Demonetization and its Positive Effects on Digital India
Demonetization is by far the single greatest positive disruptive move made in India that’s worthy of entering textbooks for a significant reason — it is a move that has affected all subjects of the nation for better or worse. Better, as the benefits are clear and obvious – it drives the nation towards a cashless economy ensuring transparency, increasing circulation money in an erstwhile highly transaction economy, improving Direct Benefit Transfers (DBT), leading to progress, curbing black money and allied illegal activities (including terrorism). Worse, for a transitory period it disrupts the lives of innocent people, making them leg around ATMs/banks and wait in serpentine queues. However, sandwiched in between, demonetization has also given rise to a very positive consequence – an immediate boost to e-transactions and the realization that the reality of a digital India can actually be much larger than was imagined.
The buzz around this move on the web is filled with articles, criticles, tweets, blog posts; most appreciating the move, some blaming its execution that involves making 86% of the nation’s circulating cash illegal followed by the mammoth task of managing the mess that requires the minting and distribution of INR 14.7 billion in new currency. With 12% Cash-to-GDP ratio, India is one of the most cash-intensive economies in the world, almost quadruple in volume compared to other developing countries such as South Africa, Brazil and Mexico. So, it’s tough to resume normalcy. That said, it’s worth the trouble from Digital India’s perspective.
The Digital Trigger
Developed countries across the world are thriving on plastic money. Surprisingly, some third-world countries are also way ahead of India in volumes of e-transactions. While Kenyans have been paying for goods through mobile phones for a decade now, India is stuck in dealing with 90% of its transactions in cash. People are used to cash transactions and cash hoarding. Immunity to black money and inertia to change are gripping our economy. And when nothing is pressing, we don’t budge. Jan Dhan Yojana is a standing testimony to that. The maximum populace didn’t care to create bank accounts by paying as little as INR 1. If not for demonetization, people would have made no effort towards e-transactions.
After demonetization, villagers, local vendors and farmers are slowly getting used to digital transactions. Once they get used to it, they will realize it as a mode of advancement and a measure to fight fraud. Urban India has been in the digital fold for a few years now. Demonetization has also triggered the upscaling of digital platforms. For example, the surge in e-transactions led TechProcess, India’s largest cash management and payment solutions firm, to scale up its technology platforms. Tech Process has also tied up with Number Mall, a rural e-commerce player, to power around 1.5 million kirana shops. This needs a lot of investment in platforms. Government initiatives such as Aadhar, Jan Dhan Yojana are also encouraging fintech companies to upgrade themselves so that they can empower cashless transactions on a massive scale. Firm is now looking at elastic models to deal with the situation.
Bridging the Trust Gap
There’s a certain digital divide between rural and urban India. And demonetization will be instrumental in bridging that gap through an increased number of mobile transactions. People will increase the use of mobile wallets for more and more transactions. Mobile devices are fast becoming the gen-next Point of Sale (PoS) machines. Gradually, e-transactions will take over CoD (Cash on Delivery) option as well. CoD has been a bottleneck. It still remains a challenge on returns and consolidations, and puts extra pressure on the supply chain. Card and wallet payments are going to benefit e-commerce the most. Also, through more use of mobile phones, people will develop trust in mobile devices and Internet; something that is vital for information sharing and financial inclusion. Mobile will not just be a mode of communication but will become the key mode of transaction between businesses and consumers. Demonetization will also help banks recover from high dormancy rates (idle bank accounts), which currently lurk around 43%.
Immediate Effect on Digital Industry
While major ecommerce players suffered a dip in sales as well as order value, e-wallet companies utilized this opportunity to the fullest and experienced their biggest business boost yet. Cash crunch among public has become so bad that major e-commerce players have removed the Cash-on-Delivery (CoD) option from their payment gateway. Many have paused their digital campaigns. And while small grocery and vegetable vendors saw huge dip in sales, grocery e-tailers experienced big surge in direct traffic, sometimes exceeding their operating capacity. So, many of them paused their campaigns too. In both cases, lead generation networks suffered.