Demonetization is the act of stripping a currency unit of its status as legal tender. In the present Indian context, it refers to RBI’s withdrawal of old Rs 500 and Rs 1000 note as official mode of payment.
Rural economy is an important segment that accounts for around 70 percent of employment and 50 percent of GDP from various rural activities. Demonetization creates a tremendous impetus toward digitization and greater financial inclusion.
Opportunities that demonetization offers for digitization of rural economy:
• Demonetization has ope-rationalized lot of dead Jan-Dhan bank accounts.
• Coupled with Digital India it would help better public service delivery.
• It provides an opportunity in greater financial reach. Along with ope rationalization of Payment Banks, it would lead to people using banking services.
• Point of sale machines apart from creating new jobs and augments incomes in rural areas. Thus furthering digital penetration.
• It would lead to minimizing exploitation. As paying daily workers are paid via bank account would lead to lesser exploitation.
• With demonetization, private players would see a opportunity to develop better digital e-commerce service. This could be coupled with other projects as Google project Loon.
Challenges faced in digitization of rural economy:
• Improving financial literacy: Educating the rural masses about digital services is difficult task.
• Infrastructure: It requires efficient public infrastructure as electricity and internet services which are not covered throughout the country
• Huge unorganized sector: As large number of people in rural India that involve daily cash transaction digitization would pose challenge in day to day transaction.
• Regular transactions: As most of the rural economy is run my small traders, agricultural activities in short run it could create challenges in implementation
Though demonetization has created hassles in the rural economy, in the long run it would help in digitization and furthering financial inclusion. Nevertheless, steps as e-payments in APMC mandis, bringing food and fertilizer subsidies under the direct benefit transfer regime would help achieve some of the objectives of demonetization.