The Real Reason Behind Demonetization 2016 in India

India’s demonetization in 2016 was a significant economic move announced by Prime Minister Narendra Modi on November 8, 2016. One of the main objectives was to tackle the issue of black money in the economy. The government aimed to bring unaccounted wealth into the formal banking system.

The production and smuggling of fake Indian currency notes (FICN) have been significant issues, with India's two closest neighbours— Pakistan and Banglades being implicated in these activities, so much so that a significant portion of both these countries' economy were dependent on FICN.

The demonetization move was also aimed at eliminating counterfeit currency or FICN, which was believed to be used for funding illegal activities, including terrorism.

Pakistan has been a major source of high-quality counterfeit Indian currency. The Inter-Services Intelligence (ISI) of Pakistan is often cited as being involved in these operations. Fake currency from Pakistan is typically smuggled into India through various routes, including a couple of digital payment companies and some national banks where illegal migrants and intruders were already employed to help circulating FICN or counterfeit Indian currency, as well as via direct borders and transit points in Nepal and Bangladesh.

Around 2016-17, Bangladesh replaced Pakistan as hub of fake Indian currency as there have been numerous seizures of counterfeit notes at the India-Bangladesh border, with significant quantities being confiscated. Bangladeshi syndicates have been using sophisticated methods and materials, sometimes smuggling paper from countries like Saudi Arabia and Malaysia to closely match the consistency of genuine Indian notes.

Soon after demonetisation announcement by PM Modi, Pakistan economy started crashing and ironically, the FICN dependent entities in India faced the heat sooner than Pakistan & Bangladesh, which include real estate builders, film production houses, and one or two aviation companies, said a big Indian conglomerate's employee who was aware of this 2016-17 scenario but she doesn't wants to be named.

In early 2023, Bangladesh too started facing severe inflation and a significant drop in the value of the Bangladeshi Taka.

Many of the real estate projects in and around Delhi/Gurgaon, which were directly/indirectly related to the two countries, were halted as the demonetization badly affected the fake currency circulation. This was evident to prove that these were apparently sponsored by FICN activities in Pakistan & Bangladesh.

By reducing the cash circulation, the Modi government intended to lower corruption levels, as cash transactions are often linked to corrupt practices. The move was also aimed at eliminating counterfeit currency, which was believed to be used for funding illegal activities, including terrorism.

In addition, promoting Digital Transactions was another goal of the Modi government to encourage digital and cashless transactions, thereby increasing transparency and reducing the reliance on cash.

The demonetization was also seen as a measure to cut off funding for terrorist activities by invalidating high-denomination notes that could be used for such purposes.

The immediate aftermath saw significant disruption, including cash shortages and long queues at banks. However, it also led to an increase in digital transactions and brought a large amount of money back into the banking system.

The counterfeit currency operations often involve complex international networks, with routes passing through countries like Sri Lanka and Dubai before reaching India. Indian authorities, including the Border Security Force (BSF) and the National Investigation Agency (NIA), have been actively working to combat these activities, leading to several significant busts and arrests.

RBI Data- Paytm, Mobikwik, FreeCharge Growth Induced By Demonetization

Post the demonetisation announcement in November last year, India saw the popularity of its mobile payment service sector increasing by many folds. And now, data from the Reserve Bank Of India (RBI) has proved that demonisation indeed ended up spurring the growth of digital companies in India. According to RBI, digital payment companies like Paytm, MobiKwik, FreeCharge clocked PPI payments worth a whopping Rs 13 billion in value across 59 million transactions in November 2016.

While the Indian subcontinent seems to be getting really warmed up to the idea of digital payments, the industry is still reeling with challenges such as innovation, standard, and interoperability. Recently, at the FinTechX conference by Internet and Mobile Association of India, several industry experts discussed the need for the role of regulator to change from a supervisor to partner in learning. According to Smita Aggarwal, director of investments at Omidyar Network, with innovation growing at a such a phenomenal pace, there is an urgent need for companies adopt learning in approach and the regulator should partner in the learning process. Naveen Surya, MD of ItzCash and Chairman of Payments Council of India, added to Aggarwal's line of thought and said, the parity between digital and cash is important as otherwise the growth of digital transactions is a story that would soon be forgotten. Hence, the Intent of the regulator should remain the same i.e, to digitise and encourage cashless transactions.

Vivek Srivastav, SVP of research and innovation at ReBit also shared similar views and said that in order to better the performing of the digital payments industry, there's a need to incentivise digital payments and disincentivise cash transactions. It has been observed that mobile wallets in India have been putting a lot of water in the dough to make it work but heavy promotional costs are driving down their profit margins. Srivastav also highlighted that fintech companies in India have not been fully utilising the scope of financial services such as insurance, lending, mutual funds, pension funds. Adding to this, Vikram Singh, partner at BTG legal said, “Regulations should be proportionate. Standardised regulation in terms of networth cannot serve all companies same. Regulator must look at what the company wants to do."

Speaking at the conference, Saurabh Garg, joint secretary at the department of economic affairs, ministry of finance discussed about how fintech companies can function as a tool for financial inclusion in the Indian subcontinent by exploring opportunities such as making digital transactions a part of credit score and P2P (peer-to-peer) lending.

