On November 8, Prime Minister Narendra Modi made a televised announcement on the government’s decision to withdraw 500 and 1000 rupee notes that were in circulation in the Indian economy. This huge gamble on notes that accounted for 86% of the value of currency in circulation left a majority of citizens baffled and the business community stunned, as up until this fateful day India had been cruising with a growth rate of over 7% and tagged as the fastest-growing economy in the world.
According to Development Economist Jean Dreze: “Demonetisation in a booming economy is like shooting at the tires of a racing car.” Though a bit of an exaggeration, this has turned out to become a harsh reality for India; international ratings agency Fitch reported a lowered GDP growth forecast of 6.9%, down from the earlier forecasted 7.4%. The report also stated that consumers do not have the cash needed to complete purchases, and time spent queuing in banks is also likely to have affected general productivity; the impact on GDP growth is likely to increase as the disruption continues for a longer period of time.
As an integral part of the economy, India’s vibrant startup ecosystem has seen Demonetisation as an experiment that could turn out to be a boon or a curse. Over the past month, startups have experienced fixed fortunes, where few enterprises have shown signs of gaining ground whereas others have posted losses.
Private Jets
Amid the chaos that followed Modi’s announcement, an instance where a private jet was used to transport banned currency to the country’s northeast. This incident led to a government crackdown on the private jet industry that included the likes of Jetsetgo and Bookmycharter.
Digital Wallets and Payments Banks
Data from Ministry of Electronics and Information Technology shows that the number of daily transactions through e-wallet services such as Oxigen, Paytm, FreeCharge and MobiKwik has shot up from 1.7 million — recorded on November 8 when Demonetisation was announced — to 6.3 million as of December 7.
With approximately 261% rate of growth, these mobile wallet companies have witnessed an explosion in expansion. Since the announcement, Mobikwik has added 5 million new users. To further attract a customer base, it has launched a marketing campaign called “MobiKwik Hai Na” (You can rely on MobiKwik) with front-page newspaper ads in five cities, radio campaigns as well as a company “anthem.” The company is set to spend $250 million on marketing and branding by December this year. According to Mobikwik’s Co-Founder and CEO Bipin Preet Singh, “This is a once-in-a-lifetime opportunity for us to capture the market and we will not let it go.”
Other than digital wallets, Airtel Payments Bank has also witnessed over 10,000 customers opening savings accounts within the first two days of its operations in semi-urban and rural areas. This bank, a subsidiary of the country’s leading mobile phone operator Bharti Airtel, facilitates cashless purchases of goods and services through mobile phones, giving an impetus to the digital payments ecosystem amidst the cash crunch. As an attractive proposition, it is foregoing processing charges, offering the highest annual interest rate of 7.25% and insurance of $1 million per account.
Source: Forbes
