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The demonetisation disaster that Prime Minister Narendra Modi unleashed on Indians three years ago is now likely to come in handy during the 21-day nationwide coronavirus lockdown.

The self-induced demonetisation crisis in November 2016 wreaked havoc on the Indian economy, which has still not fully recovered. But there was one positive fallout of the shock treatment Modi gave Indians – more and more people went cashless and embraced digital payments, wire transfers and e-commerce.

That digital habit is what may see many middle class and wealthy Indians through the difficult coronavirus epidemic now.

Post-demonetisation, India saw a rapid and sustained spike in the usage of debit cards, digital wallets, and cashless transactions even at marketplaces. This meant that a large number of Indians were now paying for their utilities without lining up at a payment window.

As shops, offices and public transport shut down this week, Indians scrambled to reach out to order groceries from Big Basket and Grofers. Even Gurgaon Police had to allow e-commerce delivery men to operate during the lockdown. Delhi Police also tweeted to inform that it has allowed several e-commerce retailers “to operate as part of essential services”.

For a moment, imagine the coronavirus epidemic lockdown in the pre-2016 cash economy.

Finance Minister Nirmala Sitharaman announced relief for the poor – Rs 1.7 lakh crore Gareeb Kalyan package – through Direct Benefit Transfer (DBT) and Public Distribution System (PDS). This is where the big push for Aadhaar-linked bank accounts and crores of Jan Dhan accounts will be useful for welfare schemes like these. Advocates of Aadhaar always meant for it to work as a direct pipeline of welfare money for the poor.

As India now grapples with a rapidly spreading coronavirus, these demonetisation-induced shifts have not only allowed the Modi government to initiate a near-total lockdown with relatively minor hiccups but have also aided its financial stimulus directed at the poor.

Also read: Deposits after demonetisation rose by Rs 6 trillion and yet bank credit fell, study shows

Lasting impact of demonetisation

A study conducted at National University of Singapore (NUS) Business School shows how the usage of debit cards, digital wallets, and cashless transactions saw a massive spike after demonetisation.

According to the study, debit card usage went up by 84 per cent after demonetisation. Moreover, the number of transactions for infrequent users went up by 400 per cent and the value of their transactions by 150 per cent.

Similarly, the usage of digital wallets in peer-to-peer transfers and e-shopping went up by 745 and 405 per cent, respectively. And among only Indian marketplaces such as Amazon and Flipkart, the value and volume of transactions both went up by 93 and 84 per cent.

Most importantly, even a significant period after demonetisation, “usage pattern persists even during the re-monetization period when cash makes a comeback in the economy, indicating the success of demonetization in enabling new digitization technologies to make inroads into consumer payment habits,” the study notes.

Also read: Fake banknotes seized in India doubled after demonetisation, Gujarat topped list: NCRB

Cashless during corona

As all of India experiences a lockdown, the fact that a sizeable part of the urban population is used to buying its groceries online solves a major logistical hassle. When people can buy their milk and vegetables using a smartphone app – it makes it easier to limit the movement of citizens to the bare-minimum.

More importantly, now that payments and money transfers have moved online, people can pay for essential utilities such as electricity, water, LPG, mobile phone bills, and dish television using digital wallets like Paytm and Google Pay.

This has two major benefits in times of a lockdown. First, citizens no longer need to physically leave their homes to get their phones recharged or pay the electricity bill. Second, a lockdown means shutting down of a large part of India’s commercial activity. But with these companies in operation, the economy keeps somewhat moving.

Also read: Three years after demonetisation, survey finds people still prefer cash payment

Learning from trial by fire

None of this is to justify demonetisation, which is by far the biggest Modi folly. An overnight, ill-conceived, egotistic decision left hundreds of thousands of people jobless and paralysed India’s informal economy. But the advocates of demonetisation – or let’s call them the apologists – have always held up digitisation of payments as one of its positive outcomes. Though that goal wasn’t what Modi started with. He said it would end black money. It was a midcourse correction that the government started saying digital is a goal.

Indians learnt the digital payment habit through a trial-by-fire method. Today, that habit will see them through some of the coronavirus lockdown hardship.

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