We’ve all heard how awful the demonetization process has been for India: chaos, long lines, lost privacy, weddings ruined, farmers that cannot buy seeds, fire falling from the sky, etc. Why is the government doing this to India? Well, because in the long run demonetization is good for everyone.
Reduction in Crime
The most common argument pro demonetization is that it will reduce corruption, terrorism, and crime. The counter argument is that criminals will get creative and instead of taking cash payments, they’ll take something else, like bitcoins — which the Indian government made illegal a couple of weeks ago. Demonetization will not be enough to eradicate crime, that’s a sure thing, yet it will deter it by making illegal payments too difficult. When doing the right thing becomes the easy thing to do, why do something that is both difficult and illegal?
The biggest advantage of electronic money is that it eases and speeds up transactions. Think about it: How long does it take a vendor to do a cash transaction? Counting the money, calculating the change, putting the money away. Not much longer than with an electronic transaction, you’ll say. Sure, provided that the vendor has the right change, but what about when he doesn’t? Or when the client doesn’t carry enough cash with him? With electronic payments customers carry their whole monetary wealth in their pockets, safe and conveniently, and vendors can accept any amount, regardless of size, knowing that the funds will be deposited into their accounts.
And at the end of the day, a vendor that receives only cash has to count all that money again, make sure that not one paisa is missing, store it safely, go to bank regularly, etc. Sure, you can always send an employee, but wouldn’t he be more productive doing something else? And finding someone you can trust isn’t easy. With electronic payments, transporting money and all the risks associated with it become a thing of the past. Multiply all the time and money one vendor can save in a day by accepting electronic payments by the number of retail outlets in India, about 40 million. That’s a lot of time saved!
Your money doesn’t sit doing anything in the bank. Banks want to lend it and collect interest, that’s how they make money. The more money they have, the more they can lend, and the more they can lend, the cheaper money gets, because borrowers have more options. Right now, high-interest rates are a hindrance to growth — who wants to risk it, when interest rate are higher than profit margins? But you can expect interest rates to go down. According to All On Money, SBI is launching a low-interest credit card with a Rs. 25,000 monthly limit in a few months and many cards are already offering no annual fees. For the merchant, by accepting credit cards, they give their customers access to credit without taking risks. Yep, there are small discount fees involved, but it’s a win-win for everybody because the overall cost of doing transactions goes down.
It will reduce Tax Avoidance
The bad news: you won’t be able to hide your money from the government that easily anymore. The good news: nobody else will either. And the more taxes the government can collect, the better services: roads, security, schools, hospitals, you name it. India needs everyone to chip in to get stronger, and if the only way for everyone to cooperate is to force everyone to cooperate, well, let’s do it!