How Demonetization in India has changed the behavior of

consumer

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Introduction

The demonetization was a sizable step by the Indian government towards a corruption-
free and digitally advanced economy where there will be lesser chances of unethical
practices. Before demonetization customers used to pay mostly with cash for invoices of
goods and services of Rs. 2000 to 3000 however, this known scenario has drastically
changed post demonetization. Paying with cash which was between 60 to 65% before
the demonetization straightly crashed in the initial weeks of cash shortage before
reaching back to its former level. The behavior of the consumers and all the related
stakeholders have changed quite a lot in the meanwhile.

Discussion

The demonetization has changed the behavior of the consumers to a massive extent.
Since demonetization, the Indian government has been continuously encouraging the
cash-less environment in India, requesting people to use Point of sale machines,
various e-wallets, debit and credit cards, online payment systems, credit lines, and so
forth in their regular transactions. Prior to demonetization, people used to spend
randomly to buy from the retail shops by using mere cash because of its easiness and
convenience, however with the certain implementation of demonetization by the
government people are now thinking at least twice before making any purchases due to
less availability of money on their hands.

The massive impact of demonetization is almost felt by every individual in the country.
The demonetization has affected the Indian economy via the fluidity side. The
demonetization of large denomination notes like Rs. 1000 and Rs 500 denominations
have restricted more than 85% of currencies out of circulation although this has cost in
short-term disruptions and problems in transactions in agricultural sectors and various
small establishments around the country (Ghosh and Srivastava, 2019, p.7).

After the demonetization as most of the black money and large denominations are out
of circulation thus, consumers are a bit cautious and refrain from making any impulsive
purchases except essential items required for their day-to-day activities from the

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consumer, healthcare, and related segments. Most of the activities in the real estate
sector which requires a lot of hard cash and unrecorded transactions slowed down
drastically. Various metropolitan and Tier 1 cities in the country reported more than a
30% fall in housing prices due to the same reason (Patil, 2019).

All kind of food inflation, weighed by changes in the consumer food price index nearly
accounts for 47.3% of the total CPI and due to 86.4% of the value of the notes in
circulations going out of the system and re-monetization again being slow. The demand
and supply balance of food items fell. It will create more pressure on inflation
downwards. Domestic Investors in mainly India-focused funds should continue to
monitor the consumer food price index inflation. It will give hints of future rate cuts by
the Reserve bank of India. A change in the repo rate and reverse repo rate will heavily
impact interest rate–sensitive sectors and industries like finance, electronics, and
automobiles. Among other sectors, for example, the technology sector due to
demonetization the consumer purchasing behavior has changed and sales volume has
also increased (Sheetal, Purohit and Anup, 2019, p.34-38).

Since the liquidity is very slow, earnings in both the sectors formal and informal have
been heavily affected with the predominance of unfavorable impact being huge for the
informal and unorganized sectors. As mainly self-employed and casual workers mainly
occupy a great portion of the economy, a majority of their portion may face a setback.
While a few may see it as deferring expenditure and income still a part of this may be
gains and income omitted forever (Sivathanu, 2018).

The sudden demonetization has impacted consumers’ purchasing power deeply. With
the unavailability of hard cash most of the people shifted towards the cashless economy
with various e-payment apps however, those people who are not that used to with
updated technology like most of the retail and small business chains used to transact
daily through cash, however, post demonetization, they faced a massive setback
because the large denominations were out of circulation and as they had only the cash
mode available for transactions with them thus, they faced a lot of trouble and difficulties
in dealing with their day-to-day transactions but, on the other hand, giant marketplaces

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like Amazon and Flipkart has witnessed a massive spike in their revenue post
demonetization as the young generation, millennials and big industries adopted the
change quickly hence they started ordering from these market places for their daily lives
starting from groceries, office equipment, gadgets to medicines, foods, and services.
The lack of availability of large denominations is also a reason behind this sudden spike
in the income of these giant companies (Sobti, 2019).

However, those who were not that used to with e-payments system, after the
demonetization by the government an initial sharp fall in pay on delivery purchases,
eventually forced people to go for online shopping through various e-payment modes
and identify the consumer's behavior towards online purchases and the post effect of
demonetization on the behavior of buyer for example how the general people who have
never utilized Google Pay, Paytm, Credit and debit cards, web-based shopping, etc in
their entire life has progressed towards becoming digitalized civilization. With the
analysis of various primary and secondary data, the fundamental point of the
assignment is to understand the post effect of demonetization on customers' frequency
of buying goods and consumers' modes for the payment for online shopping after
demonetization.

Although the primary aim of the government for the demonetization was to reduce black
money on circulation and corruption, however, the best results obtained were the
change in the payment behavior of the customers and shifting towards a digital
economy. As discussed, the demonetization has greatly helped the e-payment
companies like Paytm, Phonepe, and Mobikwik witnessed a roaring growth in their user
base and revenue structure, and new investments started inflowing. Initially,
demonetization was expected to be most beneficial for firms dealing in the e-commerce
industries, online retail, and mobile wallet companies. Demonetization has completely
changed the consumer’s behaviors and old payment habits to a massive extent by
enabling different cashless technologies and pushing the segment towards a digital
civilization, thus, agitating the infusion from completely cash-based to an advanced
digitally-enabled economy (Vij, 2018, p.11).

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Conclusion

Even though the demonetization was a large step towards the corruption, black money,
and various unethical practices free a digitally advanced economy, however, due to the
sudden implementation of the demonetization, consumers' buying behavior was
drastically impacted in fact, there was a considerable decrease could be noticed in the
purchase of day-to-day products as there no larger denominations of cash were
available and a few or limited digital payments platforms. The buying frequency of most
of the consumers decreased numerously post demonetization and not only that small
businesses and small retail industries also faced some major difficulties in their day-to-
day transactions due to lesser availability of cash in hand. Even after two long years
from the date of demonetization still few industries are trying to cope with the new digital
India due to the lack of availability of proper advanced technologies and existing
communication gaps thus, It will eventually take some more time for the smooth
transition of the same and complete implementation.

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References

Ghosh, A. and Srivastava, A., 2019. Use of Digital Payment Systems Before and After
Demonetization: A Pre and Post Implementation Analysis of Consumers in Delhi or
NCR Region. Anwesh, 4(2), p.7.

Patil, S.S., 2019. Demonitization and its Impact on Adoptation of Digital Marketing in
India. Management, pp.174-178.

Sheetal, J.U., Purohit, D.N. and Anup, V., 2019. Increase in number of online services
and payments through mobile applications post demonetization. Advances in
Management, 12(1), pp.34-38.

Sivathanu, B., 2018. Adoption of digital payment systems in the era of demonetization in
India: An empirical study. Journal of Science and Technology Policy Management.

Sobti, N., 2019. Impact of demonetization on diffusion of mobile payment service in

India: Antecedents of behavioral intention and adoption using extended UTAUT
model. Journal of Advances in Management Research.

Vij, D.D., 2018. Demonetization: effects on Indian economy. International Research

Journal of Business and Management-IRJBM, Volume No–XI, (1), p.11.