In the days after PM Modi’s November 8th national address announcing the demonetisation of Rs 500 and Rs 1000 notes, the public discourse is starting to settle into two strands. The first by Modi’s cheerleaders and supporters who laud the move as a “masterstroke”, a watershed moment in the “fight against corruption”. Most in this group concede that the idea is poorly implemented despite the tone-deaf avowals by the Government of best implementation possible given the demands of secrecy. Nevertheless, it is asserted that this (transitional) pain will clean up the up the economy and by extension the Indian society. Demonetisation in this narrative is a moral project. The second strand dismisses demonetisation as ill-conceived and misguided, unlikely to eliminate black money and further castigates Modi for compounding people’s pain with callousness evident in the lack of preparation. This group argues that black money is not a stock but flow (kala dhan nahi dhanda), which cannot be eliminated through a one-time strike. Furthermore, given that even of the black money stock only a minuscule part (6%) is kept in cash, it is clear the policy will not fulfil the stated intent. The intent behind the policy is thus variously deduced as the whimsical fiats of a man with delusions of grandeur; attempt to defang the Opposition before crucial state elections; and a bid to shake up the political narrative through a radical exercise of State power.
The discourse framed thus within the confines of corruption is in the interest of the BJP. Large parts of the general public uninterested in the details is willing to give the Government a long rope – even at the cost of significant personal inconvenience – if in the end the rich bad guy is penalised more. However, the corruption narrative misses a crucial aspect – the push towards a for-profit technocratic vision – of this policy which bears discussion. The BJP-led Center has repeatedly spoken of moving India towards a cashless economy but there are significant constraints in enforcing this behavioural change in a democratic manner. First, bulk of the Indian population is unbanked with limited access to banking infrastructure. Moreover, a significant proportion of the population is unviable for traditional banking services given the small size of their accounts and are also ineligible for credit. Mobile wallets – prepaid payment instruments operated through mobiles or cards where the spender can only spend up to the value of stored money in digital wallets – seek to occupy this space. However, in the absence of traditional banking value add – credit and interest – there is little incentive for people to move away from cash. Therefore, the mobile wallet business – currently Rs 50,000 crores – remain a very small part of total retail transactions, 90% of which are in cash.
To the extent that a cashless economy is justified on the back of reduced evasion of taxes and funding of criminal activity, the Government cannot impose fiat against small cash payments. However, if there was literally no cash, albeit temporarily – under the guise of cracking down on corruption – people would perforce have to move towards these mobile wallets and other electronic payments. Amitabh Kant, the CEO of Niti Ayog has repeatedly spoken of demonetisation in the context of moving India towards a “totally digitised payment economy” and not to eliminate black money. