(PDF) Effect of Demonetization on E-commerce

To assess the influence of
demonetization on Indian e-
commerce field

Table of Contents
INTRODUCTION...........................................................................................................................1
Literature Review.............................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Demonetization is refer to as an act where currency is stripped out form the economy as a
legal tender. This can happen when there is a change in the national currency. Thus, in this action
either the note is discontinued or it is replaced with new currency. Demonetisation is not new as
its history can be traced in the year around 1873 under The Coinage Act, of United States. In this
silver was demonetised and nation adopted gold standards. Recently, in the year 2016, Indian
Government thought of demonetize 500 and 1000 rupee note and this was considered as one of
the big action taken by the regulatory bodies because two biggest denominations were
discontinued as a result, 86% country's circulating cash was affected. Therefore, this assignment
is based on the analysing the impact demonetisation on e-commerce field so as to understand
whether it acted as a positive or negative manner (Agarwal and et. al., 2018).
Aims and Objectives
Aim: To determine the influence of demonetisation on Indian E-Commerce field. A Case Study
on Amazon.
Objectives:
 To analyse the concept of demonetization.
 To identify the influence of demonetization on E-Commerce Field.
Literature Review
Concept of Demonetization
According to the view points of Rajesh, (2018) Demonetization is determined as a radical
monetary action in which tenders which are legal are declared as invalid. This generally takes
place when government of any nation make changes in their national currency. However, after
this action old notes become null avoid and it cannot be used for further transaction in any
manner. In context with India this step was taken back in the year 1978 and denominations Rs
1,000, Rs 5,000 and Rs 10,000 were discontinued. Later, on November 8, 2016, this action was
repeated once again Prime Minister of India Narendra Modi through television address the
citizen about making Rs 1,000 and Rs 500 note made invalid. This move was taken in order to
eliminate corruption and black money. Following action has created a lot of chaos amongst
people as they had to stand for a longer period of time outside bank so as to change their notes of
Rs 500 and Rs 1,000. But at the same time new notes of Rs 2,000 and Rs 500 were introduced.
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Other than this, Cash Withdrawal was limited as weekly people can only withdrawal Rs 20,000
which was further increased to upto Rs 24,000. Henceforth, according to the report released by
Reserve Bank of India in the year 2017-2018, approximately 99.3 percent of money were
returned (Annual Report, 2017-2018).
Influence of demonetization on E-Commerce field
As per the Balakrishna, (2018) Economy of India was shifted from informal to formal
due to which most of the e-commerce companies were benefited. E-Commerce websites in India
such as Amazon, Flipkart, Snapdeal etc., accept payment in the form of digital or cash on
delivery. Thus, sudden action of demonetisation turned the whole country into turmoil. This
action has brought tremendous change in the field of digital marketing including some of the
negative as well as positive points. Major benefits which assisted e-commerce in having
maximum benefits are online transaction. But this had some limitations as well as due to the
scarcity of cash most of the customers cancelled their order. In terms of India, people moved
towards cashless economy and citizen start making payment through digital payments. People
started using alternative funds for making any kind of payments like most of the customer switch
towards Paytm, MobiKwik etc., as a result, it has increased application download upto 300
percent. In response to demonetization usage of debit card raise to around 84 percent. As a result,
users after demonetization there was an increase in the number of transaction up-to 400 percent.
There was a short term effect of demonetisation on E-Commerce as demonetisation has crack
down or forced citizen to adopt digital technology. Due to this action e-commerce had a decline
on it sales and the reason behind this was because customers who are living in tier-2 and tier-3
cities mostly prefer payment mode of Cash on delivery (Gupta and et. al., 2018). Although
Demonetization in the first quarter of 2017 acted as negative factor but it bought some kind of
positive changes as well. For India, it has pushed consumers for using digital payments which
gradually contributed to a cashless economy (Impact of Demonetisation on E-Commerce, 2018).
With the help of an article published by NITI Ayog, because of digital technology around 271
percent of whopping surge was seen. Other than this, approximately from 17 lakhs to 63 lakhs
wallet transaction was increased and Paytm was one leading player as within the duration of
around 3 weeks of demonetisation company served to over 45 million people.
Despite of so much chaos in the initial years of demonetization, the act is considered as
one of the beneficial move for the growth of e-commerce in India. This has reduced the payment
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through Cash on Delivery. Most of the retail online companies such as Amazon, Snapdeal,
Flipkart etc., welcomed this act thinking they have a great chance of increasing their profitability
in a speculated time frame.
Therefore, the action of currency ban by the Government of India provided mix reactions
from people, companies and other components. This was a bold move in order to turn black
money into legal currency so that it can be regulated banking system. The act of Demonetization
has affected working of daily activities of common people. Not only small business enterprise
even large company faces issues while operating its business in an effective manner (Sivathanu,
2018). Apart from the traditional business E-Commerce was highly affected by the action and for
increasing its sales they had to make some kinds of modification in their strategies like for a
particular period of time they have closed the option of COD (Cash on Delivery). For most of the
companies demonetization worked as a game changer most of the E-Commerce companies urge
to adopt digital technology. In order to analyse the reality of Demonetization by getting
information of three weeks can provide effective results. For example: after one month of
Demonetization delivery return raised around 50 percent because most of the customers were
asking delivery boys in terms of cash accept the old notes or they can take their parcel back.
Ultimately this added loss to e-commerce companies. Therefore, closing the process of Cash on
Delivery accounted in the decrease of around 55 – 60 percent of online shopping within the
country. Subsequently, its consequences was faced by people because the rates of COD was
increased to around 20 percent by some of the companies such as Amazon, Flipkart etc., but
spokesperson of the company said that although it has reduce the sales bit if it is looked for a
long run than after Demonetization growth can be seen of around 100 percent.
