Demonetisation impact on formal remittances could be significant: Expert

Following up on a major financial inclusion initiative (Jan Dhan Yojana) and new payments banks, this move is likely to drive a large segment of domestic remittances into formal channels

GN Bureau | December 20, 2016


#black money   #RBI   #Reserve Bank of India   #demonetisation   #currency   #Rs 500   #Rs 1000   #cashless   #banking   #world bank  


The longer run impact of demonetisation on formal domestic remittances could be significant. Following up on a major financial inclusion initiative (Jan Dhan Yojana) and new payments banks, this move is likely to drive a large segment of domestic remittances into formal channels, said Supriyo De in a World Bank blog.

“Estimates suggest that 70 percent of Indian domestic remittances were made through informal channels. The use of payment banks, digital channels and mobile money is likely to increase. Payment banks and digital payment companies are gearing up to use the opportunity to tap India’s vast rural market,” wrote De who is on a research assignment with the World Bank’s Migration & Remittances team at the Global Indicators Group.

The government also announced incentives for encouraging non-cash transactions. These included waiver of service tax on card transactions and discounts on railway ticket purchased through digital modes. It has also set up a committee to encourage digital payments. “If these moves by the private sector and government are successful, the scaling up of digital and mobile remittance channels could bring down remittance costs, especially for domestic remittances.”

The blog “Demonetization in India: Short and long term impact on remittances” said that the demonetisation move was aimed at tackling counterfeit currency notes and those hoarding untaxed or illicit income. “The impact on formal international inward remittances was minimal.  MTOs doing cash payouts were impacted in the short run due to unavailability of large denomination currency. Families of migrants also reported problems in withdrawing remittances from ATMs. Formal international outflows were not affected since these are usually made out of bank accounts.”

 De added that informal flows both domestic and international were hit much harder.
“Hawala operators were stuck with old currency they could not readily convert to new currency. Furthermore, they were targeted by tax authorities as they tried to facilitate conversion of stored untaxed or illegal money into gold or foreign exchange for a premium.

“Authorities enforcing foreign exchange laws also raided forex dealers making back dated accounting entries to convert the old currency into foreign currency. For non-residents Indians, the Reserve Bank of India allowed depositing the currency in their non-resident ordinary accounts (which are intended for Indian source deposits).”

Reports indicate that the move created difficulties for low skilled internal migrants who lacked sufficient documentation to convert their cash wages and savings into the new currency. It is likely that informal sector workers from Nepal and Bangladesh also faced similar challenges resulting in lower informal remittances to those countries, the blog added.

 

Comments

 

Other News

Mumbai Development Plan annoys activists and experts

Approximately one-eighth of Mumbai’s existing landmass is proposed to be added for development works, especially for housing of low income groups. Maharashtra CM Devendra Fadnavis gave green signal to the 2034 development plan that will make more land available by adding over 3,650 he

My musical journey has been really beautiful: Harshdeep Kaur

Harshdeep Kaur is a playback singer better known for her Sufi renditions. She sings Hindi as well as Punjabi. She sang ‘Ik Onkar’ in Rang De Basanti apart from several other soulful songs. Her track ‘R.I.P.’ composed by AR Rahman was part of Oscar-winner Danny Boyle’s film

BJP lawmakers top the list in hate speech cases

Out of all MPs and MLAs in office, 58 have declared cases related to hate speech. This includes union minister for drinking water and sanitation Uma Bharti along with 14 other Lok Sabha MPs. The list also includes 8 state ministers. A party wise analysis reveals that BJP has the highest numb

After its withdrawal from Meghalaya and Arunachal, is it time to review AFSPA in other areas too?

After its withdrawal from Meghalaya and Arunachal, is it time to review AFSPA in other areas too?

Togadia, Sinha and anti-Modi prejudices masked by empty rhetoric

There is an uncanny similarity in the pathological opposition to prime minister Narendra Modi by two members of the right wing, Pravin Togadia and Yashwant Sinha. They come from a diverse social and political background; yet they share a common strand that shows an unmitigated hatred towards

“We are becoming American digital colonies”

Data is the new oil; and it needs to be protected. In an interaction with Governance Now, Lionel Baraban, CEO of Famoco, talks about how the French tech firm is developing secure business devices to safeguard data against going to other countries. What are the major roles o

Current Issue

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter