Current inflation in India is not due to surge in demand exceeding supplies. On the contrary, consumption demand is subdued and the production capacity is underutilized. In such circumstances, recent hikes in repo rate from 4.0% to 4.9%, almost by 25%, might be counter-productive. It shall increase lending rate hiking EMI of Housing and Auto loan.  Therefore, slowdown in these two sectors is inevitable. More so, such steep hike in borrowing cost might impact investment rate and GDP growth. India must use such tools which arrest inflation without hurting public income (GDP).

Current inflation is due to “cost push” effect, mainly due to high cost of primary energy such as coal, diesel and gas. In sequel cost of secondary energy (electricity) is also rising along with core sector goods like steel, metal, cement and fertilizer etc. High taxation on the mineral and energy is another key reason for current inflation. Its impact travels to entire economy in a compounding manner.

Therefore, it is imperative to increase production of coal and power and restore the price of thermal coal to a level of 2019-20. The taxes on imported energy and mineral taxes may also be prune down to an affordable level. Ways and means may be designed to reduce logistics cost also which impacts all goods. As regards food inflation, tailor made strategies may be designed for the key food items.

In medium/long term, India must reduce import dependency for the energy, food, fertilizers and such essential commodities to the possible extent. Monetary tools should be used as a last option only in the case of consistent surge in demand.

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The aim behind the government’s action was to combat tax evasion, counterfeiting and corruption. The government claimed that eliminating large denominations would make it harder to hide large amounts of cash. The abrupt nature of the move and the prolonged cash shortages that followed created disruptions throughout the economy, threatening the economic output of the country. The move was heavily criticized as poorly planned and unfair, and was met with protests, litigation, and strikes.

As a result of demonetization and its adverse effects on the economy, The Asian Development Bank cut its growth estimate for India for the financial year ending March 31 to 7% from 7.4%. JP Morgan expects growth to decline by half a percent to 6.7%. The cascading effect of demonetization – drop in sales, layoffs (in sectors like construction, textiles & jewelry) have all taken a big hit on the economy. According to some estimates, the cost for merely swapping out the demonetized currency is around 1.28 trillion rupees, or about $19 billion.

But not everyone lost out, e-wallet firms such as Paytm, Oxigen and MobiKwik turned out to be lucky winners and they won big. As per government data, the number of daily transactions has shot up from 17 lakh (November 8, 2016) to 63 lakh (December 7, 2016), a growth of 271%.

Huffington Post: In a single master stroke, the government has attempted to tackle all three malaises plaguing the economy—a parallel economy, counterfeit currency and terror financing.

According to a study titled Indian m-Wallet Market, within 12 days of the announcement Paytm raked in over 7 million transactions worth Rs 120 crore a day and was doing more transactions than the combined average daily usage of credit and debit cards in India. Now that is some serious business gain, all thanks to demonetization.

A lot of people were thankful for e-wallet firms for helping them tide through the tough days post demonetization, and rightfully so, but they failed to see how with every transaction they were losing the value of their money. Let me explain this using an example:

Mr. X buys Rs. 10,000 worth of goods online and he pays for it using an e-wallet. When the payment gateway receives the money, its charges TDR (transaction discount rate), on an average it will be 2% + service tax on transaction value. So payment gateway takes Rs. 230 ((10000*2%)*(1+15%)) out of Rs. 10,000. In most cases, the company pays 50% (Rs. 115) of its payment charges to the bank and the rest (Rs. 9770) to merchant. Upon receiving payment, the merchant will supply material to Mr. X. When the merchants supplies the product, the cost incurred (Rs. 230) is charged to Mr. X (either directly or by decreasing the value of the product to Rs.9,770 instead of Rs.10,000). Here is a visual depiction of the above transaction:

If we calculate the TDR for a large number of transactions we find that after about 70 transactions, 80% of the initial amount is lost as transaction fee alone (and 90% is lost after 100 transactions). Cash, on the other hand, does not lose its value in transactions. So going cashless does comes with its inherent problems, costs that the average Indian may not be aware about.

Is going cashless completely secure?

Although going cashless does seem like the way forward, we need to stop & think if it is completely secure. In December, Paytm servers were down for 1-2 hours, affecting a very large number of transactions. Paytm, in an official communication has also admitted to some fraudulent Paytm users who were part of an online scam. United Payment Interface (launched by RBI) uses a double factor authentication and is considered more secure according to bankers.

The Wall Street Journal: The long-term effects of India’s demonetization gambit remain unclear, largely because no other major economy has attempted such an experiment except during a crisis. But with growth slowing and job losses rising, the short-term prognosis appears grim.

Some experts feel it is RBI’s inefficiency when people pay small amounts like 10/20/50 using e-wallets, the institution should have done more to distribute smaller denomination notes post-demonetization. e-wallets are similar to carrying a self-signed cheque, very vulnerable to fraudsters. India is far behind other nations when it comes to dealing with debit/credit card frauds, we can only hope it is in a better state for e-wallet hacking and frauds.

Another talking point among experts is ownership, the single largest shareholder of Paytm is Alibaba, the world’s largest e-commerce company that is based in China. Although the idea seems far-fetched there are some who believe that with some pressure, Alibaba could get access to consumer spending and behavior patterns from Paytm. In a world where information is power, this idea should not be taken lightly.

Demonetization may have its pros & cons, and we are all more or less aware of it, but the flip side of it and its boost to e-wallet companies makes for a great case study. Some of the issues that may arise can be addressed:

• The government can revise or enforce existing laws to ensure that parties outside the country (such as Alibaba) do not get access to sensitive data.
• Data security must be regulated by an independent government agency that must set the rules & guidelines and enforce them from time to time. There must be necessary protocols put in place for cases of consumer fraud and the agency must be bestowed with necessary powers to handle such incidents.
• The government can encourage the use of UPIs and use its low transaction fee as a selling point.
• The government must bring about regulation in the transaction rates charged by e-Wallet firms and need to reduce these rates drastically. According to reports, this digital payments market will soon touch 2,000 trillion by FY 2021-22, even a small percentage of this market will be quite substantial.

—

Image Credit: Pixabay

The author is Founder Director of SpingforthCap.com, a full service mid-market investment bank

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Mobile devices will account for 75% of global internet use next year, according to Zenith’s new Mobile Advertising Forecasts. The mobile proportion of internet use has increased rapidly, from 40% in 2012 to 68% in 2016, and they forecast it to reach 79% by 2018.

This first edition of the Mobile Advertising Forecasts looks at mobile advertising and mobile technology in 60 key countries around the world. It forecasts the rising amount of time consumers devote to mobile internet use, the spread of smartphones and tablets, and the growth of mobile adspend.

Spain, Hong Kong and China lead mobile internet consumption

The countries with the highest levels of mobile internet consumption are dispersed across Western Europe, Asia and North America. Mobile internet accounts for the highest proportion of total internet use in Spain, where they estimate it will account for 85% of internet use in 2016. Hong Kong comes second, with 79% of internet use being mobile, followed by China (76%) and the United States (74%). Italy and India come joint fifth, at 73% each.

By 2018, Zenith expect Hong Kong to have the highest mobile internet use, accounting for 89% of total internet use. China will be second with 87% and Spain third with 86%, followed by the United States and Italy at 83% each, and India at 82%.

Smartphone penetration increases 2.4 times between 2012 and 2016

The increase in mobile internet use is being driven by the rapid rise in the penetration of mobile devices. In 2012 just 23% of people in our 60 markets had a smartphone, and 4% had a tablet. Smartphone penetration has now reached 56%, and increase of 2.4 times over four years, and we forecast it to rise to 63% by 2018. Tablets are more of a luxury item and have not spread nearly so widely: they are owned by 15% of people in our 60 markets now, and Zenith expect them reach 17% penetration in 2018.

Smartphones are most common in Western Europe and Asia

The highest levels of smartphone penetration are concentrated in Western Europe and Asia. Zenith estimate that Ireland has the highest smartphone penetration this year, at 92%, followed by Singapore (91%), Spain (88%), Norway (86%) and South Korea (84%). We forecast Ireland to remain in first place in 2018, with 94% penetration, followed by Switzerland and Singapore at 92% each, and Norway and Taiwan at 91% each.

Tablet penetration varies extremely widely between markets. In 10 of our 60 markets tablets have penetration levels above 50%, and in another 10 they have penetration levels below 10%. Just 3% of people in China have tablets, which drags down the average substantially, since China accounts for 27% of the population in these 60 markets. In India, which accounts for another 26%, 6% of people have tablets. The highest level of tablet penetration is in Singapore (at 75%), and the lowest is in China and Thailand (3%).

Mobile advertising will overtake desktop advertising in 2017

60% of Internet advertising will be mobile in 2018

As stated in Zenith’s Advertising Expenditure Forecasts of September 2016, mobile advertising will overtake desktop advertising in 2017, increasing its share of global internet advertising to 52% from 44% this year. In 2018 they expect mobile advertising to account for 60% of all internet advertising. That year mobile advertising expenditure will total US$134bn, which is more than will be spent on newspaper, magazine, cinema and outdoor advertising put together.

Zenith expect mobile advertising to account for 60% of all internet advertising in 2018 . That year mobile advertising expenditure will total US$134bn, which is more than will be spent on newspaper, magazine, cinema and outdoor advertising put together.

What this means for advertisers

Zenith advises that all brands need to become mobile-first in their digital communication: all assets – from brand websites to video ads – should be built to deliver the best and most effective experiences on mobile devices. Advertisers also need to think about consumer mobility, not just mobile devices. During the day consumers shift their attention from tablet to desktop to smartphone, sometimes while watching TV, so advertisers need to build brand experiences that are coherent across screens and devices.

Zenith also recommends that advertisers consider the full mobile ecosystem, including smartwatches, activity trackers and other smart devices, when planning their communications. Consumers tend to use the more specialist devices on very specific occasions, giving advertisers the opportunity to target these moments of their life with precision.

‘Mobile devices are already the primary means of accessing the internet across the world,’ said Jonathan Barnard, Head of Forecasting at Zenith. ‘Countries in Western Europe, Asia and North America are leading the transition, but mobile technology is spreading rapidly everywhere. Next year mobile devices will become the main vehicle for internet advertising as well.’

Article Courtesy : Zenith Media

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