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
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.
The World Bank’s Ease of Doing Business report 2019 ranks India at 166 out of 190 countries in ‘Registering Property’, lower from last year’s ranking of 154. This, in spite of a 53-place jump in India’s overall ranking in the last two years alone!
Financial inclusion can fuel the economic growth of a country. In conversation with Rahul Trivedi, Dr Pawan Bakhshi, of the Bill & Melinda Gates Foundation, talks about its India specific programmes which aim to broaden the reach of low-cost digital financial services for the poor. Edited excerpts:
Most of us have paid at least one visit to a health facility. It is easy to identify quality care when we receive it – an attentive doctor, a responsive team of health workers, adherence to hygiene and safety protocols, and so on. Unfortunately, not everyone has access to high quality care, a situati
Published ahead of World TB Day (24 March 2019), The Lancet Commission on Tuberculosis estimates that there are significant financial benefits of reducing TB mortality. With the country shouldering one-fourth of the global burden and a predominant number of patients accessing care in the private sector, th
India is unhappier than ever before. The United Nation`s World Happiness report 2019 has ranked India at the 140th position from the previous 133 in 2018, dropping seven spots in just a year and 23 positions since 2015. Out of the total 156 countries that were covered, India`s
Releasing a booklet on the railways achievements in the last five years, railways minister Piyush Goyal may have painted a rosy picture, but that does not subtract from its many troubles, chief among which is its worsening operating ratio. The ratio is of working expenses to tr