from demonetisation to digitization of indian economy: … 67, eco...to analyze early effects of...

Proceedings of International Conference on Strategies inVolatile and Uncertain Environment for Emerging MarketsJuly 14-15, 2017Indian Institute of Technology Delhi, New Delhipp.598-607

From Demonetisation to Digitization of Indian Economy: The Road Ahead

Ashutosh D. Gaur1 and Jasmin Padiya2

Abstract

This paper analyses the demonetisation, its after effects on the digitation of Indianeconomy. Demonetisation of Rs. 500 & Rs. 1000 currency note constitutes 86.4% ofeconomy. When this percentage of currency circulation is to be invalidated in the cash-dependent economy, the reintroduction of cash must be planned to minute details tominimize the disruption, especially for those who had no alternative to using cash. Thedemonetisation has been done to deal simultaneously with black money, corruption,and terrorism financed by a counterfeit currency which was the work of anti-nationaland anti-social elements. Demonetisation opens the passage to the cashless economywhich has been done through digital payments. There is a huge surge in the usage ofE-wallet and mobile payments have been observed. The government of India issuingguideline through Reserve Bank for the security concern of E- wallets. The paperexamines, varying trends, strategies, and challenges by the study of secondary datafor demonetisation and digitalisation of Indian economy.

Keywords: Demonetisation, Digitization, E-wallet and Public Policy reforms

“We took a key step to help the honest citizen of India to defeat the menace of blackmoney”.

-Narendra Modi Prime Minister of India

1. Introduction

In a drive against the parallel economy, Mr. Narendra Modi announced that from midnight ofNovember 8 all Rs.500 and Rs. 1000 currency notes would cease to be legal tender.

The objective of this announcement to outbreak black money and overthrow counterfeiting ofcurrency. At a single stroke, 86.4 percent of currency in circulation was deprived of its statusas legal tender. The immediate effect of it was much of commerce frozen, electronic transactionstook place.

While campaigning for the 2014 Indian General Elections, the Bharatiya Janata Party (BJP) laidhuge emphasis on rampant corruption in the government machinery and promised the Indianpublic, that if the party would be voted into power, it will solve the problem of black moneywhich is the root cause of many problems in India. Modi Government formed Special InvestigationTeam (SIT) under the leadership of Supreme Court judge M.B. Shah to attack black money and

1. Doctoral Scholar, School of Doctoral Research and Innovation, GLS University, Ahmedabad

E-mail: [email protected]

2. Associate Professor, GLS University, Ahmedabad

E-mail: [email protected]

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defeat corruption during its first cabinet meeting.

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is an initiative aimed at Financial Inclusion for allpeople to enable them to use banking services such as savings account, deposit account, andcredit, insurance easily.

The government also launched ‘Income Declaration Scheme, 2016’ to bring back black moneyinto the system. The scheme from June 1, to September 30, the provided an opportunity toincome tax and wealth tax defaulters.

Then Demonetisation of all Rs.500 and Rs. 1000 bank notes of the Mahatma Gandhi Series.This step invalidated Rs14.18 lakh crore (trillion) of currency.

The government of India imputes to make India a cashless economy which will boost theeconomy and open a new form of payment ways like e- wallet and other option.

2. Objectives

1. To analyze early effects of demonetisation in India.

2. To review the Pros & Cons of Digitalization of the Indian economy.

3. Literature Review

(Kotnal, 2017; ) In this study author has analysed, the currency system in India and evaluatedeffect and impact of demonetisation in Indian economy. (Prabhsimran Singha, 2017) This paperaims at analysing the effect of the demonetization policy implemented by the Indian governmentby using the concept of sentiment analysis. The result of analysis shows that a large share ofIndian people was happy with this policy. During the initial days, the sentiment was moretowards the negative side as the common man had to suffer many hardships. Ultimately, asthe new bank notes were made available, the overall sentiment of the people became positive.(Sharma, 2017) This article tries to draw an analysis of steps that have been taken and stepsthat could have been taken to make the process more effective after demonetization. (Ghosh,2017, ). One of the objective of this paper is to develop a macro-theoretic model to examinethe likely impact of demonetization in India. This paper validates that demonetization is likely tobring about the cumulative decline in output levels in both the organized and the unorganizedsectors. To what extent the cumulative contraction in output levels will take place depends

