In an attempt to tackle counterfeit currency and the malaises it creates within the economy, Prime Minister Narendra Modi on 8th November 2016 announced demonetization where five hundred and thousand rupee notes will no longer be legal tender. This move is aimed at rooting out the menace of black money and corruption.
To ensure common people are not at the receiving end, government is promoting digital transactions and alternative payments. To support this move, banks are encouraging people to use mobile wallets and electronic payments through their baking apps. This welcome change will do a lot of good to the economy benefiting companies in the cashless economy. The government’s move will definitely bring many businesses to be more organized pushing up the volumes of digital transactions.
Impact for IT industry
This has impacted many industries and more so the IT industry in a positive way. With minimal cash dependence across industries, there is going to be much demand for IT adoption. IT industry stands the chance to be positively affected by this change and will see a huge boost due to this move.
As the country moves towards more cashless way of transacting – new-age payments like Paytm and Mobikwik, online banking and e-commerce platforms will see an increased demand in the near future as people will show willingness to move away from cash. This particularly will benefit IT startups and Fintech domains that work on online payments that enable technology processes for such companies.
Companies will realize the need for IT systems to enable the ease of online transactions for its customers giving IT companies many opportunities. This also could create key requirements for technology processes for tracing financial information, eKYC form Income Tax departments. Government initiatives 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 and credit card transactions. Digital transaction systems, payment apps and E wallets, plastic money and online transactions using E banking are clearly seeing a substantial increase in demand. New-age payment gateways like Paytm has seen a sudden spike in adoption with 250% increase in application downloads and a 1000% increase in transaction value.
The government’s move on demonetization will create a massive disruption to the Indian economy. In short, this will lead to reduced inflation and ease out IT talent cost pressures for industry players. With increased liquidity coming from cash deposits, banks will be in a better position to lend loans with lower interest rates which will reduce financial burden of common citizens.
There may be a few temporary fluctuations but on a longer run it is safe to say demonetization will surely benefit the Indian economy and create stable economy.
This trend of replacing cash transactions with alternative payments will eventually lead to strengthening of IT systems and infrastructure required. This move has brought a positive change for the IT industry in India.
And this is definitely just the beginning!