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A Transient State Effect Of Demonetisation

With demonetisation, vendors are now forced to be very particular about billing and taxes, rendering it risky to pull off such stunts

Photo Credit : Shutterstock


8 November 2016 marked as a significant day in the history of India. The entire nation came to a standstill when Prime Minister Narendra Modi announced that the existing Rs 500 and Rs 1,000 notes would be demonetised beginning midnight. The Government by doing so attempted to tackle all the three issues affecting the nation i.e. a parallel economy fuelled by black money and hawala transactions, counterfeit currency in circulation and terror funding. A radical and bold move taken by the Prime Minister, has quite made it in the headlines ever since.

The initial days of the financial surgical strike drew applause and endorsement from a vast majority of people. With time, the nonchalant and casual attitude that demonetization was only going to cause temporary inconvenience slowly started to mutate. Pulling out 86% of the money used by a population of 1.2 billion people surely involved more inconvenience than one could imagine. Collecting, counting and destroying 2,200 crore notes and getting new bills into circulation within a few weeks as claimed, turned out to be a poor attempt.
The country got surprises after surprises with crunched deadlines being chaotically extended, queues becoming longer at banks and ATM and the rules being practically revised daily. This caused mayhem and people began doubting the program to the extent that the Supreme Court deemed the situation as of "serious" concern. We are a year past the implementation of demonetization and quite frankly the decision has drawn its fair share of followers, critiques and converts and has impacted various sectors in the Indian economy.

Almost every situation has its pros and cons; Demonetization in this regard is no different. Demonetization was rushed into effect in an attempt to catch the black market off-guard. We'll save that as an argument for later, but what it surely brought with it is a rise in the digital transactions made in the country. Around 156 million transactions were made in March-April 2017. As per the latest reports of the Ministry of Finance, digital translations of Rs 1.24 lakh crore have been held. Digital transactions and usage of digital services such as debit card, m-wallet, IMPS, PayTm has shown a sharp increase.

Post the ban, approximately 2.24 companies not functional for over 2 years were closed, 3 lakh directors disqualified and 38,000 companies were deemed as shell companies- firms existing purely for financial deception. However as per records, demonetization does not seem to have a visible impact on the fake currency business. Critics argue that banks have failed to distinguish counterfeit currency from the real ones and also have not been able to estimate the amount of counterfeit currency circulating in the economy, Reports show that the sky rocketing prices of real estate will spiral down eventually. Even though the first half of the year showed a dip in sales, the tide seems to be turning in the favor of affordable housing. Factors like bottoming of prices in a few markets, decline in interest rates and availability of ready-to-move-in projects has led to an improvement in the market sentiments.

E-commerce has also benefitted from this measure, although there has been an impact on cash on delivery orders. E- Retailers are now encouraging alternative electronic payment options such as card on delivery instead of cash on delivery, thus enabling consumers to overcome the psychological barrier on using these payment modules. This has curbed the cost of returning and handling charges with payments being made on line.

Now let's talk about the events and entertainment industry…
Initially the industry suffered a major crisis due to shortage of liquid cash and sudden ban on the currency. This shortage has now eased down considerably and the rise of electronic payments is on the high. There are weddings, ticketed events and corporate events. A large part of the payments for all such events can be made via the e-mode. However small scale vendors still demand payment to be made in cash. Then there are middlemen who are part of "planning committees"; they deliver bloated bills to their bosses and pocket the difference in alliance with vendors and event managers. With demonetisation, vendors are now forced to be very particular about billing and taxes, rendering it risky to pull off such stunts.

There will always be people who do find their ways around any legal system and many people have come up with unique means to continue with fraudulent methods. Nonetheless, demonetization now seems to be a welcoming move for organizations that are trying to digitize and legitimize payments and compete on a level-playing field. We must bank on this newfound transparency to reform and organize the event planning industry. Technology start-ups can always facilitate both the service providers and consumers to make this transition a smooth one.

We do live in exciting times where things changes with a blink of an eye and in this era of "internet of things" and "paperless transactions", demonetization does need to be interplayed with other measures like IDS, amendment of Benami Transaction Act, banning donations and improvement in tax compliance, to combat economic offenders at the highest level.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Year End 2017 Demonetisation black money

Prateek Kumar

The author is Founder and CEO, NeoNiche Integrated Solutions

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