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Demonetisation in India

How Will Demonetization Affect E-Commerce Business in India

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The move on the night of November 8 th , 2016 has left an indelible mark in the history of Indian Economics. Demonetizing the 500 and 1000 rupees notes that were in use, with an ultimatum of just 4 hours, left the entire nation in panic. The move to curb black money in the nation and to keep at bay the money launderers was also received positively by a section of the citizens. But did the master stroke move by the Prime Minister of India favor the industries who circulate a lot of cash as part of their daily execution? The answer is a definite ‘NO’. Listing below are the few immediate after-effects witnessed by the nation after the demonetization move:

Demonetisation in India

Demonetisation in India

How Will Demonetization Affect E-Commerce Business in India

1. Consumerism dropped by 50% because of the cash inflow and outflow restrictions. With daily and weekly limits set for withdrawing cash, the masses were bound by a Laxman Rekha boundary to possess and use the money at hand.

2. Services were almost halted as cashless buying of services were a problem – imagine your plumber and maid ready to work for a digital payment mode!

3. Trade sectors like agriculture, retail buying/ selling which involved too many cash transactions were grossly impacted.

4. Counterfeit of illegal exchange of notes for wrong doings within the country was thwarted. A major positive effect of demonetization.

5. Large scale industries like e-Commerce which also operates on cash exchanges for buying and selling have witnessed impact in business.

6. Food chain over the online channel saw a major drop in online ordering of items because of the restrictions amongst the buyers with the cash.

Of the above effects, here are further assessment points on the last couple of effects of demonetization over e-commerce. Though transacting through cash has been only one of the mode of payments over online buying, let’s discuss how the move to demonetize higher values of currency notes has impacted their business with consumers.

E-Commerce after Demonetization

What happened after the 8th of November, 2016 with the online mediums who were selling products? Here are immediate effects in e-Commerce business after the masterstroke move –

a. The announcement for the old notes’ non-acceptance to make a purchase on ANY of the e-commerce site using the Cash on Delivery (CoD) was made on their sites. Alternate payments methods of wallets, debit and credit cards were put forth for the use.

b. E-Commerce giant, Amazon India, stopped CoD immediately after the announcement of the demonetization

c. Key e-Commerce players like Flipkart and SnapDeal made restrictions on the order value to Rs. 1000 if you were paying through CoD option.

Masterstroke altering major decisions of the e-Commerce players – that’s phenomenal. But is it proving to be beneficial for them? May be not! The demonetization will affect e-Commerce both in the short term and the long run.

What is the future for e-Commerce?

  • Flipkart and Zomato has reported a large drop in the conversion figures. Both have a strong online presence for e-commerce and food discovery. It is believed that close to 60% of their business is done through cash transactions and that section of business has gone under the chisel now.
  • The market research agents are not surprised by this. Forrester Research has released its research notes saying that the e-Commerce business will have a tough time for 1 -3 months with this move. The Cash on Delivery will have to come down and the customers will be forced to switch to online payment modes.
  • The Gross Merchandise Volume (GMV) of the online sellers is going to see an online trend as the buyer volume dips. Not all buyers are familiar with wallets and possess credit cards.
  • Luxury goods or items of higher cart value purchases will be hit phenomenally. It was earlier believed that black money was majorly utilized to make purchases of large order values and subsequently fulfilled using the black money. So the demonetization will see the drastic fall of orders in the e-Commerce sector where items such as LCD, LED TVs are bought and bulk ordering of B2B sector with CoD mode of payments are done.
  • On the positive note, the wallets and digital payments will see an upward trend. It may seem minimal initially but is sure expected to go uphill.
  • Financial institutions will encourage buying with easy monthly options and the rates of borrowing are expected to favour the buyer. This will contribute to higher selling – another outcome that the e-Commerce sector will be happy about.

On the whole, the e-Commerce business will be affected and it is a hope that the bad times don’t last long for them!

Read Also: Essay on Demonetization

Article Title: How Will Demonetization Affect E-Commerce Business in India
Article first published on February 15, 2017.

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