What is Demonetization and It's Result in India

What is demonetization?

On 8th November 2016, Government of India had announced that from today onwards 500 and 1000 rupee notes will be a void currency. Around 86% of total Indian currency is in the form of 500 and 1000 rupee notes and a step like demonetization brings our economy into a chaotic situation. Demonetization was planned more than 6 months before its execution and was kept confidential between 10 people including our Prime Minister and Finance Minister.

Indian public was asked to deposit all of their old cash by 31st December 2016 in there nearby banks and PO. Along with voiding currency our government introduced new Rs 500 and Rs 2000 notes and urged people to move in the direction of cash-less economy. Our country is 90% dependent on paper money and a step like demonetization led country into a chaotic situation. Total currency on 28th October of the same year was valued at ₹17.77 trillion. Printing of new currency started around may of 2016.

With cash transactions got reduced, alternative methods for payment were found like E wallet apps, Digital transaction systems, plastic money (debit and credit cards) etc.

Demonetization helped in increasing the demand for all the mobile wallet companies. Mobile wallet brought transparency in system and it was easier to track online money transactions. After government announced Demonetization e wallet companies like Paytm went in massive and relentless advertising campaign.

Mobile wallets became a new trend in India and companies like Paytm wanted to the biggest part of this trend, Paytm a company owned by One 97 Communications made the most amount of profit out of demonetization. Every vendor, gas station, auto rickshaw etc accepted Paytm cash. No of people regularly using Paytm increased by 435% downloads on play store were doubled and there was 250% increase in transactions made and transactional value. Currently more than 3 million shops in tier 1 and tier 2 cities have started to accept these e wallet transactions.

On the other hand government of India started their own app called BHIM that helps in making electronic transfers between bank accounts without the access of internet. To use BHIM users had to enter there 12 digit aadhar number. BHIM can work on any smartphone without internet access.

It was a booming era for all the mobile wallet companies for first two months after Demonetization (November-December) as per RBI mobile wallets had 34% market share of total payment protection insurance (PPI) transactions which were roughly 170 million in December 2016, but in January market share saw a dip of 1% becoming 33%, and then there was a major dip to 29% in February.

Paytm was trying its maximum to increase its user base during its booming period by doing a lot of advertisements through different channels like TV, Newspapers etc. Paytm was downloaded in at least 17% of the total mobile population in early 2016.

After banks their own UPI apps for bank transactions usage of e wallets dropped subsequently. From February onwards, the number of transactions made put across through e-wallets have dropped 10% in February, while banks have gained 20% in the same month.

Indian Demonetization of November 2016 failed to do what it was supposed to do and its impact has turned out to be more protracted than initially expected. The Indian government was expecting that around 80%of the currency will be demonetized but the RBI on 30th august stated that 99% of the banned currency came back into banking system. Which proves all the claims of thee ruling government wrong and turning Demonetization a big failure.

All the claims of the government were started wrong and more than 99% of the currency was added into banking system, there can be two reasons for this failure first one the process of demonetization was not executed properly or the government was not able to identify the amount of black money present in the economy.