The Impact of Demonetization on Indian SMEs
A cashless economy can help minimize the use of physical cash by providing alternative channels to make payments while fostering a clean and digital economic culture. These alternative payment channels include debit and credit cards, mobile payments, electronic fund transfers, mobile wallets, and more.
Businesses constantly yearn for innovative solutions that can help them better deliver services to consumers while improving the process of making and receiving payments. The benefits of the adoption of a cashless economy have been emphasized, but many people, and even businesses in developing countries, are not convinced.
Thus, in 2016, the Indian government made a surprise announcement that its 500-rupee and 1,000-rupee currency notes would no longer be accepted. This was an attempt to move the country towards a cashless economy by demonetizing high denomination currencies, which initially had a severe impact on the trading activities of many small and medium-sized enterprises (SMEs).
The sudden demonetization affected various industries and slowed down economic activities for a while since many SMEs preferred to carry out transactions using physical cash. However, because of this policy, consumers began to switch to alternative payment solutions. eWallets became more prominent, and mobile wallet companies became the biggest beneficiaries as they offered an easy mode of payment via mobile phones.
Thus, it is safe to say that there may be a positive relationship between cashless transactions and demonetization. India’s initiative has encouraged more citizens to continue making cashless business transactions because of the enormous economic benefits to individuals, SMEs, and the Indian economy. Cashless economy efforts like these should be carried out in other countries, especially developing ones, because it will offer many benefits to businesses and the overall population. However, demonetization will be a success only if it financially enables people with better banking and electronic payment services and convinces citizens to change their spending habits from cash to digital transactions.
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