India Demonetization – Fight Corruption or Fight for a Cashless Digital Economy?


By Daniel Neumann – VP Business Development & Strategy

On November 8 2016 India’s Prime Minister, Narendra Modi took a bold action. In one day and without prior notice, 86% of the cash in circulation in the country was erased.

Just like that, all 500 and 1,000 rupee notes, the most commonly used currency denominations, were scrapped and were no longer a legal tender.

The official objective of this move was to fight corruption and crime, clean out the black market cash supply, reduce tax evasion and battle terror financing.

This move is considered by many to be earth-shuttering for the economic, social and day-to-day conduct of Indians. Up until now, India was a cash-centric country with more than 90% of transactions conducted in cash, possibly one of the most cash-driven economies in the world. The new policy forces the people to replace their ‘soon to expire’ notes with new 500 and 2,000 notes or deposit them in bank accounts by December 30, 2016, a challenge in itself as less than 50% of the population hold an active bank account. As the banking system was also surprised and preparation for this huge act was not in place – people today find themselves in front of empty ATMs, long lines of bureaucracy at full-house banks and lack of adequate printed supply of freshly printed notes. This suddenly leaves individuals in a chaotic environment to trade, buy goods and services, and businesses without proper mechanism to receive payments, buy inventories or even pay their hard working employees. Some even believe that the poor and middle class are in survival mode since then.

As an entrepreneur, I think it’s important to understand the pains and challenges of this mind-blowing and historic change, but at the same time – realize the possible gains and  unique growth opportunities it creates:

1 – Digital payments surge – This monetary revolution will force hundreds of millions of unbanked Indians to adopt and use digital payments in their day-to-day life. Mobile wallets such as Paytm, Freecharge, Jio Money, Oxigen Wallet and others are already seeing transactions growing massively, a trend which will continue and is expected to develop. Paytm, as an example, added over 10 million new users in November, a tremendous number in such a short time frame. More digital payments will create a larger transacting user base and a stronger business environment.

2 – E-commerce and business sectors growth – despite a current drop of 20-40% at some online retailers and businesses which rely on Cash-On-Delivery (COD), long term growth is expected as potential number of consumers, buying power and reach will expand. The number of customers becoming comfortable with cashless transactions can potentially enhance the pre-paid model for e-commerce, food ordering, grocery delivery and other businesses.

3 – Fintech development – This new “cash-free” system is already seeing millions of new bank accounts, credit and debit cards issuance and development of alternative payment methods that may create a more innovative digital economic ecosystem – creating new companies, technologies and even employment opportunities to the market.

4 – India Startup spirit – A courageous act by PM Modi demonstrates the entrepreneurial essence of this nation. Such spirit can stimulate modernization, technology and development.

India, one of the largest base for startups in the world, will see the formation of new digital technologies, platforms, businesses and services and can drive long-term growth after witnessing a market correction of funding and capital investments in the last six months. Perhaps India may even become a source of inspiration to other countries to follow demonetization actions. We are already seeing Australia considering a similar movement.

5 – Online and mobile accelerated penetration to the Hinterland – rural India is home to more than 850 million Indians. The current cash crunch possesses huge challenges in the short and mid-term for villages, tier 2 and tier 3 cities which do not have access to ATMs and/or banks. This will have to transform online and mobile from luxury to necessity as people digitally transact for their most basic dealings. Mobile being the 1st digital and online experience for most new entrants will make the market bigger for consumers and businesses alike with more mobile services, apps and opportunities.

6 – Infrastructure improvement – In order to support digital payments, mobile and online services across India, infrastructure will have to see further improvement. Better broadband 3G/4G connectivity, stable services and affordable devices will be a reality in the long run to ensure expansion is sustainable and scalable.

It seems as if India as we knew it until today is in the midst of a revolution and will keep changing and transforming itself from a cash-driven economy to possibly a cashless and digital-driven marketplace. Perhaps this was the initial intention of this drastic act? Will others follow? Time will only tell.

What is certain is that uncertainty and change create opportunity. Seize it.

Daniel Neumann, VP Business Development & Strategy at ClicksMob sees India as a core market and an important growth engine for the company.

Daniel and his team transform startups and large companies into successful digital mobile app businesses utilizing performance marketing involving technology, data and expertise.

Contact [email protected] if you’d like to talk more about digital India.