Figure 1: Stagey of Narendra Modi to Defeat Black MoneySource: Author’s own

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Ashutosh D. Gaur and Jasmin Padiya

upon how fast the economy is remonetized. Remonetisation will reverse the process of cumulativecontraction. If to achieve the goal of digitization to the maximum possible extent, remonetizationis delayed, the contraction in output levels may be severe causing considerable harm to themasses. Demonetization affects the poorer segments of the people the most. (Dr. DeepakTandon, 2017) In this study, the Author has analyzed and evaluated all aspects of demonetisation.The author also discussed the viewpoint of various political leaders. (Balaji, 2017, ) In thispaper, author attempts to study the demonetization process in India and its impact on cashlesstransactions. (Thimmaiah, 2016) In this study, author focuses to understand the impact ofdemonetisation in the economy and aim to understand the effects of cashless transaction indifferent industry. Author also aims to understand the aftermath of demonetization. (Rani, 2016)In this paper author explains problems faced by shopkeepers, how their business affected andthe effects on most popular brands sale. This paper also noted that consumers are shifting tocashless means such as Paytm, internet banking etc. Author discusses that by adopting thecashless means certainly there will be a check on black money. (Shirley, 2017) In this study,authors discusses in depth the impact of demonetization in India and highlight the effect of it inother countries. (Carmen Leonga, 2017) In this study author focuses hurdles of demonetisationand to clout the opportunities. Offers the tactical competence for a firm to occupy a marketplacein financial sector. Benefits includes the cohort of substitute credits cores based on non-traditionalinformation. Improves the economic annexation of formerly excluded market segments. (Madureira,2017) In this study author has focused on role of ‘Near Field Communication’ (NFC) services toreplace credit/debit cards (for payment, ticketing, transport, etc.) by bringing better-qualityaccessibility and functionality. Author also highlights the factors that hampers the accomplishmentof SIM-based mobile NFC services deployments. (Solat, 2017) This is a comprehensivesurvey of the security of electronic payment systems showing that in all types of electronicpayment systems there is some important flow and weaknesses in security, user privacy,anonymity and performance. It is crucial to enhance and improve the current level of the securityof the financial transaction systems with respect to all necessary properties to achieve a secureand reliable payment system. (Swaminathan, 2016) In this study, author analyses customerawareness and satisfaction level of the e- banking services. The outcomes of the study showsthat the customers have moderate level of satisfaction in e- banking services. (Ramasubbu,2009) In this study author argued about the advantages of digital wallets over physical walletsand highlighted the four factors for Singapore Market for digital wallets and demonstrated aprototype of digital wallet. (M. F. Mridha, 2017) In this study, author states that the world ismoving towards with an automated payment system that’s compatible with international standards,but growing number security concerns are also hindering its popularity. Internet banking is aworthwhile for research study so that the quality of service can be improved.. (Shin, 2009) Inthis reading, the author authenticates an inclusive model of customer approval in the context ofmobile payment. It uses the integrated concept of approval and use of technology (UTAUT)model with construct of safety, trust, social power and self-efficacy. The outcome of the analysisshows that user’s attitude and intents are influenced by perceived safety & conviction. (SaleemKadhiwal, 2007) In this study, author has discussed the physiognomies of mobile paymentsystems and the concerns regarding safety and standards, which must be addressed to have asecure m- payment. Author also gives an overview of technologies, devices, protocols and theirsecurity concepts. (Caldwell, 2012) In this study to discuss various platform of the e-wallet andhighlighted the key reason why Google wallet was vulnerable to instinctive power attacks andthat its design seemed to be based on patented technology instead of documented standards& processes. Author argues E-wallets have high adoption rates in developing countries andlook set to become established worldwide. The challenge of ensuring security may well affect

