When the Indian government announced that 500 and 1,000 rupee (INR) banknotes were being withdrawn earlier this year, it sparked a liquidity crisis, as banks and automated teller machines (ATMs) ran out of cash.
And it seems businesses may have struggled with the economic shift towards a cashless society, with the nation depending on digital payment services.
More than a month on, India’s Reserve Bank has issued around 1.7 billion new notes. But the sixth-largest economy in the world is still running on 60% less currency than before. Lines outside banks continue to stretch, and India’s small business lobby says its members are facing an “apocalypse”, reports The Guardian.
The Indian prime minister, Narendra Modi, said the initial move to a cashless society was aimed to clear corruption in the economic sector. However, since the push for the digitalisation, consumers are turning to digital payments startups for help, despite over 90 per cent of transactions being cash-based.
The shift is the largest financial shift in Indian history, stripping 14 trillion rupees from one of the most cash-dependent economies in the world.
The amendments will allow the central and state governments to specify the industries where payments can be made via cheques or the digital transfer of money.
Scrapping the country’s two largest note denominations has resulted in a nationwide cash crunch, but the aim to get rid of so-called ‘black money’ seems to be working. According to Bloomberg, it could end up being the best thing to happen to online finance – making fintech mainstream and bringing the subcontinent into the 21st century.
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