On November 8, 2016 Government of India (GoI) withdrew the legal tender status of Rs. 500 and Rs. 1,000 denomination banknotes with the stated objectives to: a) reduce black money stashed in cash; b) stifle counterfeit Indian banknotes and c) curb terror funding. In addition to the achievement of these objectives, Government of India also promoted the use of different cashless methods to get more and more transactions done through digital methods.
MicroSave team conducted a diagnostic study between December 2016 and January 2017 in order to understand the impact that demonetisation had on four key segments – agriculture and allied sector earners, self-employed individuals, informal sector workers, salaried individuals and their dependents. The team conducted in-depth structured interactions with respondents across rural, semi-urban and urban geographies of four states namely Madhya Pradesh, Rajasthan, Uttar Pradesh and West Bengal.
The key objectives of this demand-side diagnostic study were:
i) To gauge the end-user experience in adopting cashless modes (including cheques) along with the barriers (behavioural and functional) they faced in uptake and usage of cashless solutions.
ii) To study the impact of demonetisation on the primary source of income of individuals, their expenses, coping mechanisms adopted and the change in the mode/channel used for conducting financial transactions.
Through this study, we observed varied degree of impact of demonetisation among different segments. Consequently, the coping mechanisms deployed by each segment also differed. In addition to this, the uptake of cheques and mobile wallets significantly increased immediately after demonetisation making them the most preferred coping mechanism adopted across segments.
The study further observed that in order to promote a sustained use of cashless instruments among different customer segments, more concerted efforts are required to expand the last mile acceptance infrastructure especially in rural areas. More importantly, customer awareness on usage of cashless payment instruments needs to be enhanced significantly to build their confidence in using technology-enabled financial transaction channels.