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how for the e-wallet become parts of all our daily lives. (Upadhayaya, 2012) In this study, theauthor states that e- wallet is a convenient, easy- to- use, safe universal payment system.(Jan Markendahl, 2017) In this paper author put its focus on the use of Near Field CommunicationTechnology (NFC) to mobile payments. Author recognises a discrepancy between vision &proposals and how the actors are organized for real service although the technical architectureand solution can and need to be standardized to enable product development, the businessarchitecture need to be approved by all involved players at definite marketplaces where thefacilities will be provided. (Eyong B. Kim, 2002) This study examines the feasible encouragementand the perceived approval of online retail shopping among university students. The study findingimply that the online retailers may need to put emphasis on specifying how they guarantee on-time delivery and risk free, hassle free return clearly on their web page they should follow whatthey promises as much as possible to improve shoppers satisfaction clearing specified policyor explanation will perhaps make customer more satisfied and trust website more. (Swilley,2010) In this study author investigates new insight about e-wallet and seek to understandconsumer rejection of a technology, specifically wallet phone technology using technologyacceptance model. (R.Varsha & M.Thulasiram, 2016) In this study author has analysed theconsumer behaviour towards the acceptance of E-wallet services. The study was conducted inTrichy and Thanjavur districts of Tamil Nadu. E-wallet which are considered as a hi-tech platformfor money transactions and payments have been perceived to be comfortable and reliable,indicating high levels of acceptance. The e-wallet service providers need to strategize targetingnot only at students and the youth, but also other age groups. (Parul Mahajan, 2017) Theconsequence of demonetization has been deliberated on numerous members of financial inclusiondrive such as normal people, informal sector, rural people, MSMEs, NBFC, MFIs and e-walletenterprises. The findings of the study reveal that ordinary individuals were the most adverselyaffected. (Magnier-Watanabe, 2012) In this study, an inclusive model integrating consumer-relatedvariables affecting the acceptance of mobile payment systems has been proposed. Thesevariables include perceived ease of use, perceived usefulness, facilitating conditions, attitudetoward using, perceived value, perceived security and privacy, social influence, trust, behaviouralintention to use, perceived risk, and attractiveness of alternatives in the context of mobilepayments. (Leonardo Caporarello, 2014) This study evaluates the acceptance of NFC-enabledcell phones in terms of technological as well as cultural point of view. Author argues the displayof status and wealth is noticeable in the culture and individuals are keen to buy and spend inthe newest and stylish gadgets and technologies. (Jason J. Zhang, 2009) In this study, authorhas discussed the facts of m-commerce and the prominent differences between m-commerceand e- commerce. Author has identified significant features that must be taken into deliberationto design valued m-commerce applications. Author highlights that the realisation of m-commercedepends on the interaction of three major factors: technology modernisation, development of anew value chain, and active buyer demand. (Lai, 2012) In this research, it might be outcomethat the apparent helpfulness, the apparent comfort of use is certainly related to users’ attitudetoward using, and the apparent ease of use is definitely associated with the apparent helpfulness.It mean the useful and easily operation of payment clinic fees with e-wallet products is highlysignificant for the consumers. (Chauhan, 2015) The objective of this study is to comprehendthe reception of m-money among below-poverty-line people in India, by means of the technologyacceptance model (TAM). The m-money service is a key feature that can support the deliveryof low-cost and swift money transfer through cell phones, in emerging countries such as India.For a large section of the population in India, m-money can act to achieve ûnancial inclusion.However, for m-money to succeed, users should accept the initiative wholeheartedly. Theûndings suggests that the trust and the central builds of TAM such as apparent usefulness,

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belief and attitude towards usage add in inûuencing the intention to accept m-money. Apparentease of use neither impacts apparent usefulness nor attitude towards use. (Sai Kalyan KumarSarvepalli, 2016) This study aims to analyse e-wallet mechanism in India, opportunity for the e-wallets advantages and disadvantages, issues and challenges.

4. Research Method

As the research paper is of conceptual and review nature, the researcher has applied exploratoryresearch design by using varied secondary data availed from the secondary data sources.Based on the secondary data and review, the researcher has reported on various emergingtrends and issues and challenges in demonetisation to the digitization of Indian economy.

Various research reports, journal, and newspaper article from eminent writers have been reviewed.

The above figure shows the value of high denomination notes in the value of all note in circulationbefore November 8, 2016. This is the largest number in last 16 years because of this nationwas facing many problems

5. Findings

Figure 2: Value of High Denomination Notes in Value of All Notes in Circulation (in %)Source: Author’s construction based on data extracted from RBI (2016), Handbook of Statistics of

Indian Economy 2015-16.

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Figure 3: Per Capita GDP and Currency in Circulation as Percentage of GDP

Source: Author’s construction Extracted from BIS, Statistics on Payment, Clearing and SettlementSystem’, table1 and table 2, available at http://www.bis.org/cpmi/publ/d155.htm,

The above figure shows that India’s per capita GDP and currency in circulation as a percentageof GDP is more than the average i.e. 9%, therefore, transforming the Indian economy to acashless is a need of the hour.

(Shirley, 2017)

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The above table shows the history and the outcome of the demonetisation done by variescountries.

The Best Five Cashless Payment Options in India are as Follows: (Balaji, 2017, )

1) E-Wallets – E-wallets have become very much popular nowadays. These e-wallets make useof phone number or the QR code and the transactions will be done in a matter of minutes.

2) UPI – Unified Payments Interface is another great way for cashless transactions... ThroughUPI we can transfer the amount very easily all that we need are two important things,smartphone, and bank account. The recent app developed by National Payment Corporation ofIndia, based on UPI, is BHIM.

