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Paving the way for a digital economy


Comments / {{hitsCtrl.values.hits}} Views / Friday, 22 December 2017 00:00


The new economy has greatly changed our economic environment in relation to how the Government and businesses operate and provide goods and services, and the structure of the labour force. Prosperity in the new economy involves more than capitalising on knowledge assets. Prosperity involves increasing employment in those industries that are growing. 

Digital payments, digital data, digital customer service, payments through new platform, along with real-time analytics are becoming entrenched in the world economy. These elements will forever change consumption from because of the effects of many governments’ push towards a cashless economy. 

Little over a year ago India in an effort to move to combat corruption, tax evasion and counterfeiting, withdrew all 500 and 1,000 rupee banknotes from circulation. Many international bankers argue that India failed miserably in its demonetisation effort. The Modi Government’s publicly-declared demonetisation objective was 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 – for example, a waiter or steward who receive tips, a household worker gets some extra money for a job well-done, parliamentarians get political funds, even some professionals have foundations to earn their donations and sales from books, parliamentarians or politicians have their own foundations established to get donations and then politicians partly use those monies to uplift certain communities, even clergy use money they receive to uplift social standards of communities and to look into their welfare.

If you take an establishment such as the Roman Catholic Church it has over $ 60 billion real estate assets around the globe in the name of church lands, missionary schools, etc., purchased from the money that they got from devotees which went to the clergy and the Vatican.

Just imagine what happens if Citizen Fernando has to donate money via a mobile app that sometimes is not even properly working to transfer money to a temple, kovil, or church, or even a mosque, etc. There will be hell to pay all round.

Demonetisation

In the Indian demonetisation effort, if the real objective was to attack the “black money,” stored by the political and business elite, it has failed. Around 90% of the demonetised notes were returned to the banks, far more than the Government expected. This means, as the Guardian explained, with its sense of British understatement, that “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% 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 create wealth among various social classes, and there are gambling moguls around the world who own banks, finance companies, real estate, even in 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.

Drive away

A full digital economy can drive away lots of people and perhaps increase poverty if digital transformation is done by creating limitations and wealth limits; although India implemented practices of demonetisation, if you watched NDTV and other TV news or listened to Indian Radio last few months you will clearly understand that certain new grey economical activities started as a result of the moves; there were Indian banker families or officials, new brokers who started taking thousands of Indian rupees worth kickbacks from common people to deposit the money under various other names and newly-created accounts in India as there were new taxes for deposit 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, religious and social establishments.

Mass adoption 

Several top economists have said globally that what India did was a failure, and it only hugely troubled poor families and especially older people’s savings. India is the largest gold consumer and India’s activity in impacting global gold prices took a different turn because of demonetisation, it enabled digital currencies such as bitcoin to overtake the gold price in international markets in the last three months. 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. 

Banks and companies will need to work with each other dynamically along with using digital payments. They can help many small SMEs with digital payments and to crunch stock-keeping data over the cloud. This can enable SMEs to raise working capital loans from banks and the country who can benefit from going digital. 

Every businessman has a smartphone and only needs technology to be proliferated through marketing. The problem is discovery today. The next three years will see a mass adoption of digital technologies. However, though digital technologies are spreading across the globe, many people in the country still do not have access to the internet.

(The writer is a thought leader.)


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