A financial services expert talks 'India Investment Journal' through India's bold demonetisation move and why it is good news for investors. On November 8 2016, Prime Minister Narendra Modi made what will be long-remembered as one of the most audacious policy announcements in the history of India: 500 and 1,000 rupee notes, which made up 86 per cent of all outstanding legal currency, were ′demonetised′ and ceased to be legal tender with immediate effect. This, along with a series of related ancillary incentives and regulation, and against the backdrop of the Indian government's poorly managed execution of ′remonetisation′, made the 50 days leading up to 31 December 2016 highly volatile, both for Indians every day and for those overseas trying to understand the economic and political consequences of the move. As volatility has begun to abate, heads have begun to clear and the natural optimism of the New Year has settled in. A clearer voice is beginning to emerge too from the Indian government, which begins to frame a narrative of the long-term ambitions driving demonetisation - enfranchisement, transparency and efficiency, catalysed by India′s demographic dividend and enabled by a deep commitment to technology. Enfranchisement As much as 70 per cent of India′s population of 1.2 billion people is under the age of 40. India has over 1 billion mobile phones (of which 250 million are smart-phones), close to 350 million internet connections and 50 million unique e-commerce users. For a country with such a demographic dividend - one that is youthful, educated, urban and online - only a small portion of it is enfranchised into the ′regular′ non-cash economy. Only 2.9 per cent of India′s population pays income tax and only 50,000 individuals pay tax on income above $75,000. Mortgage penetration is only 8 per cent of GDP (the US is 90 per cent, China 50 per cent). Fewer than 10 million unique credit cards are in active use. Even e-commerce purchases are paid normally with cash on delivery. For India to unlock the true power of this demographic dividend, which also includes the ability of the Government to collect taxes and transfer commensurate services and incentives with little or no efficiency loss, there has to be a faster enfranchisement of Indians into an economy far less dependent on cash transactions. The infrastructure for this has been built. In 2009, under the UPA 2 Government led by Manmohan Singh, the Unique Identification Authority of India or "Aadhar" was launched to issue all Indians a biometric identity which would be used as a basis to streamline how India and her citizens would interact with one another. It was and remains the largest national identification project in the world. The launch chairman was Nandan Nilekani of Infosys. Aadhar was stymied due to procedural issues and a lack of political will until PM Modi made it a priority for his government. Aadhar was paired with a group of other initiatives under the "India Stack": a unified payment system, e-KYC and a digital locker, all provided free by the government of India, to enable real time ID verification, document signing and money transfer. The applications of the India Stack are transformative - from financial services, to income tax payment and transfer of subsidies, all underpinned by the virtual removal of historic issues of identity fraud. With India Stack as an enabling infrastructure, the government has been layering policies on top of this to accelerate enfranchisement. ′Jan Dhan Yojana′ launched in August 2014 was a flagship programme to drive financial inclusion. Banks were instructed to reach out to the unbanked and provide accounts with overdraft. The government promoted RuPay debit cards and insurance. So far 220 million accounts have been opened, the scale and speed all made possible by India Stack. Demonetisation was a shock, one necessary to force a faster adoption by Indians of a technology ecosystem that has been built to enable everyone to transact and interact through 'regular' non-cash channels, one that over time will enfranchise every Indian and enable the government to collect tax and deliver services and incentives, one that will unleash India's historic demographic dividend. Transparency and Efficiency Cash by its very nature is difficult to account for and is used the world over to hide earnings, evade taxation and has been a driver of corruption and illicit trading (including arming terrorists). The UPA 2 government was riven by many scams and stories of corruption, especially in relation to the telecom spectrum auction and various defence transactions. One of the first challenges for Prime Minister Narendra Modi was to change the global image of India from one of a corrupt country where economic gain is driven only by access to politicians to one where all investors who drive real benefit for India are welcomed, regardless of their access or affiliation. A series of India “roadshows” in New York, Silicon Valley, London, the Middle East and Africa - and a more assertive muscular regional diplomacy - all reinforced the point that India was open for business. In spite of these efforts, India has still struggled to significantly rise is global “Ease of Doing Business” rankings and also increase its sovereign credit reasons. Demonetisation was a direct attack against the instrument of corruption. This, along with proposed campaign finance reform and the Real Estate Bill are all efforts to demonstrate both domestically and internationally that India is moving to an increasingly transparent economy. The uniform Goods and Service Tax (GST) is one of the most important reforms in India's economic history. It aims to rework the centre/state taxation relationship and ensure transparency and efficiency in the provision of goods and services and its consequent taxation. Over time it will reduce costs to consumers and increase overall tax collection while reducing double taxation and “friction cost” at the transactional unit. GST will be implemented in 2017. The scale and speed of this implementation would not be possible without the infrastructure created by India Stack. Demonetisation here was necessary to force SMEs and trader communities - the largest group affected by GST - to begin going cashless to ensure that actual transaction costs are recorded and that GST can be levied accurately at every stage of the transactional change. What does this mean for investors and India Demonetisation as a concept stands for many things investors would welcome - unlocking India's demographic dividend which in turn drives investor value, transparency and efficiency, a fight against corruption. There have, however, been real challenges in its implementation, many of which still remain. From a short term perspective, there are certain immediate structural benefits, including the large deposit inflow stabilising India's struggling banks. It is the mid- to long- term perspective that is most encouraging however. Prime Minister Modi's speech on 31 December 2016 showcased some ideas: using the deposit inflow to subsidise low-cost home ownership and SME funding, two initiatives that have been central to his policy framework. It is timely to recall a phrase used throughout his election campaign: Sabka Saath, Sabka Vikas (“Progress for All”). It is a policy framework starting with India Stack, Jan Dhana Yojana, moving through GST, Housing for All by 2022, and the Real Estate Bill. It is this very idea, the rewriting of the social contract in India, where every Indian is now enfranchised, is encouraged to buy homes, consume and invest in small business, where taxation is transparent and collections are used to provide critical services efficiently, where corruption is no longer a barrier to entry, where India's demographic dividend can be finally unlocked. It is this idea that demonetisation accelerated. And that should be very good news for investors and for India. Anmol Nayyar is a partner at DMI Finance, a pan-India diversified financial services business. He is an active investor and board member in India and the UK, where he also advises the UK Government on entrepreneurship.