3) Plastic Money – The debit as well as credit cards which are used for dealings in ATM andin ‘Point of Sales’ are known as the Plastic money. This plastic money reduces the securityrisk of carrying the hard cash.

4) Net Banking – Almost all banks provides the ‘Net Banking’ facility to its customers. All thatthe customers need to do is to enable the e-banking facility for their bank account to gocashless. Net Banking is the most convenient way for the customers to do all their transactionswithout visiting the branch. Customers can make payment, transfer and receive the amount byourselves through this e-banking facility.

5) Aadhaar Card – By linking the Aadhaar card to our bank account we can make use ofAadhaar card enabled payment system. After linking our Aadhaar card to our bank account, wecan do our transactions by means of our fingerprints.

Advantages of Cashless Transactions (Balaji, 2017, )

The cashless transactions provide benefit in long run and it changes the deep-rooted behavioramong the people.

1) Cost Effective to Banks: If a transaction is done manually at the branch of the bank itcosts Rs.40 to 45 but if the same transaction is done through online it costs roughly Rs.7 to 8.This reduces the cost of operation for the banks and also makes it convenient for both bankerand the customer.

2) Low Time Consumption: Apparently, the cashless transactions reduce the time consumptionfor the customers and it minimizes the count of customer complaints. The customers, with thehelp of various options for cashless transactions, transfer or receive the amount in a matter ofminutes and saves the time of visiting and carrying out the transactions in the bank branch.

3) Safe and Secure: Cashless transactions provide high-end security by means of availing thefacility of fingerprints and One Time Password (OTP) for every transaction.

4) Up-gradation of Technology: The shift from the conventional banking to cashless transactionsbrings technological advancement. The banks increase their ATMs, PoS machines count andvarious other features in the e-banking domain periodically.

5) Control of Black Money and Check for Anti-money Laundry: There is a traceability featurein e-banking unlike the cash transaction so it is easy to check the anti-money laundry andblack money circulation in the country. It reduces many financial scams in our country andenhances the proper economic growth.

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6. Result and Discussion

Demonetisation in such a huge extent and introducing new currency is a gigantic process witha massive task. There are two vital parts in the strategy of India’s demonetisation that requirestudy. First, the scale of demonetisation and second, the time frame for the completion of theprocedure. The demonetisation of the two highest denomination currency notes was accompaniedby the introduction of new series of Rs.500 notes and the currency of an even higherdenomination- Rs. 2000 currency note. It is also likely that over time the stock of Rs.2000 notbrought down by winding down the printing of this currency.

Digitisation of monetary transactions has been in progress for more than a decade now. Thenew impetus to digitation after demonetisation. Digitization should percolate to grass root levelsi.e. villages and to farmers so that real transformation of the economy will take place. Thegovernment of India has made provision for a huge amount of revenue in the union budget forcomputer literacy this is import step of the digital economy. Digital India can also play asignificant role in digitalization of economy.

The aim of demonetisation is to attack black money. This objective of curbing black money willnot be achieved only with demonetisation drive. The government must address the Gold andreal estate sector to defeat black money. A huge amount of black money is in the foreign bankwhich is tax havens like Mauritius and Cyprus a strong action is required on this front also.

There is an argument that India’s large population live in a village so e-wallet and digital economycannot do many transformations. The answer for the IT users in India is much larger than thepopulation of me develop country there for e-wallet has a great future in India.

7. Conclusion

“People who change after change will survive

People who change with change will succeed

People who cause the change will lead”

-Narendra Modi Prime Minister of India

This quote of prime minister is very important in this context. This show the determination anda political will to change the entire structure of the economy and to build cashless India.Demonetisation may hit the GDP growth of the country for two financial quarters, but the resultwill be positive in long run.

Managerial and Public Policy Implications

Managerial Implication of demonetisation that every business man must have a digital platformto do the business transition. The public policy implication is the country will move towardcashless economy there right legal framework is required for digital transactions. To achieve thevital objective of demonetisation Government of India i.e. cashless economy should incentivisethe digital currency. The policymakers should increase the usage of digital currency. It shouldbe the broad base to promote financial inclusiveness. Last but not the least, policy makersshould accelerate initiatives against gold & real estate sectors to liberate the country from thedark shadow of black money.

Acknowledgement

Researchers are grateful to the IIM-A library officials for providing access to library resources.Researchers are grateful to all previous researchers who have carried out significant work andpaved foundation for this research work.

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