The new economy has greatly changed our economic environment in relation to how the government and businesses operate and provide goods and services.
Prosperity in the new economy involves more than capitalizing on knowledge assets. Prosperity involves increasing employment in those industries that are growing.
Digital payments, digital data, digital customer service, payments through new platforms, along with real-time analytics are becoming entrenched in the world economy.
Digital transformations facing large companies are beyond typical planning cycles and most leaders’ tenures. This makes good timing absolutely critical, when it comes to allocating resources effectively. These elements will forever change consumption because of the effort of many of the governments to push fast towards a cashless economy.
Many international bankers argue that India failed miserably in their demonetization effort
Over a year ago, India in an effort to move to a digital economy and combat corruption, tax evasion and counterfeiting, all Rs.500 and Rs.1,000 banknotes were withdrawn from circulation. Many international bankers argue that India failed miserably in their demonetization effort.
The Modi government publicly declared their demonetization objectives, saying that that the government wanted to transform the economy into a digital economy.
We know we can’t completely transform an economy to a digital economy over night; there are various social classes – example, a waiter or a steward receives tips, a household worker gets some extra money for a job well done, parliamentarians get political funds, even some professionals have foundations to book their donations and sales from books, parliamentarians or politicians have their own foundations established to get donations; they use the money to uplift certain communities and to look into the welfare of them.
If you take an establishment such as the Roman Catholic Church, it has over US $ 60 billion in real estate assets around the globe in the name of the church, missionary schools, etc. purchased from the money they got from the devotees.
In the Indian demonetization effort, if the real objective was to attack the ‘black money’ stored by the political and business elite, it failed. Around 90 percent of the demonetized notes were returned to the banks, far more than the government expected.
As the Guardian explained, with its sense of British understatement this means “either the Indians concealed less wealth from taxation than was thought or that money has been preserved in the form of goods or gold rather than cash.”
In fact, according to economists, very probably less than 3 percent of black money is held in currency. In an Indian context, it is still big money. Almost all of it is either converted into gold (it is said India has by far the largest private gold reserves in the world) or put into purchases of jewellery, real estate or land, when it isn’t put into financial investments.
And then, when all that money goes into their bank accounts or other establishments, that money too comes to the so-called ‘white system’... gambling (casinos) is said to be one of the world’s biggest industries that creates wealth among various social classes and there gambling moguls around the world, who own banks, finance companies, real estate, even in the USA, there are poker players who become rich overnight and then their wealth is transferred into various other establishments, when they start using that money. One such example is a spa owner; their extra earnings transform to various other business establishments when they purchase goods and services.
A full digital economy can drive away lots of people and perhaps increase poverty if the digital transformation is done by creating limitations and wealth limits. Many people faced identity theft as a result too.
India, being the world’s largest democracy, has the most business-savvy politicians but even they are people who transform wealth to various other business and religious and social establishments.
Several top economists have said globally that what India did was a failure and it only hugely troubled the poor families and specially the older people’s savings.
India is the largest gold consumer and India’s activity in impacting the global gold prices took a different turn because of the demonetization; it enabled the digital currencies such as bitcoin to overtake the gold price in international markets in the last three months and even if you take bitcoin, people trade in those digital currencies and their capital gains are transformed to other asset classes in the real world, finally resulting in the real economy losing.
The banks and companies therefore will need to work with each other to promote digital payments.
They can help many small and medium enterprises (SMEs) to migrate to digital payments and to use stock-keeping data over the cloud. This can enable the SMEs to raise working capital loans from banks. Every businessman has a smartphone and therefore, we only need a smart regulator to proliferate this idea and help the SMEs to access capital.
(Dinesh Weerakkody is a