Demonetization Paves the Way for Digitalization


On November 8 at around 8 pm prime minister Narendra modi in a surprise address to the nation declared 1000 and 500 rupees notes as void and introduced new, more secured notes of 500 and 2000 denomination.

Soon after the address people went haywire as in India 95% of the transactions were in cash, 90% of vendors didn’t have means to accept electronic payments, 85% of workers were paid in cash, and almost half of the population didn’t even have bank accounts.

Eradicating corruption was one of the battle cry of Modi’s government. Demonetization was given effect in order to curb black money but due to its poor implementation it left people in oblivion. People were left with no means to buy the things they wanted and needed, retailers could not buy supplies and pay their staff.  However, as the demonetization process continues, it seems like Modi’s this step is less about fighting corruption and more about transitioning India to a cashless economy.

This surprise demonetization brought millions of new users into digital economic network. Banks not having enough newly printed notes to distribute along with strict exchange limit pushed people towards digital transactions which are more track-able and taxable. This move can bring more transparency in the economy and help government to enhance its taxation system; this in turn will increase foreign investment and promote economic growth.


In order to bring radical shift from cash to digital transactions government announced 11 incentives to encourage e-payments. These incentives seek to boost e-transactions by bringing down their cost and making them more accessible. Government believes the incentive has potential to increase customers to digital means by 30%. The package involves giving discount on e-payment of petrol and diesel as well on insurance premium.

Central government has also given exemption of service tax on transactions above Rs 2000 done through digital means. Online rail ticket purchases will get accident cover of Rs 10 lakh. Paid services such as food, accommodation, retiring rooms, etc, offered by the railways through its affiliated entities to passengers will get a discount of 5%. National highway tolls paid through electronic means will get a discount of 10% up to March 31.

In the aftermath of demonetization, people with black money are trying to figure out ways to put their money into the new digital economy. This can bring lot of investment in real estate and jewelry, making these sectors face both opportunity and challenges in coming times.

Partnering or plugging in with online payment brands like PayTm and MobiKwik can bring more opportunities. This is because once customers are forced to transact cashlessly, they will invariably go online, and once they have got used to paying online, they are more likely to convert online through digital marketing. With increase in online payment there will be increased knowledge of digital mediums among people which in turn will make them more receptive to digital marketing initiatives. Credit card limits might go up as people will be willing to spend more.

India currently is trying to revamp the way things are paid for. New bank accounts are being opened, apps providing e-payment services are booming. There has been spike in both app downloads and merchant registration. This spike includes a large number of small merchants like vegetable vendors, Kirana shopkeepers [small convenience stores], street vendors, rickshaw drivers, taxi’s etc.

Some hold the view that these changes indicate towards a more inclusive society in future, other term it as cultural-economic revolution. However, one can expect that these measures will drive India to emerge as a true cashless economy at the same time also fix many aspects of India’s society that the government aims to reform.


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