#FinancialFriday – What demonetization means for small businesses!

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Our PM, Mr. Narendra Modi, truly shook India with his announcement last night. Following the demonetization of Rs. 500 and Rs. 1000, most of India rejoiced at this bold steps towards countering corruption. However, there were some who booed too.

Kunal Bahl of Snapdeal said, “We welcome the Government’s bold and courageous move to weed out black money, which will have significant long term benefits for the economy. With this, the quantum of India’s economy moving through the digital pipes will witness massive growth. Both Snapdeal and FreeCharge are committed to supporting all such initiatives.”

Taking cue from the move, Sathvik Vishwanath of Unocoin took this opportunity to point this out; “The intentions are good but very difficult to achieve. If going cashless is the only way forward, certainly the bitcoin which is borderless trustless and transparent currency makes more sense”.

Small businesses, however, are going to a bit of a hard time. But this would be in the short-term. This is because these businesses are mostly run on cash.

Traditional sectors and politically controversial ones (ones with larger incidence of corruption and high-value cash transactions) are the real sufferers. One can only imagine the chaos and calamities breaking loose.

On a side note, analysts have noted that India’s larger and new-age companies will have little issues in switching to Rs 2,000 notes. But why the need, many have asked.

The reality is that the transition to a cashless society will not happen overnight. There is still a need, among India Inc and small businesses to use cash and the Rs 2,000 note will help. However the RBI will “monitor and regulate the issuance of Rs 2,000 notes in the future”. Hence they will probably not be issued in large numbers.

However there’s no actual estimate of how much of India’s black money is in forms other currency like as gold, jewellery, land etc. While banning Rs 500 and Rs 1,000 notes will tackle the black money that is in the form of hard cash, it won’t affect other forms of black money. It will also have little effect on black money stocked in foreign tax havens. Nonetheless, it’s a start and a very good one. We hope this is only the beginning for a better India.

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