Demonetization’s impact on domestic remittances
The volume of domestic remittances from urban to rural areas is a weathervane for the health of the informal sector. These remittances, which are used for a variety of uses, including agricultural operations, marriages and deaths, were estimated at Rs1.5 trillion per annum by the Economic Survey of 2017. Trends in domestic remittances before and after demonetization would provide an insight into the impact of the policy on incomes, liquidity, as well as choice of digital channels by members of the informal sector. Such data is, naturally, not yet available. However, there is a fascinating category of firms whose experience during this period can provide important perspectives.
These firms have a Prepaid Payments Instruments (PPI) license from the Reserve Bank of India (RBI) and act as business correspondents (BCs) for banks. They set up their “money transfer counters” in kirana stores, medical shops, and mobile recharge outlets. Their software platforms and logistics systems for cash collection facilitate domestic remittances that are paid in the form of cash by the remitter and deposited in the bank account of the beneficiary. Operating with relaxed KYC (know your customer) norms, they channelize small-value remittances with a limit of Rs5,000 per transaction and a monthly cap of Rs25,000 per remitter. Thus, these firms belong to an intermediate zone between the fully cash-based courier system and the entirely digital systems of a bank-to-bank transfer or a mobile-wallet transaction.
Photo courtesy of Peter Haden.