Dig­i­tal - Pre­par­ing for the af­ter­math

Banking Frontiers - - News -

The num­bers say that the In­dian eco­nomic mo­men­tum is slow­ing down. In­dian GDP growth rate rose to a peak of 9.1% in March 2016. It has been de­clin­ing since then and reached 5.7% in June 2017. The com­monly ac­cepted rea­sons for this drop are de­mon­e­ti­za­tion and GST. I want to add that dig­i­tal too will pull down GDP fig­ures, though only mod­estly.

The key as­pect of dig­i­tal is that it is far more cost ef­fi­cient than phys­i­cal. Take for ex­am­ple cash with­drawal trans­ac­tion at a bank. It may cost about `60 to do it in a branch, about `20 to do on an ATM and per­haps `3 to do it on­line. With more and more trans­ac­tions be­com­ing dig­i­tal, banks would en­joy sub­stan­tial sav­ings.

How­ever, there is a flip side. Banks will in­vest less in branches and ATMs, which would mean a slow­down for those com­pa­nies that are in the busi­ness of sup­ply­ing and main­tain­ing branch and ATM re­lated op­er­a­tions.

Cash with­drawal is just one ac­tiv­ity. So many ac­tiv­i­ties are in­creas­ingly mi­grat­ing to dig­i­tal. The big­gest is prob­a­bly pay­ments that will im­pact those that profit from the cheque busi­ness. With con­sumers con­sum­ing more and more dig­i­tal con­tent, com­pa­nies in the pa­per and print­ing busi­ness will see slower growth. An in­creas­ing num­ber of con­sumers are adopt­ing Ola and Uber in pref­er­ence to own­ing a car. This will im­pact the pro­duc­tion and sales of au­to­mo­biles. More and more peo­ple are con­sum­ing video con­tent on mo­bile phones. That will lead to de­cline in pro­duc­tion and sales of tele­vi­sions. Gov­ern­ment is mak­ing nu­mer­ous pro­cesses dig­i­tal. The re­sult is fewer trips to gov­ern­ment of­fices, mean­ing lesser spend on travel and pho­to­copy­ing and doc­u­men­ta­tion.

These may ap­pear to be triv­ial re­duc­tions, but what is note­wor­thy is that we are in the in­fancy of the dig­i­tal revo­lu­tion. When the revo­lu­tion gains mo­men­tum, it will have an in­creas­ing im­pact on nu­mer­ous busi­nesses that will pull down the GDP fig­ures. A whole lot of as­so­ci­ated jobs will dis­ap­pear as well. Just imag­ine that with driver­less cars, how many driv­ing jobs will dis­ap­pear. How many fi­nan­cial ad­vi­sors will robo ad­vi­sors dis­place? How many call cen­ter agents will chat­bots dis­place?

The dig­i­tal revo­lu­tion will bring huge ef­fi­cien­cies to cus­tomers, but it will be ac­com­pa­nied by de-growth and job losses in sev­eral sec­tors. This is some­thing to worry about now so that the so­lu­tion can be cre­ated in ad­vance, rather than re­act­ing when the tsunami hits with an enor­mous force.

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