November 8, 2016, one of the most exciting day in the history of Indian Democracy; everything seemed pretty normal until the evening, when we heard our Prime Minister, Narendra Modi announcing that the 500 and 1000 rupee notes will not be valid effective mid-night except at few emergency outlets like Toll Booths, Hospitals and Petrol Pumps. A lot has been discussed about this drastic move since then, and a lot of dreams were sold too.
While most of the opposition and some NDA netas kept cribbing about the decision, it appeared that every common man supported the same. Everyone had one hope, the black money would be wiped out, rich will also have to stand in the queues and supposedly the black marketers’ and corrupt netas who were sitting on loads of cash would have a tough time. Apart from this, government also sold the proposition of moving towards Digital India and cash less transactions.
While the prime time news was flooded with political pundits expressing their views on the decision, some good and some bad, the gen-Y’s wittiness was at unimaginable levels. Pictures of bhel-puri being served in old 500 and 1000 rupee notes or videos of beggars shooing off people offering this currency went viral.
As we recently surpassed the first anniversary of this event which wiped off majority of the currency from the system, both opposition and the government had their own ways of presenting the after math. While government is defending its decision and calls it a historic day, opposition has gone to the extent of earmarking November 8 as a black day in the history of Indian democracy.
Keeping the politics aside, being a data science professional, an article on NDTV grabbed my attention where the channel claims to have performed a fact check by the numbers and the outcome isn’t encouraging for the government. The article can be found at https://www.ndtv.com/india-news/has-india-turned-digital-after-notes-ban-an-ndtv-fact-check-1773002
The article targets the government’s claim on digital transactions, and shows a gloomy picture in terms of growth rates in the non-cash transactions (Wallet Payments & IMPS Transfers) with data supposedly taken from the RBI website. Assuming the underlying numbers are sourced correctly, prima-facie the reader too would be convinced that post demonetization the growth numbers doesn’t support the government’s claim. However, with detailed inspection, one may challenge the analysis, as it ignores two important concepts of base-effect and the law of diminishing marginal utility.
As, both are excellently explained on Investopedia, we’ll keep discussion around them to the minimal. Essentially, what one needs to know is as the base is small it’s easy to achieve supernormal growth rates; however they tend to consolidate as the base increases.
Now, let’s look at the two charts below, wherein the article looked at the growth in Mobile Wallet & IMPS Transactions. Clearly, a growth rate of 136% in Mobile Wallet transactions and that of 142% in IMPS transactions after demonetization doesn’t look impressive given the supernormal growth rates in 2015. However, a closer look at the numbers and we see the supernormal growth of 200+ percent is over a much smaller value relative to the recent one’s. Welcome to the base effect!
Another way to look at the same numbers would be average rupee transactions per day in the year’s pre and post demonetization. Let’s see how these numbers look. Clearly we see a big face saver for the government wherein the average daily transactions done by mobile wallets or IMPS, has more than doubled after the demonetization, showing an incremental benefit much better than any of the previous years.
Keeping the politics aside, it’s interesting how the same set of numbers when analyzed differently could lead to contrary conclusions. At Edzyme Academy, students spend ample amount on such cases and go through a rigorous exercise of slicing and dicing data through different angles to draw meaningful conclusions. For more details please refer to the course details at here.