In a study done earlier this year by CouponDunia, a famous coupons site, it was revealed that digital wallets like PayTM, freecharge, followed by online cab players like Ola and Uber were among the top performing categories for cashless transactions post-demonetisation. Apart from digital wallets and online cabs, grocery ordering and food ordering platforms have also become more popular and witnessed a surge in traffic ever since 500 and 1000 notes stopped being legal tenders, said the report furnished by the cashback platform. According to the report, PayTM, Freecharge, Mobikwik, Dominos Pizza and Yatra were the top performing brands post the demonetisation announcement.

Post Demonetization, India Govt is Planning A Crackdown on Bitcoin

8th November, 2016 went down as a memorable day in India's history. It was on this very day that India's Prime Minister took over the Indian television screens while Indians were gearing up to have their dinner and announced that from 12 AM that night, 500 and 1000 rupees notes will stop being legal tender. During the announcement, PM Modi said that the move was a way to counter easily flowing black money in the country. While the jury is still out if the move had any impact on India's black money, the Indian government is ready with its next mission. The next big thing on government's agenda is a crackdown on bitcoin.

Post-demonetisation, bitcoin had really gained some popularity among the Indian masses as they turned to alternatives to counter the cash crunch. But, now it seems, the good days are over for the bitcoin industry.

Bitcoin was one of the only stores of value left to the people of India after their other safe haven assets like gold and silver were confiscated and seized by the Indian government. While the entire government has just one song on their lips, that the move would help counter black money, criminal groups and fraudsters. But, the real picture is, while there is no knowledge of the move having a concrete impact on criminals, but it is the common population that is facing the brunt even after 2 months of the surprise demonetisation announcement.

According to a Forbes report, since demonetisation, service oriented Zebpay saw a massive upsurge in interest. Within just 18 days into demonetisation, the price of one bitcoin on Zebpay increased from ₹51,600 to ₹69,500. Not only Zebpay, even Indian bitcoin startup Unocoin witnessed a price hike of about 20% while BTCXIndia saw an price increase of as much as 40%.

Modi and his government's initial thought process behind the demonetisation process was, if criminals/terrorists weren't provided with high denomination currency notes, moving cash from one place to another would become a highly daunting process for them. In fact, the government also went ahead and banned gold importation, possibly to restrict stores of value accessible by the criminals.

While the government thought of the criminals and their reliance on gold and cash, what they forgot to take into account was the common man's reliance on cash and gold. Thus, these sudden regulations by the government, which were supposedly carved out to target criminals, ended up negatively impacting the innocent masses, businesses, and the economy.

According to some inside sources, after gold and cash crackdown, the government is now preparing to announce some tough regulations and restrictions on bitcoin trading as well. The argument here once again is that criminal are using their black money to purchase bitcoin, giving rise to “digital black economy." Further, since bitcoin is a P2P network, criminals are provided with an option to directly trade with miners or bitcoin holders without having to go through an exchange, thus making transaction tracing and surveillance a very difficult task.

While there is no denying the fact that the government might be doing this to crackdown on fundings to the criminals/terrorists, but the government will have to come up with some other innovative ways to cut these people right from their sources because steps like demonetisation and bitcoin crackdown are only going temporarily affect them. It is a known fact that criminals have and always will be able to search for more sophisticated and innovative technologies to fund their complex projects. Hence, the common man shouldn't been caught between this battle.

[Top Image: Shutterstock]

Snapdeal Launches Cash on Demand Service

Has the demonetisation drive dampened your Christmas cheer? After all, what is Christmas without presents, decorations and celebrations? While some of our needs can be fulfilled by online shopping, we still require cash for some tasks. While the government might not be understanding this basic thing, India’s leading online marketplace Snapdeal has not only understood the matter but has also done something to bring the much needed festive cheer back into the country.

Snapdeal has announced the launch of a pilot service called Cash@Home, which will allow users to order cash and deliver it at the doorstep. Yes, you read it right. Now, you can order cash instead of queuing up for hours at your nearby ATMs.

In the pilot phase, the service is currently only live in Gurgaon and Bengaluru. Users availing the service can pay for cash using their ATM card. And, don't worry, the service won't cost you a bomb. Snapdeal will be charging a nominal amount of one rupee as convenience fee, which can be paid through FreeCharge wallet or through a debit card at the time of booking the order. The service is a goodwill gesture by the ecommerce giant so as to allow users in need of cash to access it without having to queue up at their banks or ATMs.

"Snapdeal will be using the cash that it receives through Cash on Delivery (CoD) service to operate this facility. The delivery of cash will be done one day after requesting for the service," read a press release by Snapdeal announcing the launch of the service.

Commenting on the new launch, Rohit Bansal, Co-founder, Snapdeal said, “The launch of the cash on demand service is intended to further help our consumers tide over any cash crunch that they might face in addressing their daily needs."

For now, Snapdeal has put a limit of Rs. 2000 per booking. Users can make use of any bank’s ATM card to pay for the cash. When the cash is delivered to the customers, they will be required to swipe their ATM card on the PoS machines, which Snapdeal’s courier partners will be carrying with themselves for all such deliveries.

[Top Image: Shutterstock]