After the demonetization, the deposits in bank accounts have increased rapidly. The amount of deposits in Uttar Pradesh has been one of the highest in India.
Increasing per capita income of the people of UP
Uttar Pradesh is the largest state in India, in terms of population. According to the latest census data, the total population of the state is 199.8 million. The population growth rate of the state is around 2.5 % as per the latest census data which was lower than the growth rate of more than 25 % in 2001 (Census 2011, 2015).
Even though the gross domestic product of the state has been declining since 2010, there has been a continuous increase in the per capita income. With increasing per capita income Uttar Pradesh has a huge potential to spend (Planning Commission, 2015).
The demographic profile of consumers in UP
The age wise distribution of Uttar Pradesh shows that almost 60% of the population is in the working group of 15- 59 years. This is the age group which is able to earn and spend. The other two age groups are dependent on the working age group. So, the working group will be the one who will be making the payment for most of the transactions (Deb, 2014; Maharana & Ladusingh, 2016).
According to the study of (Majumdar, 2010) the spending pattern of young Indians increase once they are married as compared to when they are single. The author also insists that the spending pattern keeps increasing till their old age. Similarly, young people (15-35) tend to spend more on cars, two-wheelers and clothing, whereas health care is the main expenditure for the people in old age (50 years and above).
According to RBI, only 12.2% Muslims in India have bank accounts in the public sector, whereas in the private sector only 11.3% of the Muslim have bank accounts. The low participation of Muslims in the banking sector is due to their religious restrictions (The Indian Express, 2016). Similarly, the NSSO report on consumption expenditure shows that Muslims are the poorest religious groups in India. The average spending per day is Rs 32.66 for Muslims, which is lower than Rs 37.50 for Hindus.
Most of the employees in the formal sector i.e. manufacturing and services hold bank accounts and the wages are also higher as compared to the employees in the informal sector (Srija & Shirke, 2014). However after the demonetization, there has been an increase in the deposits in Jhan Dhan account holders, the informal sector is a big potential for growth digital payment industry. Also, the average wage rate in the agriculture sector is increasing. With the increase in income, the spending will also increase as the marginal propensity to consume with respect to income is positive (Basole & Basu, 2015; Jappelli & Pistaferri, 2010).
The high literacy rate in major cities in Uttar Pradesh is considered to be a plus point for the digital payment system in the state. People with high literacy rate are expected to have a higher income as compared to those with low education level. So, as discussed previously also higher income leads to higher spending. Also, the literate people are more likely to use digital payment system as compared to the illiterates (Self & Grabowski, 2004) (Akguc & Akg, 2010).
Banking penetration for digital payment
Access to banking facilities for the adult population in Uttar Pradesh is higher than the national average (Crisil, 2015). However, the proportion of people with active digital payment accounts is comparatively lower. This is due to the large population of Uttar Pradesh state. In terms of absolute population, the number would be much higher than the other states.
This is due to the fact that more than 70% of the population in Uttar Pradesh lives in the rural area (Census 2011, 2015). Even though the number of a bank office in semi-urban and the urban are lower than that of rural, the average number of people per bank branch is much less in urban than in rural area.
The inclusive index of crisil has been prepared to measure the financial inclusion in India using 6 different banking parameters. All major cities in Uttar Pradesh show an increase in their index value. This implies that these states have been performing well in terms of financial inclusion. Cities like Lucknow and Kanpur have the highest points.
The highest number of mobile and internet users
According to the report by (McKinsey&Company, 2012) the contribution of the internet to Indian GDP is around $30 billion in 2011-2012. This is around 1.6 % of the total GDP and is expected to increase further. This shows that the number of internet users is positively related to economic growth. With economic growth, the income will rise which will lead to an increase in spending.
Uttar Pradesh has one of the highest users for both internet users and mobile phone subscribers. It would be easier to integrate them into the digital payment system (TRAI, 2015).
Spending pattern in Uttar Pradesh
Expenditure on non-food items per month in UP (Rs)
|Books and journals||10.31||19.07|
|Tuition and other fees||25.47||109.34|
|Telephone charges: mobile||19.47||41.32|
|Washing soap and soda||10.71||15.82|
|Barber or beautician||5.92||11.04|
|Bus or tram fare||10.23||11.33|
(Source: NSSO, 2013)
As per the NSSO survey on household consumption an average person in a rural area of Uttar Pradesh spends Rs 612 per month on food consumption whereas for non-food the average monthly expenditure is 543.74. On the other hand, the average monthly expenditure on food and non-food consumption in an urban area is Rs 1083.86 and Rs 1148.83 respectively. Even though the population in the rural area is higher, the expenditure of the people in the urban area is much higher.
- Akguc, M., & Akg, M. (2010). The Effects of Different Stages of Education on Income across Countries. Toulouse.
- Basole, A., & Basu, D. (2015). Non-Food Expenditures and Consumption Inequality in India (No. 2015–6). Boston.
- Census 2011. (2015). Uttar Pradesh Population Census data 2011. Retrieved January 19, 2017, from http://www.census2011.co.in/census/state/uttar+pradesh.html.
- Crisil. (2015). Crisil Inclusix. Mumbai.
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- Planning Commission. (2015). Gross State Domestic Product at Constant 2004-05 Prices. New Delhi. Retrieved from http://planningcommission.nic.in/data/datatable/data_2312/DatabookDec2014 59.pdf.
- Self, S., & Grabowski, R. (2004). Does education at all levels cause growth? India, a case study. Economics of Education Review, 23.
- Srija, A., & Shirke, S. V. (2014). An Analysis of the Informal Labour Market in India. Retrieved from http://www.ies.gov.in/pdfs/CII EM-october-2014.pdf.
- The Indian Express. (2016). RBI shows interest in no-interest banking. What does it mean? The Indian Express. New Delhi.
- TRAI. (2015). Number of internet users in India. New Delhi. Retrieved from http://www.trai.gov.in/release-publication/reports/survey-reports.