Prime Minister Modi’s announcement of the demonetization of the large denomination bills is a significant initiative. While he indicated terror financing and corruption as the main causes for the initiative, there are many ramifications this move will have on legitimate business activities as well.
India is known for its love of cash. Uber is primarily a cashless service elsewhere in the world, but more than 50% of Uber trips in India are paid for in cash. This preference for cash transactions arises primarily from following reasons:
- The majority of Indians are still not familiar with card-based or electronic payments, irrespective of the relentless focus of the Reserve Bank of India toward changing their behavior.
- Merchants in India are forcing the choice of cash payments on customers because electronic payments eat into their margins — just like everywhere else in the world.
- Even more significantly, cash payments allow merchants and professionals like doctors, lawyers, and accountants to keep such transactions off the books and avoid tax.