November 08, 2016 – known as a day when massive disruption took place, a decision that led the entire country stand on its toe. All around, huge ATM queues & one question – Why Dear PM? Then the day arrived when the ATM’s were shut and the entire country dwelled in the trauma of no unnecessary spends. All we could do was waiting for the new currency to show-up in our pockets soon and get all the old notes converted to new. Of course, the chaos and hassle was one to remember all over India.
So what is Demonetisation?
Demonetisation commonly known as ‘’Notebandi” means discontinuity on the circulation of a specific currency and replacing it with a new one which was Rs. 500 & Rs. 1000 notes. The bold step taken by our PM was to curb black money and fake notes that were circulating in the economy from the sources that are unknown. Its other objective also included promotion of digital transactions as well as squeezing funds used for terror funding. Though there was a large chunk of supporters who stood by the government’s strong decision, many poor & low money income holders were shaken by the sudden incident. Of course, non-taxpayers holding back black money took a serious hit through this move.
Recap to my Incidence:
I remember being busy and in the middle of a critical project hence hadn’t checked my phone or social media for a couple of hours. The minute I internalised with PM’s announcement, I immediately checked my wallet for any of the banned notes, luckily I had none.
Next day was more crucial as everyone was figuring out what arrangements need to be made. On arrival to my office, the only thing I was worried about was the challenges each member of our team would go through personally. Whether they have ageing parents who can’t make it to the bank or the challenges they would face at home, all we can think was what can be done to make it easier for them.
Impact of demonetisation:
Somewhere we all know that the shadow economy of the country is pretty huge. But the amount of tension in the air made me realize how deep this cancer of black money is. As a company, we were not directly affected by it. Our banking partners were supportive and, to be honest, we didn’t have any reason to harass them. However, there was a domino effect on overall cash flows across all industries – including our enterprise clients – which lead to delayed payments from all. However, the only key was to be supportive and not add to their problems, since this was meant to be only temporary. Overall, everybody understood each other’s pain since they were going through it themselves as well – and this made it slightly easier for all. Another effect on the company front was consumer spending dropped drastically and this meant that our hospitality & FMCG clients were the worst hit.
However, there was this one journey which was surprisingly pleasant. Transport movement took a complete halt across all highways and all toll collections were halted. Driving down to Belgavi for a client meeting was a breeze and we were able to cut short the round trip by a day!
Impact on the Digital and Advertising sector:
To begin with, all industries took a hit on cash flows during demonetisation, which caused a temporary marginal decrease in media buying across the industry. In the months to follow, a lot of money entered the formal economy – this has a positive impact on the advertising industry, especially digital and e-commerce and will continue the trend of increase in the percentage of budget allocation towards digital advertising platforms.
Demonetisation gave a nudge to the entire country to increase transacting online and on mobile. Not forgetting that this boost was also coupled with a drastic drop in mobile data costs, taking the entire country truly online. This is ultimately benefitting those who have a business model around the internet including digital payments, e-commerce, and mobile and so on whereas it is the writing on the wall for the rest. Personally, I’m a proponent of digital transactions and was very happy with the launch of BHIM and UPI platforms, also with wide adoption of apps like PayTM and increase in the number of places that accept cards. In my personal view, cash ban did not bother me much since being a Tech Freak I have been living nearly cashless from the day I got a bank account.
Every bold step does hold certain pros and cons and knowing that the step was for a better future we can expect mixed reactions followed by actions. Here’s what they were:
- India is known to be dominated by a cash-oriented economy; hence the cashless ecosystem was not in support to a lot of new users.
- The areas where majorly cash transactions take place like local markets, medicals etc. took a hard hit.
- An unavoidable income and welfare losses for poor or labourers who earn daily wages in terms of cash were completely unaware about the digital transaction culture.
- Increase in digital transactions, first move towards a cashless economy. Digital payment means and wallets had captured the attention.
- People are now well informed about the consequences of holding black money and will ensure no unnecessary or unauthorized cash to be kept with them.
Recalling the incident, it did take longer than expected to get re-monetised and cash flows to normalise. Though many merchants have rolled back to cash only, wider acceptance of mobile wallets and cards have made life even easier. Local shops accepting mobile or card payments have already become mainstream. Looking to a recent data report released by the RBI, the volume of electronic payments which was at its peak in the month of December, 2016 has now been on a decline but however, with the growing digital pace we can expect the digital transactions to increase again, without going through liquidity shock again of course.
(Views expressed in this article are of Siddharth Devnani, Co-founder & Partner, SoCheers Infotech.)