growth Rate (%)
Sep-16	72.63	-	1042.60	-
Oct-16	78.12	7.56%	1139.41	9.29%
Nov-16	87.47	11.97%	1365.70	19.86%
Dec-16	110.64	26.49%	1498.18	9.70%
Jan-17	106.12	-4.08%	1383.01	-7.69%
Feb-17	95.41	-10.09%	1279.93	-7.45%

https://rbi.org.in/scripts/NEFTView.aspx

Table-IV CREDIT CARD STATISTICS AT ATM and POS (SEPTEMBER 2016- FEBRUARY 2017)

Month	Credit Cards
	No. of Transactions (Actual)				Amount of transactions (Rs. Millions)
	ATM	Growth rate (%)	POS	Growth rate (%)	ATM	Growth rate (%)	POS	Growth rate (%)
Sep-16	602388	-	77928467	-	2852.51	-	241977.12	-
Oct-16	620905	3.08%	88864901	14.03%	2996.8	5.06%	299424.01	23.74%
Nov-16	402919	-35.11%	97911525	10.18%	1393	-53.52%	265594.01	-11.29%
Dec-16	375943	-6.69%	116082819	18.56%	880.9	-36.76%	311491.2	17.28%
Jan-17	440618	17.20%	112802575	-2.83%	1539.2	74.73%	327082.5	5%
Feb-17	420179	-4.64%	94658321	-16.08%	1883.7	22.38%	284426.7	-13.04%

https://rbi.org.in/scripts/ATMView.aspx

Table-V DEBIT CARD STATISTICS AT ATM and POS (SEPTEMBER 2016- FEBRUARY 2017)

Month	No. of Transactions (Actual)				Amount of transactions (Rs. Millions)
Month	ATM	Growth rate (%)	POS	Growth rate (%)	ATM	Growth rate (%)	POS	Growth rate (%)
Sep-16	742134866	-1.93%	125190417	-4.09%	2219762	1.06%	159321.2	-13.27%
Oct-16	802064418	8.07%	140586967	12.30%	2547814	14.78%	219412.8	37.72%
Nov-16	561355720	-30.01%	236466565	68.20%	1234516	-51.55%	321742.8	46.64%
Dec-16	630466234	12.31%	415461956	75.70%	849340.9	-31.20%	580312.5	80.37%
Jan-17	712347249	12.99%	328623459	20.90%	1516437	78.54%	490041.9	-15.56%
Feb-17	692567162	-2.78%	251749506	-23.39%	1928381	27.17%	358433.7	-26.86%

https://rbi.org.in/scripts/ATMView.aspx

2. RTGS Inward and Outward showed an increase in Volume and value of usage in December after a sudden decrease in Volume in November in Table-II. During the month of December the volume of RTGS Inward and Outward increased by 12.26% and value by 7.16%.

3. Mobile banking is a revolutionary mode of payment under digital payment system. Table –III showed that the volume of mobile banking jumped from 78.12 million in October to 87.47 million in the month of November with the growth rate of 11.97% and increased up to 110.64 million (26.49%) in December. After that the growth rate slops down. The value of Mobile banking increased with 1365.70 billion (19.86%) as compared to 1139.41 in October. Value of mobile banking has shown an increase in December by 9.70% and starts declining after it.

4. Table- IV pointed out that the Volume of credit card transactions dropped by 35.11% and value by 53.52% in November and decreased by 6.69% and 36.76% in volume and value in December at ATMs. The use of credit card statistics at POS has shown an increase in November and December by 10.18% to 18.56% in volume. The value of credit card use at POS dropped by 11.29% in November and jumped up to 17.28% in December. The main reason was the unavailability of cash at ATMs and the withdrawal curbs imposed by the Reserve Bank of India after demonetization, But after availability of cash in January the volume and value of credit card use at ATM increased by 17.20% and 74.73%.

5. Table-V reveal that the Volume of debit card usage at ATMs in November decreased by 30.01% and value by 51.55%. The volume increase had shown in November by 68.20% and value growth by 46.64% in debit card usage at POS. December shows the highest growth rate in terms of volume and value by 75.70% and 80.37% in debit card usage at POS and after that growth slowdown and starts declining.

CONCLUSION:

Digital transactions showed a sudden growth on the next month of demonetization. Low availability of cash moves the country towards cashless transactions. The move of demonetization forced people to use electronic payment options such as Internet banking, mobile banking, credit and debit cards, mobile wallets and other prepaid payment instruments (PPIs) to buy goods and services and do other financial transactions. But it is reported that online electronic transactions under RTGS, IMPS and NEFT systems fell both in value and volume in November as compared with October. December is the month which showed an increase in value and volume under these payment systems after that it starts declining. Mobile banking and Use of Debit and Credit cards at POS shown an increase in the months of November and December in terms of volume and value and after that declining period starts. The use of electronic payment system starts decreasing after availability of cash in the market. Demonetization move of government initiate growth of digitization in India. But after cash crunch come to an end digital payment system growth slop down in the country. To make India a digital economy government needs to take some strict steps towards it. There is need to aware the people about use of digital payment system. Digital literacy camps needs to be organized in the country.

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13. https://rbi.org.in/scripts/ATMView.aspx https://rbi.org.in/scripts/NEFTView.aspx

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Received on 15.05.2017 Modified on 09.06.2017

Asian Journal of Management. 2018; 9(1):281-287.

DOI: 10.5958/2321-5763.2018.00042.2