There are thousands of articles written on effect of demonetization. Also authors/writers/columnists have stated various effects ranging from terrorism to black money to Pakistan. Many people have also written on ill-effects of demonetization. I am not countering any of these points but I also think we are not considering the big picture over here: Financial Literacy.
Some time back I have touched upon this point and I have mentioned about RBI taking various initiatives to increase financial literacy but it never took off as an initiative. But this move of demonetization is an eye opener for almost everyone. In a way demonetization not only showed importance of online banking and transactions but also forced people to deposit cash in back accounts and mind you many of them deposited for the very first time in their entire life.
According to my understanding, all of these things will result into savings and investments. For example, banks are always keen to market their investment products to their customers. So over here people who have recently started using bank accounts will suddenly become target audience and it will be the whole new world for them. It may not sound logical to many of us as we have been living in such environment but consider people living in tier-II/III cities and anyone have never shown them the benefits of medical or life insurance mainly because they never have been existed in the database of banks and financial institutions like we exists.
Also from making India a cashless country perspective, demonetization could be a game changer. In an interview with Economic Times, Deepak Abbot, Sr. VP, PayTM said that since 8th November around 3 million people downloaded their app. Deepak also said that they have got 150 million users and normally around 25 to 30 million are active users on Android app and 15 million on their website but they have seen that traffic coming in last few days.
Many people have raised questions regarding paying smaller amounts for example to vegetable hawkers. So I will again take an example of PayTM as Deepak mentioned in the same interview that they have got around 200,000 small merchants and payments of smaller denominations have jumped up to about 1000%. So we can assume that people are understanding the importance of online wallets and transactions. Maybe they are forced to behave in a particular matter but I think this will also help financial systems to help people to cultivate such habit.
Till now, banks have received around Rs. 4 lakh crore, so we can imagine how much money have entered the system and what kind of benefits we can see for the country as a whole. And as I have mentioned above, if people start investing in various instruments than imagine the benefits that people, institutions as well as government could enjoy.