Demonetization: A brilliant move towards a Digital India...!

Indian Prime Minister Narendra Modi dazzled the entire nation with his sudden movement towards ‘Demonetisation’. The decision to demonetise the 500 and 1000 Rs. currency note is one of the foremost steps towards the annulment in black money and corruption both issues in India. This decision has increased cashless transactions. People are aimed to force through different online payment apps. There is a progressive use of online banking and payment mediums to handle the daily expenses. With projects of, financial inclusion, digitalisation of the economy, and expanded utilisation of advanced smart phones, online transactions are prevalent among the Indian commons.

DIGITAL INDIA AND DEMONETISATION

Digitalisation has been a noteworthy challenge in India, as many of us have favoured executing in real money instead of using plastic money. With the demonetisation, various digital payment solution providers have come up with ingenious approaches to pull in new clients. These digital wallets not just help in paying bills, but also empower payments at nearby stores already enlisted for these kinds of services. The significance being mobile wallets like Paytm, Mobikwik, FreeRecharge witnessing a huge expansion in app download figures, and Ola Money sighted a massive increase in wallet recharges.

Linking Indians through digital media has been further revitalised by this proceed on the part of the government. The m-wallet (portable wallet) segment comprehensively comprises of services related to banking transactions, exchange of cash as well as value-added services like bill payments, shopping, ticketing, and so forth. Of these services, m-wallets are principally utilised for the money transfer trailed by the payment of bills.

ROLLING NUMBERS

MobiKwik, having 35 million clients, said there was 100% growth in customer numbers day-on-day. Chillr, the mobile payment app already having 2 million downloads and promoted by HDFC, has seen an increase in application use and downloads. PayU’s computerized wallet business, which has more than 30 million users, saw the amount of wallet burdens rise two times in the initial two days. Paytm, the biggest Indian mobile payment wallet with more than 100 million users and 2 million transactions a day, saw an increase in the app downloads and payments for offline transactions in the initial phase of the demonetisation declaration. It included one million new spared credit/check cards in two days – cards that are utilised to refill the wallet. Amazon affirmed that it is suspending COD requests while Flipkart’s site says that cash orders above Rs 2000 are not empowered and has been requesting that clients choose another payment option.

Cabs services, Grocery Stores, Big Basket, Amazon, Snapdeal, Flipkart, ebay, are going digital and the list is endless now. If you stroll into a McDonald’s or Cafe Coffee Day or Shopper’s Stop today, you can utilise a digital wallet on your mobile to pay for your purchase. To surmount the challenges posed by the currency ban, offline retailers are giving their consumers numerous payment solutions and alternatives to avoid interruptions in purchases. As Indians are getting used to digital money, their trust in anything on the online and mobile will get a major lift.

Tea stalls are using Paytm. Ola Cabs have come out with an option of Ola Money. This is beneficial for common man at this point of time when there is crunch of change.

Lack of proper infrastructure was the major obstacle for the vision of Digital India which has been cleared to the maximum extent with the launch of 4G internet. Mobile is becoming the point of purchase and sale which will lessen up the digital divide between the rural and urban India along with drawing the population into the financial inclusion. Demonetisation is the best thing to happen to India’s emerging online finance industry and haul its obsolete economy into the 21st century. Three cheers for a bold and game-changing action.

Analysis of Demonetization’s Impact in India...!

The sudden move to demonetise of Rs. 500 and of Rs. 1000 is not new to the Indian economy. Rs 1,000 and higher denomination notes were first demonetised in January 1946 and again in 1978.The highest denomination note ever printed by the Reserve Bank of India was the Rs 10,000 note in 1938 and again in 1954. But these notes were demonetised in January 1946 and again in January 1978, according to RBI data.

Last month on November 8, when the whole world was waiting for the outcome of US presidential elections, Prime Minister Narendra Modi came out with his master stroke on corruption, counterfeit currency, terrorism and black money by announcing demonetisation and ceasing Rs 500 and Rs. 1000 notes as a part of legal tender in India.

The Reserve Bank of India manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934 and a new redesigned series of Rs 500 banknote, in addition to a new denomination of Rs 2000 banknote is in circulation since November 10, 2016.The new redesigned series is also expected to be introduced to the banknote denominations of Rs 1000, Rs 100 and Rs 50 in the coming months.

Since less than 5 percent of population in India had access to such notes and most banks never had such currency notes, demonetisation did not have a big impact on the country. The decision was taken to curb the illegal use of high denomination currency which was used for corrupt deals in the country.

However, with the latest round of demonetisation, the common public and bankers are undoubtedly facing hardship since more than 85 percent of currency in circulation has been rendered illegal in one single stroke. Demonetisation is surely hampering the current economy and will continue to do so in the near term and will also impact India’s growth for the coming two quarters but will have positive long lasting effects. The question that arises is why demonetisation was required at this point of time.

One of the biggest benefits of this move is that it is going to drastically affect the corrupt practices. People who are holding black money in cash will not be able to exchange much as they would be in a fear of getting penalised and prosecuted by the authorities. Enemies of the country which are involved in counterfeit currency and terrorism will not be able to continue it further for quite some time at least. The smuggling of arms and dealing with the terrorist will not sustain further as all of the money will be on record now.

