Payments transition in India – consumer preferences and policy shifts

  • 475 Views
  • 41 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

Economic growth should be supplemented by an efficient payment and settlement system. Many attempts have been made to improve the efficiency of payment and settlement system in India. Especially the effort has been in terms of promoting digital economy. But the stickiness to payments through currency notes by the people has had a moderating effect on these efforts. The policy shift of Government of India towards demonetization of higher denomination currency notes has given thrust to digital payments. The study hypothesizes that post demonetization, the payment and settlement system indicators would show moderate to high deviation from the volume and value that can be forecasted using the historical data. Using Automatic ARIMA Forecasting in EViews, the forecasted values for the indicators for a period from November 2016 to March 2018 were estimated based on the historical data of the indicators from April 2011 to October 2016. The forecasted values of the indicators are then compared with the actual values of the indicators to see if they differ significantly by using paired t-test. The study finds evidence to suggest that the policy of demonetization and resultant reduced supply of currency notes has provided impetus to the Indian public to move towards digital platforms, and the increased supply of currency notes thereafter has not led to complete reversal of this shift in this change in consumer preference. This leads to the conclusion that through effective policy shifts, consumer preferences can be altered, and the Indian economy could become a less cash economy.

view full abstract hide full abstract
    • Figure 1. Payment system categories in India
    • Figure 2. Trends in the value of transactions in the payment and settlement system indicators selected for the study
    • Figure 3. Trends in the volume of transactions in the payment and settlement system indicators selected for the study
    • Table 1. ARIMA (p, d, q) estimations and actual value of transactions (November 2016 to March 2018)
    • Table 2. ARIMA (p, d, q) estimations and actual volume of transactions (November 2016 to March 2018)
    • Table 3. Results of paired t-test for the difference between actual and forecasted value of transactions in the selected indicators
    • Table 4. Results of paired t-test for the difference between actual and forecasted volume of transactions in the selected indicators