Demonetization and Information Technology

Living in a corrupt nation, since a long time demonetization was a huge step by our Prime Minister Shri Narendra Modi. The process of changing national currency where old currency was replaced with the new currency has created a lot of havoc in the country. The system of demonetization has lead to various impacts on the economy, positive as well as negative. There have been many positive impacts like: - the use of fake currency was eradicated. The problem of corruption has been tackled up to a large amount. Moreover, digital payment modes have been given a drastic push to reach the target of a cashless society. Due to demonetization, many illegal activities have been avoided.  The government also encourages the payment of taxes after demonetization. With these benefits, demonization also brought many inconveniences to the public. There was a reduction in sales, especially cash based sales. The business activities were disrupted leading to a huge economic loss to the nation. Additional costs were incurred due to distribution and printing of new currency the main victims were the small businessmen as they usually dealt on the cash basis.

Cash is the most preferred mode of payment globally due to the ease of accessibility, its certainty of acceptance, efficiency and no additional charges make it a preferable mode of payment. Demonetization of high denomination notes (Of Rs. 500 and Rs. 1000) has put over most of the currency out of the circulation. This has resulted in short term disruptions in transactions in agriculture and related sectors, small establishments, households and among professionals. Since the injection of liquidity became slow, incomes in both the formal and informal sectors have been affected to a greater extent. The incomes of the casual workers and self employed suffered a huge setback as they dominate in the overall economy. 

The E-commerce industry, after some months of demonetization, did see a decline in India as there was a reduction in sales. The cash crunch and reductions on the ATM withdrawals affected the buying capacity of the majority of consumers especially the ones who used the cash on delivery method. Some of the online retailers had to temporarily suspend their COD payment option. Though in the beginning demonetization has brought a sudden decline in the E-commerce industry, the first quarter of 2017 brought has positive changes. Online money and digital payments are not as difficult as they were before. This makes it easy for the public to smartly tackle the sudden ban on the old currency. Flipkart, Amazon, Snapdeal and many other online shopping sites are ruling the retail segment. These E-commerce sites, however, took an unplanned spike in their revenue soon after demonetization.

With the minimal cash dependence across industries, there has been a lot of IT adoption. IT industry has been positively affected by this change and has seen a huge boost due to this move. As the country is moving towards the more cashless way of transacting like Paytm and Mobikwik, online banking and E-commerce will see an increased demand in the near future. This particularly will benefit IT start-ups that work on online payments. Government initiatives as such as aadhar, jandhan will nudge a lot of fintech companies to enable financial institutions and banks to adopt these facilities. With cash transactions facing a sharp reduction, it leads to many alternative forms of payments like online debit/credit card transactions. Many companies will realize the need for IT systems to enable the ease of online transactions for its customers, giving IT companies many opportunities.

Although India came to a standstill after the introduction of demonetization, now it is trying to a great extent to overcome the negatives of the scheme.  Hence the GDP of the economy, the IT as well as E-commerce industry has gone through a greater hike after the implementation of the demonetization. 

Dr. Ashok Sharma
Associate Professor (Finance)
Programme Coordinator (BBA)