The following article is based on my own interpretation of the said events and/ or publicly available information. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Vinay Agrawal, MBA 2016-18, Vinod Gupta School of Management, IIT Kharagpur
On November 8, 2016, Narendra Modi Government has banned the use of 500 and 1000 currency notes as a fight against black money and corruption. As a result, the most important outcome of this move is to drive towards a cashless economy. Currently, cash is used for 95% of all transactions done in India. This makes it impossible for Income tax Department to track all transactions leading to black money. Only 1% of Indians pays Income tax.
This move towards cashless economy will enable in tracking transactions, reducing tax avoidance, curbing the generation of black money, bringing more people under Income tax net, reducing the cost for RBI in maintaining cash etc. Demonetization is a great step in this direction. After this initiative, the number of e-payment users increased drastically. Paytm reported a three-time increase in new users whereas Oxigen Wallet’s daily average users increased by 167% since demonetization began. The introduction of BHIM app by Government is also intended to promote the cashless economy.
There is also a lot of challenges towards a cashless economy. Firstly, is the lack of presence of internet connections. Secondly, most of the people live in villages who do not know much about technology. Thirdly, the penetration of Smartphone is only 17%. At last we Indians are culturally more comfortable with cash. In a nutshell, we have to go a long way in achieving cashless economy and demonetization is one step in this direction.