Awareness of bitcoin in India has reached its highest level ever according to Google trend searches as the country still grapples with Prime Minister Modi’s shock tactic of demonetization which has recently exacerbated following a deadline of 30th December 2016 when all old ₹500 ($7) and ₹1,000 ($14) rupee notes must be exchanged.
India’s economy, which used to operate at 90% or more on cash, now face shortages of the new ₹500 and ₹2,000 notes, incentivizing some to look for alternatives as money has seemingly dried up. Mr. Shoran, an engineer, tells Washington Times:
“I remember standing in lines at banks from 6 in the morning until the afternoon and then finding out that they had run out of money.”
Interestingly, the data reveals that the remote region of Mizoram, which translates to the “land of the hill people,” has seen the highest level of interest. According to a government report, in many rural areas people have adopted a barter system with a government official stating:
“In many villages, grains are being exchanged for vegetables and other items of daily needs.”
Moreover, in bordering regions, people are using the currency of neighboring countries, primarily because there is no bank to be found for miles, and those banks that are found have long queues. Leaving millions with no choice but to seek alternatives, such as bitcoin, which, albeit at a small scale, is now, apparently, a competing option to bartering or neighboring currencies.
Bitcoin Adoption Increases in Coastal Rich India
Goa, a coastal region of India and the richest state with a GDP per capita two and a half times that of the country, couldn’t be more different than Mizoram. A big tourist destination for foreigners, the geographical area shows a particular increase in interest for bitcoin.
One obvious reason might be because westerners are beginning to spread their awareness of bitcoin among the local population, but it does show an interesting dichotomy. Bitcoin is seemingly appealing to both some of the richest and poorest. Annoyed by lack of cash, they both seem to find the same alternative. The end result, according to India Today, is that:
“Leading bitcoin trading exchanges say they have witnessed a rise in user base by 250 per cent but add that the amount of transaction India does in the digital currency is still relatively low.”
There are more than 300 million people in India that use their phones to regularly access the internet, according to The Hindu, allowing them to freely transact in bitcoin. Zebpay, one of India’s largest trading platform, expects to add 50,000 users a month, while Unocoin, which calls itself India’s most popular bitcoin company, announced last month they have broken all records, further stating they now serve 1,600 merchants.
Can India Be the New China?
Bitcoin currently attracts a premium of almost $200 in India as demand relative to supply is clearly far higher than even in China, but volumes are nowhere near. The reason is probably because even though the economy has kept growing, corruption is endemic, with the country lacking basic infrastructure in some areas, such as roads or electricity, and courts inaccessible in some places.
In contrast, China has used much of its newfound wealth to advance its infrastructure even more than the west with its high speed trains a symbol of the future for the entire world. They have bypassed traditional banking, with companies such as WeChat and other tech giants processing more than 50% of China’s financial transactions through WeChat pay and Alipay apps. In combination, this has provided an attractive environment for bitcoin as China’s entrepreneurs look to take advantage of every opportunity.
By comparison, India’s lack of law enforcement anywhere near the levels of China or the West, which is probably due to the government’s inability to collect taxes, has failed to provide similar success stories despite comparable growth rates.
That may be about to change. The demonetization move has increased collected taxes by 14%, according to Arun Jaitley, India’s finance minister, but whether it will be used towards infrastructure or towards the pockets of officials remains to be seen. Moreover, it comes at a high cost for the Indian people as well as the economy which is expected to slow down this year due to demonetization as well as rupee’s downwards trajectory towards a record low against the dollar which may exacerbate India’s already high levels of inflation.
In this environment, bitcoin has strong potentials for growth, especially in the richer coastal areas, as Indians now look to protect their wealth as well as perform that most ancient function – commerce.