ON THE BRINK OF A NEW REVOLUTION
of payment, a noble idea seems to be guiding this change, a notion of a transparent economy and a nation focused towards its growth.
Whether this was the sole intention of the demonetization drive or a side effect, the fact is that the stage has been set for a new age drama — a cashless economy that is here to stay. Not all of Rs 15.44 lakh crore worth of currency dispensed with will be remonetized through issuance of new notes. A majority of this gap is expected to be filled by e-cash.
Electronic card payments have an immensely meaningful impact on the world economy. Moody's Analytics published by Visa states that greater usage of electronic card payments added $983 billion in real US dollars to the GDP of 56 countries they studied from 2008 to 2012. The global GDP grew by an average of 1.8% during this time period. This is also ratified by the academic school of thought which through Diffusion of Innovation Theory (DOI) states that effective migration to electronic forms of payments would result in overall economic growth, consumption and trade due to transparency, accountability, reduction in cash related fraud and ease of doing business.
One industry which is slated to definitely benefit in the long run and may already have started reaping the rewards in the short term from demonetization and the subsequent remonetisation is the retail industry. The organised retail industry in India consists of about 5% of total retail market. The movement towards a cashless society is a huge impetus for organized retailers as demand would shift towards them. To conquer the challenges of demonetisation, offline retailers are encouraging customers to move away from cash and are providing various payment solution alternatives to avoid purchase hindrances.
A conclusive yet definitive fact that is derived from the above is the emerging contribution of demonetization towards a transparent and self-reliant economy well into realising the "Make in India" dream. India's informal economy roughly constitutes 45% of the GDP and 80% of employment. The harsh derivation of this fact is that billions are exchanged every year without the tax collector even knowing about it. This is the major reason as to why only 1% India's population pays income tax. With demonetization, higher tax collections from better compliance would offer scope to reduce tax rates over long term, which would increase disposable income. This can give a positive impact on consumption demand in long term.
Remonetization in the form of a cashless economy has paved the way towards the creation of an environment of transparency and parity thus encouraging indigenous investors to manufacture domestically. A digital economy will pave the way for a real time economy, one where every transaction can be tracked in real time. This will help increasing the tax net of the country, which in turn will have the potential to deliver untold benefits to its own people.
While on one hand this initiative has readied the market for manufacturers, on the other hand, through increased purchasing power it is providing the demand impetus necessary to buoy this campaign. Make in India's vision of making India an empowered society is what is going to make India digital economy a 1 trillion dollar economy in the coming five years and it is this initiative in promoting digital payments that is expected to make the organized sector reach 20 per cent of the total retail industry in India by 2025.