Will Demonetization Lead to Digitization of Indian Economy??

Demonetization is the act of stripping a currency unit of its status as legal tender. Demonetization is necessary whenever there is a change of currency (National). The old unit of currency must be replaced with a new currency unit. Let us understand What is the meaning of Currency Demonetization in the Indian Economy. It’s a radical financial step to declare national currency status of legal tender to invalid one. However, in the present situation, the move proved to be as a surprise as citizens had only 4 hours to react to the PMs statement. It is noticed here that this was not the first time for demonetisation of high- value currency. It first happened in 1946 when the reserve Bank of India demonetised the then circulated of Rs.1000 and Rs. 10,000 notes. Higher denomination bank notes in Rs.1000,5000,10,000 were introduced in 1954, again demonetised by Moraji Desai government in 1978. The main difference then & now, is that currency of high denomination were very rare in circulation, unlike the Rs.500 &Rs. 1,000 notes today.

Demonetization triggers spurt in digital payments paving the way for India towards cashless Economy. The Demonetization which initially paralyzed the economy is now acting as a catalyst towards Digital Payments Ecosystem. We are witnessing an Economic transition right now. The quintessential digitally-spooked the common man is keeping aside his cash&signing up for e-payments & mobile wallets. That payment processing companies are overloaded and are racing the devil to accommodate the immense spike in traffic. CIO India had discussed the impact and implications with the top guns in the digital payments space, and here is what they must say—

The Paytm Platform saw an overwhelming response of 435 % increase in overall traffic over the last two days, and the company experienced a 1000 percent growth in transaction value of offline payments.

Why the Industry leaders are cheering so much?

The fact that the black money- hoarding Babus are now staring down the barrel. Madhur Deora, CFO- Paytm says “This is the biggest and the most significant step ever to crack down on black money and fake currency. We stand by the government in its efforts towards taking black money out of the equation and offering a major boost the Indian Economy. Paytm has been increasing its customer base and acquisition efforts as it is realising the benefits of the strong positive network effect and its diverse use- cases.”

Ola Money also revealed that over 1500 percent increase   recharges across the 102 cities of its operation, sine 8.30PM on 8th November 2016 till 12.00PM. Talking about the shift Pallav singh SVP & Head says “This move marks the beginning of a significant step towards a cashless economy and Ola Money is at the forefront of our Vision of a Digital India.

Razorpay, also witnessed a 150 percent spike on the morning after the decision was announced, which by afternoon, shot up to 200 percent.  The company gave relief thousands of small businesses caught off guard because of the Demonetization.  “We have introduced ‘Express Activation’ which will allow merchants to get their account approved and activated within one hour of submitting relevant documents, earlier this process could take up to two or three days’, reveals HarshilMathur, CEO& Co- founder, Razorpay.

Mohan Vizhakat, Group CTO & EVP- Mannapuram Finance says that Indian believes that this move will cause a shift in the mindset of people, and make them more open to cashless transactions.“At Mannapuram, we are focussing on the end—user perspective, and trying to make customers more comfortable for users, says Vizhakat.

Now Let’s talk about, what are the Security implications here?

Rajeev Narayan, Chief Innovation & strategy officer @ Tech Press Payment services. India’s largest cash management and payment solution firm, says that the company is scaling up its Technology platforms, and looking at Elastic models to deal with surge of Digital payments.

Vimal gupta, VP- Server Engineering, Mobikwik says “we were geared up for the spike owing to Diwali sales. In addition to this there is a cloud- based model, scaling up has been easy”. Engineers at Mobikwik and Razorpay has been working round the clock.

Similarly, Itz cash card wasn’t too worried about its infrastructure being over- burdened. “Several our business lines have seasonal peaks and we are well capacitated to scale demand at all layers of our infrastructure, be it compute, storage or network says Daykin Creado, CTO, Itz cash card. There might be slight hiccups from customers who are very much new to electronic transactions, so handling customer complaints and ensuring a smoother transition is the key adds Gupta.

Demonetization Impact: Offline retailers play Digital Card —

We find consumers saving every single penny post the Government’s announcement to Demonetize Rs.500 & 1000 notes. Offline retailers are extending and encouraging consumers to use Digital payments, to the short-term loss in consumption pattern emerging from lack of enough Liquidity in the Economy as such. The fact is that India is very much Cash Intensive Economies in the world, with a Cash to GDP ratio of 12 % This almost four times like Brazil, Mexico and South Africa. The recent decision has led to retail shops & Malls wearing a deserted look, only for a short period. Sectors with a sizeable magnitude of cash transactions such as Real Estate, High-end Retail & Travel, Construction, Jewellery Tourism are expected to be affected. White goods demand a source of strength for the Economy, will also be affected for a while. To face and conquer the present challenges, offline retailers are encouraging consumers to move away from cash and are giving various payment solutions to avoid any obstacles in purchases. Kishore Biyani Future Group CEO which operates Big Bazaar, the largest retail chain in the country is encouraging consumers to “use cards.“We will introduce cheque payment and encourage people to go Digital, we are also going to promote Debit, digital payment & gift cards, says Future Group. CEO Kishore Biyani.

In a similar situation CFO Panasonic Mr. Manish Kumar say “our customers can now upgrade to a niftier, cashless, e- commerce, option to overcome the current situation. “

Thus, this is an integral step towards creating more Transparency, weeding out Corruption/ unaccounted for cash enabling for a smooth business Ecosystem. The old currency will however affect small merchants who cannot offer choice and usage of Digital payments to consumers. The government will consider small incentives and rebates for small merchants to adopt digital payments such as in the case of countries like South Korea and Uruguay.

Thus, we find Demonetization has revolutionized the wheels of progress, oiled the wheels of Production towards Digitalization by taking India Vikas Ki Aur.

Dr. S. Sukanya Iyer