Index of Cashless Transaction

Abstract

The promotion of cashless transaction is a policy priority for the Indian economy. The government of India has adopted various policy measures to promote financial services and cashless transaction starting with the ‘Pradhan Mantri Jan Dhan Yojana’ (PMJDY) in 2014 and controversial measure of demonetisation in November 2016. While the importance of cashless transaction is widely recognised, a proper yardstick is required to measure the extent and effectiveness of the policies for promoting the cashless transaction in an economy, which is absent. In the present article, we attempt to fill the gap by adopting the multidimensional index developed by UNDP for this purpose. This article constructs three alternative indices of the cashless transaction from 2012 to 2018 by aggregating different components of the cashless transaction. It also analyses the effectiveness of policies to promote cashless transaction separately on the trend of the overall cashless transaction of the economy and also on the different components of cashless transaction. It has been found that while demonetisation and post-demonetisation policies had a temporary effect on the overall value of the cashless transaction there is an increase in volume of the cashless transaction after the adaptation of PMJDY. JEL: E42, G18, G21