India scraps 500 and 1,000-rupee notes; digital wallets to gain
The Government of India has declared that the five hundred and one thousand rupee notes are no longer legal tender, with effect from midnight on 8 November 2016. This is a historic move that will add record strength in the fight against corruption, black money, money laundering, terrorism and financing of terrorists as well as counterfeit notes.
The Prime Minister, Narendra Modi, made the announcement during a televised address to the nation on 8 November, giving just hours’ notice of the change. While this is a move towards fighting corruption, the PM has also announced that the common man holding old notes of five hundred or one thousand rupees (£6 and £12) can deposit them in banks or post offices from 10 November till 30 December 2016.
This announcement has raised quite a storm across verticals. While some sectors like real estate and the unorganised trade are expected to see a slump, it’s a thumbs-up for sectors like fintech start-ups.
CRISIL, India's leading ratings agency, forecasts significant structural benefits over the long term, saying the move could change the face of the Indian economy, improve the government’s fiscal position and tax compliance. The size of the cash economy will shrink. According to CRISIL, the movement towards a cashless economy would be positive for organised retailers (both bricks-and-mortar and e-tailers) in the longer term, as demand would gravitate towards them. Most small retailers do not currently have the infrastructure to deal with non-cash payments.
On its part, India’s IT business association NASSCOM welcomed the announcement. NASSCOM believes this move will also accelerate the push towards electronic payment, which currently has relatively little penetration in India, where cash accounts for 78 per cent of all transactions by value according to the Reserve Bank of India.
This complements the other moves towards digital payments, including the foundation being created by the Pradhan Mantri Jan-Dhan Yojana under which 254.5 million bank accounts had been opened as of 2 November 2016.
“If most of the black money is brought into bank accounts or into the tax net, there will be far less reason to deal only in cash, and far more reasons to transact through electronic payments,” said NASSCOM president R Chandrashekhar, who is a member of the Ministry of Finance Committee on Digital Payments, chaired by Shri Ratan P Watal of NITI Aayog.
The government’s announcement works well with digital wallets, being welcomed by the online marketplace. “This will enable India to move faster towards digital payments and will be a game-changer for Flipkart and for the e-commerce industry. A Flipkart spokesperson said, “We are no longer accepting Cash-on-Delivery (CoD) payments in Rs500 and Rs1,000 currency notes. In order to enable customers to conserve smaller denomination notes for daily essential use, we are restricting CoD on orders below Rs1000. Meanwhile, we urge our customers to opt for alternative payment modes such as card on delivery, internet banking, credit and debit cards, gift cards, and our easy and convenient PhonePe wallet. We are also working on a slew of measures to help customers to make easy transition from cash to digital payments.” Flipkart is an e-commerce marketplace unicorn company.
The announcement is expected to trigger a forthcoming spurt in the digital wallet space. However e-commerce logistics such as courier services are likely to be impacted negatively as courier companies customarily accept cash on delivery, and usually such payments are made with high-denomination notes.
Meanwhile Twitter and WhatsApp have been flooded with messages to capture the mood. The Ola cab service: reacted: #DoNoteWorry about Rs. 500 or Rs. 1000 notes. Ride with Ola Money.
MobiKwik, a mobile wallet and online payment system, tweeted, #DontPanicATMobiKwik No need to rush to ATMs. From tomorrow, use MobiKwik to pay wherever you are! #ATMobiKwik #BlackMoney #Cashless.
Let’s hope the government’s action leads to a cashless economy.