Secondly, the banking system will improve as it will slowly head towards a cashless society. Cashless society will increase credit access and financial inclusion. The existing white money of people will be known to the government and it will remain with banks so that it can be put on loan, and interest can be generated from it (though interest rates would fall) with a corresponding fall in Inflation.

Further Banking System will get a boost, as more than Rs 7-8 lakh crore base money (new legal money) will enter the system. However, it needs to be seen how much money actually remains in the system, once the cash withdrawal limits are eased. Thirdly, it will reduce the risk and cost of cash handling as soft money is safer than hard money. It will also reduce government liability. Since every note is a liability for the government, the old currency will become worthless for those people, who choose not to disclose their income.

Thus, this will extinguish government's liability to that extent. It is expected approximately Rs 5 lakh crore may come to the government in the form of extinguished RBI liability, taxes and penalties. This amount is enough to take care of India's entire fiscal deficit for one year or more. It will also reduce tax avoidance. Whatever money will be deposited or exchanged, authorities will keep a track of it and they will be extra cautious in this period.

 Search and Seizure activities of the IT Department will also rise to curb such malpractices. Limits have already been prescribed for reporting to the IT Department those bank accounts in which excess cash deposits are being made in this 50-day window (Rs 2.5 lakh in case of individuals and Rs 12.5 lakh in case of firms). Importantly, in the longer run, tax and interest rates on loans are expected to come down as higher income tax collections arising from better compliance would offer scope to reduce rates over the long term. This, in turn, will drive up disposable income. This can give a positive impact on consumption demand in long term.

 India is certainly going to experience "Acche Din" in Modi's regime. The decision of this surgical strike on black money was not taken in a day or two. Rome was not built in a day and similarly, this plan is the result of Prime Minister's meticulous planning and never ending fight against corruption. As a result, he has successfully made the right stroke at the right time. Further, the penal provisions are hefty enough to ensure that corrupt practices will find it hard to take roots again.

 Despite certain short term troubles, demonetisation is certainly going to give a boost to the Indian economy in the long run. As of now, all of us should stand and support this bold move of our Prime Minister and help those needy, around us.

5 things to learn from Demonetization...!

Demonetisation surely taught us how one could live life curbing expenses and be able to save money in such situations. If this could be practised in one's everyday life and the savings could be properly channelised into good investment options then achieving financial freedom would no longer be a far-fetched dream.

1. Don’t wait for a crunch to budget or spend wisely:

The first consequence from demonetization is also the mainstay of every financial plan: save and spend according to a budget. During the current crisis, people have been forced to take care of their critical expenses, investments and bills, before considering discretionary expenses, while entertainment and demented purchases have been completely done away with. The restricted inflow of cash means that saving has become a priority, as does sticking to a tight budget. While one need not restrict one’s finances to such an extreme in the normal course, it is this forced discipline of budgeting and prioritizing one’s spending that will help you reach your financial goals with ease. So have a healthy dose of discretionary expenses, but not before you have saved and invested.

2. Don’t grasp too much cash; invest it

If you’ve been keeping back money at home to fend off an emergency, rethink the strategy. Cash does offer flexibility and you should have 3-6 months’ worth of expenses at hand. But even this amount should be invested in short-term debt funds, liquid funds or sweep-in savings accounts linked to fixed deposits. If, however, you have a copious amount lying idle, know that you are eroding its purchasing power. The money is not growing and inflation will allow you to buy fewer things with the same amount some years down the line. Besides, you are forgoing the high returns you could have earned by investing it in, say, equity, for long-term goals. Also try to make most transactions cashless and hold only a small amount of cash at home.

3. Don’t change asset allocation in a panic

Panic is virtually a default reaction in times of financial crises or unanticipated developments like demonetisation. Though Indian investors have wizened up since the 2008 economic crisis, many are still rushing to the security of gold and debt after the 8 November announcement. This is yet another opportunity to remember that asset allocation should be changed only in line with your age, short- and long-term needs, risk appetite and proximity to life’s goals. While one should re-balance from time to time to retain the desired asset allocation, do not take erratic decisions and risk your investments by reacting to short-term aberrations.

4. Keep pace with tech to handle your finances

It pays to keep pace with technology. Literally, as demonetisation has proved. Though banks and other institutions have been pushing online and mobile transactions for a few years now, demonetization may prove to be the inflection point. Even as people are rushing to download mobile wallets and register for Net banking and online transactions, the clear learning is that it is critical to keep track of the latest tech upgrades. The people who were already paying their bills via Net banking or mobile wallets, and using credit cards, did not suffer as much as those who weren’t. It’s high time then to shift to mobile banking, downloading apps for financial transactions, and learning about online transfer of funds. It will not only increase your ease of transactions, but also reduce time and help to save money.


5. Buy your kid a piggy bank, give pocket money

The final takeaway from demonetization is to provide your child a piggy bank and a regular supply of pocket money. The children who already have these proved to be a boon for their parents during the current crisis, with lower currency and loose change helping tide over the difficult time. The learning, however, is not to rely on this stash as a contingency fund since these minuscule savings are unlikely to help you during a bigger financial crisis. On the other hand, the habits of regular saving, discrete spending, making their own purchases and focused saving for small goals will inculcate financial discipline in kids. They are not only likely to manage their finances better as adults but also handle crises with greater equanimity. We at Kushal Landmarks request you all to save your hard earned money & invest it wherever you expect good returns. Work nicely & invest wisely…:)

 Courtesy: Economic Times