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

PM visits crash site, meets the injured

Prime minister Narendra Modi on Friday visited the Air India flight crash site in Ahmedabad to assess the situation first-hand. He met officials and emergency response teams working tirelessly in the aftermath of the disaster. He also condoled the loss of numerous lives in the tragic air accident. He con

Air India flight crashes in Ahmedabad

The Air India flight to London crashed in Ahmedabad within munites of the take-off Thursday afternoon. There were 232 passengers and 10 crew members aboard, and reports suggest there was slim chances of anyone surviving. The Boeing 787 Dreamliner crashed and exploded in a fireball barely out

Cabinet approves two multitracking projects of Railways

The Cabinet Committee on Economic Affairs, chaired by prime minister Narendra Modi, on Wednesday approved two projects of the railways ministry with a total cost of Rs. 6,405 crore. These projects include:  1. Koderma – Barkakana Doubling (133 Kms): The project sec

Unlocking the boundless possibilities within

The legendary Jack Canfield (co-creator of Chicken Soup for the Soul series, and author who has sold more than 500 million books) says, “This is the book we’ve all been waiting for.” That is ‘Manifest of Your Infinite Riches’ by Pushkar Anand, founder of the Centre for Infinit

The Good, the Bad and the Ugly of AI

From ‘The Matrix’ to ‘Iron Man’, AI has long captivated our imagination. But what was once fiction has rapidly become foundation. AI is now transforming industries, economies and daily life. Nations are investing heavily – recognizing AI`s role not only as a technological marv

The Tricolour flies high over Chenab Rail Bridge: PM

Prime minister Narendra Modi celebrated the hoisting of the tricolour on the iconic Chenab Rail Bridge, the world’s highest railway arch bridge which was inaugurated on Friday, describing it as a moment of immense national pride and a testament to India’s growing capability to build futuristic

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now





Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter