November 22, 2016
BUYING AND CELLING With Black Friday coming at the end of the week and Christmas just around the corner, this is a great time not only to find the best bargains, but also to get a snapshot of current consumer trends. One thing that experts are expecting to see this year is huge increase in how much we use our smartphones during this period. While this information will be tremendously important when looking to the future to see how we might move toward a cashless economy, it's in India where the real changes are happening, for better or worse. And while the better is slowly beginning to gain ground, it's the worse it still very much in evidence. On November 8th, Prime Minister Narendra Modi made an unscheduled and unexpected appearance on national television to tell the population that all 500 and 1000 rupee notes (with a value of approximately $7 and $14 respectively) would be demonetized. This move was as massive as it was unexpected. At the stroke of midnight that night, 86% of all the cash in India was declared invalid in a country that uses cash for 90% of all transactions. And all of this happened overnight with only 4 hours' warning for the world's second most populated country - 1.2 billion people. There are, of course, several incredibly good reasons for this. The first is that India has a problem with tax, in that people just haven't been paying it. According to a 2013 report, only 1% of Indian citizens paid any income tax at all, and just 2% filed a tax return. The official figures showed just six individuals paying the highest rate of tax, but in a country that boasts over 80 billionaires, something seemed wrong. People can go to banks to change their old money for new, but anyone wanting to change amounts of a certain size will draw the attention of tax inspectors. Secondly, there's the issue of ‘black money' - the untaxed, untraced and unknown amounts of Indian currency that some experts estimate makes up 20% of Indian GDP. Swiss banks are said to have anywhere between $1 trillion to $2 billion (depending on who you ask) of untaxed Indian cash sitting in their accounts, which this demonetization is squarely aimed at. However, it's not just the ultra-rich that are having problems now but ordinary people, who prefer to stash their savings away at home, rather than put it in a bank. There is a recycling scheme in place - a way to change the old, worthless bills for new ones - but the sheer amount of hidden money that is suddenly coming to light is causing unexpected issues. The cash coming in is so dirty, that they may have to literally launder money. The final aim of the demonetization process is to disrupt terrorist activities in the volatile Kashmir region, an act that is already showing some success. Obviously, such a seismic change to such a large country with a huge population is causing problems both in the long- and short-term. Banks are overstretched and ATMs run out on a daily basis. Not enough of the new 2,000 rupee bills have been printed yet, and many traders are unable to change them because they don't have anything smaller. (It also doesn't help that the new notes are bigger than the notes they replace, and therefore don't fit ATMs.) However, travelers are finding themselves caught up in the middle of things, and they're not having a great time. Many people are finding themselves with money they can't spend and are unable to change at the nearest bank as they don't have an account. Foreign travelers are more likely to have credit cards, but not everywhere in India takes a credit card, especially restaurants and bars. Early advice to bring dollars has not worked out, because local vendors don't have the cash to make change either. It's even causing huge problems at currency exchanges out of the country. Necessity, as the proverb goes, is the mother of invention, to which we can now add adoption. After all, mobile wallets and e-commerce are nothing new, but with this crisis unfolding across India, more and more people are turning to their smartphones for a way to help. Things have progressed so quickly that demand for items such as credit or debit card swipers has outstripped supply, so what other options are there? The various mobile wallet companies across the country are already seeing huge results, with one company seeing over 7 million transactions over the last weekend. Earlier reports suggested that digital transactions would not exceed cash until at least 2023 - in India, this figure may well need to be revised. For now, no one is sure whether Modi's reforms are sustainable, or whether this will prove to be a stroke of genius or a huge misstep. Either way, it seems that we'll start to rely on our smartphones just that little bit more in the future.