The Week That Was:

From: Vartaa Editorial Team on Nov 27, 2016

Demonetization fallout continues

As the fourth week post the demonetization action began, the political space got heated up with the government and the opposition locking horns in Parliament. Former PM Manmohan Singh made a rare speech in the Rajya Sabha criticizing how the government had implemented the move and warning it could severely impact GDP. The opposition parties meanwhile called for a Bharat Bandh on Sunday. As lines outside banks continue, it remains to be seen what the political fallout for the NDA government and PM Modi himself would eventually be.

Jailbreak in Punjab

A jailbreak in election bound Punjab has set the cat among the pigeons and left political parties quarreling to assign blame. Khalistan Liberation Force leader Harminder Matoo was broken out of jail by accomplices this past week. Matoo is an accused it atleast 10 terror cases including one that involved an attack on Dera Sacha Sauda chief Ram Rahim Singh. One of the conspirators was later arrested in UP. The incident led to both the Congress and the AAP criticizing the ruling SAD and asking for the resignation of Deputy CM Sukhbir Badal who also oversees the Home portfolio.

Donald Trump and the fallout for Indian IT

It appears likely that the incoming Donald Trump regime in the US will take some action to curb access to H1B visas for Indian IT firms. In a video posted on You Tube, the President-Elect mentioned investigating abuses of the H1B program as one of his top priorities. His appointment of Jeff Sessions, a strong opponent of the visa program, as the Attorney General has also raised concerns among Indian IT players, who are now looking at adopting alternate strategies to protect their business. This includes acquiring US companies as well as hiring more employees from college campuses in the US.

Opinions you must read:

  • In the wake of the coup against Cyrus Mistry, the Mint asks as to how independent are independent directors in reality?
  • The Indian Express looks back at the life of Fidel Castro, the Cuban revolutionary and ex-President, who passed away this week
  • The Mint examines why Indian manufacturing is struggling to meet the demands of a growing domestic economy.

Chart of the Week

Despite its noble intentions, the recent demonetisation drive by the Indian Government has led to a lot of suffering for the common Indian due to the ensuing cash crunch. Businesses have invariably hurt as well due to reduced spending by consumers. Although reliable data is yet to surface, the move has certainly achieved its desired effect of increasing bank deposits, improving tax compliance and putting the fear of God into tax evaders. However, there have been benefactors of the move as well. Prominent among them have been financial services companies such as Visa and MasterCard and vendors of card payment processing machines.

Credit cards eat into the already thin margins of the retailers. The 2-3% of the purchase cost charged by credit card companies is borne by merchants. But they have several benefits ranging from convenience to security. This may have been the watershed moment Visa, MasterCard, and even Paytm were looking for, given the extremely low the penetration of electronic payments is in India. To know just how low the penetration is, take a look at this week's chart that shows what percentage of non-cash transactions by country.

Around the world, an estimated 85% of consumer transactions are carried out using cash. Singapore and Netherlands have a percentage of electronic transactions at over 60%. The US has a high credit card penetration but surprisingly over half the transactions in the country are conducted using cash. In Japan- one of the most advanced economies- only 14% of consumer transactions are made with non-cash instruments. In China, 10% of consumer transactions are made electronically and they have growing at a scorching pace thanks to the rapid expansion of online retail. In India, a miniscule 2% of the consumer transactions are made using non-cash methods. As a result, there is a lot of room for growth. The prospects of homegrown players such as Paytm are bright.