Modi’s new cashless Indian Economy and its impact on digital marketing

With the announcement by the Indian Prime Minister Modi today (Nov 8th), 500 and 1000 Rs (Indian Rupee) notes are now derecognized as legal tender. Though some conditions provide relief for a few days (paying at petrol bunks, hospitals, crematoriums etc) the change is expected to be pushed through incredibly fast.

What does this mean for digital marketing agencies in India?

Your clients may be affected.

First up, your client may have some material impact on their capital management, particularly if they are backed by investors who have some part of their money invested in “black money” or undeclared money. This is because many of the investors behind large companies employ different schemes to avoid being taxed for the large capital they hold, or the cash they move around. These investors might now have to figure out how to move their black money into the new digital economy. This will cause uncertainty in their business decisions. Previously, quite a lot of black money was moved into real estate, jewellery or other similar industries where there was a lot of hunger for capital, and large quantities of money could be absorbed. The industries were growing at a fast clip, so the black money investors could either get equity or get interest payments for their money, (money that could not be deposited in banks). The arcane financial structures also allowed these companies to shield their financiers from scrutiny.

What happens now?

On one hand investors may want to move their money into “value” quickly, rather than face the prospect of declaring this cash. This may give companies a bargaining chip to get cash at a discounted rate in return for equity or interest payments. Any such move though, will have to come incredibly quickly. Considering the paperwork delays in India, this may be a tall ask. The short timelines are because the companies who get the cash, have to show this really quickly as income and get it exchanged for quick notes.

If your client is in an industry like Real estate or jewelry, they may be impacted on the kind of investments they want to make for the future ‘cashless’ economy. This means both challenges and opportunities for digital marketing agencies.

What are the kind of challenges that digital agencies might face?

Some clients may face headwinds in terms of selling their products, because they may be taking a lot of their payments in cash, or more importantly, unaccounted cash. Once their customers are affected by the new norms, they may put aside their purchase decisions, or pull out from negotiations. This can cause a cascading effect on the finances of your digital agencies’ clients. And this in turn, can lead to delayed payments. We expect to see Real estate industry in India face both challenges and opportunities due to the changed circumstances.

With no 500 and 1000 Rs notes , it will be difficult for customers of real estate companies to pay the black money. Usually this additional money is deposited as cash, over and above the ‘white money’ that is reflected in the property purchase/transaction documents.

Real estate companies (and indeed many other industries like jewellery and retail) also transact with their employees and vendors (say those who supply labor) in cash. Bringing all this online will cause ripple effects to their financial transparency and related regulatory/taxation costs.

One the other hand real estate companies will see some upsides. The clients from the salaried class, who make enquiries, will be an opportunity. Because many of those who take out loans, are willing to pay in white money, as the bank will do an evaluation of the property price, and only issue loans commensurate with the value. Digital marketing agencies will need to orient their campaigns to target those who are likely to have ‘white money’ – i.e high income households or DINK (double income no kids) or highly paid executives who can take out large loans. These segments of the market maybe a relief, during the coming months when the confusion will keep away many “black money” holders off the market.

New schemes could be launched by impacted industries, to attract customers who want to book an apartment at today’s prices, but then wait out the storm in the coming few years.

There may be opportunities for digital companies to build plug ins or products in the payments, HR and Vendor management space, now that all companies will have to be a lot more transparent – once cash is squeezed out, then they have to put everything out there – and digital is the easiest, frictionless option.

There may be more opportunities in plugging in or partnering with online payment brands like PayTm and Chillr. This is because once customers are forced to transact cashlessly, they will invariably go online, and once they have got used to paying online, they are more likely to convert online through digital marketing.

More people moving into online payments, (as opposed to only consuming media online), will drive more knowledgability of the digital medium, and prime Indians to respond better to digital marketing initiatives. For instance, people will have email ids or accounts ready to use for online transactions.

A greater awareness and propensity to use online transactions will help digital marketing agencies push campaigns that involve making payments. Even for industries with high value transactions or ticket prices (like real estate or jewellery or even automobiles), people are likely to atleast be ready to book online.

Different cities maybe affected differently in terms of the quantum of speculation in those cities. Some cities like Mumbai might experience a larger impact due to the spectacularly high prices prevailing in the market, driving the need for black money and cash transactions in real estate deals.

Credit card limits may go up over time, as people shift more of their spends to the ‘plastic’. Now that the high denomination 1000Rs and 500 Rs notes are out of circulation, people would want a higher limit on their cards to be able to spend.


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