Impact of Demonetization on Financial Inclusion and Digital Payments

Shivali Veen, Sonia Kamboj

Black money, Demonetization,Digital Payments, Financial Inclusion..

It was the night of 8th November 2016, when the Government of India demonetized high value currency notes of Rs.500 and Rs.1000. It implied that these two denominations are denied the status of legal tender. The intention behind demonetization was to curb black money and fight corruption and counterfeit currency. Counterfeiting of Indian currency has been a means for promoting terror activities in the world and Indian government aimed to tackle this through demonetization. These notes were replaced with new set of currency notes of Rs.500 and Rs.2000. Demonetization is not a new concept in India and has happened thrice in the past on 12th January 1946, 16th January 1978, and 8th November 2016. The aim of the present study is two fold- Firstly to understand the concept of demonetization and the reasons behind it. Secondly, to analyse its impact on financial inclusion and digital payments. As defined by World Bank-“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainableway”.

Digital payment, on the other hand, means using digital technology to send and/or receive money.

For the present study, data related to Indian economy has been collected from Global Findex database, as provided by World Bank, for three different time periods; 2011, 2014 and 2017. Results have shown that demonetization has had a positive impact on both financial inclusion and digital payments.

The results would be useful for future studies on demonetization and for policy implications of the government.

https://doi.org/10.31871/IJNTR.6.4.4