In relation with some of the E-commerce industry a downfall was seen from 25 percent to
approximately 10 – 12 percent. Therefore, because of this most of the E-Commerce company
made changes in their post-delivery return norms like they limit or reduce the return period.
Major reason behind this was because of high cost included in logistics and delivery system
(Demonetisation, 2018). In context with Demonetization, it has pushed e-commerce companies
to minimize its rate or provide heavy discount to many of the products (Demonetisation pushes
e-commerce firms to offer heavy discounts, 2018). For example: during this period companies
such as Amazon and Flipkart provides discount of around 50 percent for online transaction. As a
result, this assisted in overcoming the loss of one month in couple of weeks. During this period
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great competition was going on as both Amazon and Flipkart was offering discounts so that
maximum number of customers can be attracted and revenues can be maximised. Therefore,
according to the article published in Financial express, because of demonetization a downfall of
sales was witnessed but after providing various offers an increase in sales was increased by 50
percent.
Other than this, expansion of payment options was also affected by the action of
demonetization. For instance: credit and debit card were the existing option for making online
process but after the act of demonetization many options were added such as wallet service. For
example: providing no cost EMI for online transactions so that the process can be made easier
for consumers (Sarkar and Dutta, 2017). In addition to this, lucrative discount options provided
by the company is aiding these e-commerce industry in attracting a large number of customers
towards them. Therefore, digital technology or e-commerce played a crucial role and has
impacted business of companies who are dealing in this sector. For instance, scarcity of cash
forced customers in using online payment mode because of which increment in delivery return
was faced.
In the upcoming four years of demonetization after 2016, it has changed daily life
activities as E-Commerce influence the minds of people for becoming fully digitalised.
Therefore, it can be said that despite of fall in the growth rate of the E-Commerce it has put some
positive change.
Therefore, with the help of this research paper it has been identified that demonetisation
has although adopted for having control over black money. But some areas which are
underdeveloped are untouched and lag behind and this is because of financial inclusion. As
technological infrastructure was not there. If compared than demonetization happened in 2016,
was one of the largest act which was ever seen. It has stimulated the process of transaction and
made approximately 80 percent digital. Henceforth, E-commerce has developed a path for
coping up with this situations and formulated policies and strategies for overcoming this
situations (Rajesh, 2018).
CONCLUSION
From the above mentioned report, it has been evaluated that demonetization has put both
positive as well as negative impact on business operations. In terms of E-Commerce platform it
has provided a better options for payment. During the period of demonetisation there was an
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decrease in sales and profitability. Because of this most of the e-commerce industry closed the
option of Cash on Delivery for a limited period of time. Other than this, renowned e-commerce
company offered discounts in some of their products so that despite of decrease in sales through
this they can attract large number of customers. In India, despite having so much of negative
aspects it has provided country with benefits as according to today's scenario, most of the people
are aware about digital technology and purchasing goods and services from these e-commerce
sites. As a result, GDP of the nation is becoming higher which is ultimately enabling country in
generating more and more revenues. Therefore, it can be said that demonetization has provided
opportunities to e-commerce industry which is gradually taking country into prosperity.
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REFERENCES
Books and Journals
Agarwal, S., and et. al., 2018. Demonetization and Digitization.
Gupta, D. C., and et. al., 2018. Traditional Commerce v/s E-commerce and Impact of
Demonetization on E-commerce. International Journal of Engineering and
Management Research (IJEMR). 8(2). pp.136-142.
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.
Sarkar, A. K. and Dutta, D., 2017. Impact of Demonetization: A Study on Healthcare and
Pharmaceutical Industry. International Journal of Engineering and Management
Research (IJEMR). 7(3). pp.583-594.
Rajesh, R., 2018. Demonetisation and its Effects. PARIPEX-INDIAN JOURNAL OF
RESEARCH. 6(6).
Singh, N. and Chahal, R. K., 2017. STRUCTURAL EQUATION MODELING APPROACH
TO UNDERSTAND MEDIATING IMPACT OF CUSTOMER SATISFACTION
(SAT) ON ESQ-BI LINKAGE: A STUDY OF INTERNET BANKING. Indian Journal
of Commerce and Management Studies. 8(3). p.113.
DALAL, M., 2017. A STUDY ON THE TRANSFORMATION OF INDIAN ECONOMY
INTO DIGITAL ECONOMY. BIMS International Research Journal of Management
and Commerce. 2(1).
Bhat, I. A., 2018. Demonetization and its Impacts on Indian Economy. International Journal of
Current Trends in Science and Technology. 8(03). pp.20521-20530.
Balakrishna, S., 2018. Government Electronic Services Delivery and the Digital Divide: The
Case of Andhra Pradesh, India.
Firdous, S. and Farooqi, R., 2017. Impact of Internet Banking Service Quality on Customer
Satisfaction. The Journal of Internet Banking and Commerce. 22(1). pp.1-17.
Raghavan, V., Wani, M. and Abraham, D. M., 2018. Exploring E-Business in Indian SMEs:
Adoption, Trends and the Way Forward. In Emerging Markets from a Multidisciplinary
Perspective (pp. 95-106). Springer, Cham.
Pal, A., and et. al., 2018. Factors facilitating Adoption of Mobile Payment Services over
Credit/Debit Cards: An Investigation after the Demonetization Policy Shock in India.
Mathur, A., and et. al., 2017. Moving Beyond Market Research: Demystifying Smartphone User
Behavior in India. Proceedings of the ACM on Interactive, Mobile, Wearable and
Ubiquitous Technologies. 1(3). p.82.
Yadav, P., 2017. ACTIVE DETERMINANTS FOR ADOPTION OF MOBILE WALLET. i-
Manager's Journal on Management. 12(1). p.7.
Online
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