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Pros And Cons Of Demonetisation For The Digital Economy

Demonetisation has certainly paved the way to cashless but it will take a much longer time to be total cashless

Cashless India in the cash economy of India is no mean task.

Demonetisation has certainly paved the way to cashless but it will take a much longer time to be total cashless. This may, in fact, take a few years.

To put it in perspective, as of March 2016 RBI had estimated that India has a total of 24.5 million credit cards and 661.8 million debit cards in operation, all steadily rising; with Indians preferring debit to credit cards. Conversely, in terms of usage, debit card transactions at the point of sale (PoS) terminals accounted for only 12 per cent of volume and 6 per cent of the value of transactions. The average number of card transactions per inhabitant is amongst the lowest in the world at 6.7.

These numbers validate that there is a vast majority of Indians who prefer cash to card or digital. Even now you see- deposits are fewer, it's the withdrawals which are awaited.

Clearly, cash is king for the Indian citizen, giving the case its Pros and Cons:

Demonetisation has done more for the Indian digital economy and its players than any ad campaign could. E-commerce, m-commerce portals and digital wallets - Paytm, MobiKwik, FreeCharge, PayUmoney, etc., have seen an unprecedented surge in usage and the opening of new accounts.

The likes of Paytm bundle offers and cashback making digital not only efficient and safe but also value for money, an attribute- the key to the Indian shopper choosing to go online. The value cum cost conscious insight has been the foundation of the e-com business.

Their target this time is not just the citizen but also the small merchant. Many of the wallets and portals have integrated with and are helping integrate small merchants for previously unavailable small value payment options.

In perspective, a 2015 study estimated the retail market at INR 5,88,000 crores with 12million retail outlets; where the unorganised market share is INR 5,83,000 crores and the organised market is worth Rs 5,000 crore.! And this is just retail.

The Mobikwik ad on the front jacket of TOI, 29 November 2016 featured - Hindi in an English newspaper. It explained in Steps how to go about its use, it could be cut and pasted at the store for all to read and follow.

Banks too, not to be left behind are pulling no stops to get merchants and citizens to use their app. SBI Buddy says - 'Buddy ho to aisa! , the Mobile wallet you can trust.' Pockets are from ICICI Bank and HDFC has PayZapp.

Also available is the Unified Payments Interface (UPI) option allowing users to make and receive payments via smartphones with direct transfer of funds within bank accounts doing away with the need of a wallet and simplifying it further. Trupay is the first private sector company to offer this other than banks.

Banks are also focusing on semi-rural and rural areas. Here again technology, infrastructure and education will be vital in executing the government plan.

India and especially urban India will fast-forward the adoption to digital. Going digital will adversely affect the GDP in the short term but the digital economy with a substantially hike up GDP in the long term.

If the government will exercise quality control and speed on infrastructure and services with best practices use of taxpayers money in the white economy all Indian's will benefit. A simple walk on the road hopefully might not result in a twisted leg for the youth or a bad fall for the old.

Infrastructure is a huge flag, the diversity of language and economic strata - all pose unique roadblocks for compliance, compatibility and adaptation of demonetization. We are talking 1.2 billion people with a huge chunk lacking even for the basic necessities including, food and water.

Urban India though a different story will also need unravelling. Many people, especially the older population, housewives, even working professionals, etc., will not overnight change their habit of hard cash to the plastic transaction. And cash is not black money. To be noted is also the potential mental risk of safety for some; there is no cashback if everything is wiped out fraudulently.

To conclude, while demonetisation has boosted the opening of India's digital economy and there is no turning back now, will it close the final chapter on black money? More, will India go totally cashless and soon?

We hope so but that remains to be seen…

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
Demonetisation digital economy paytm mobikwik PayZapp

Anita Nayyar

The author is CEO - India & South Asia, Havas Media Group

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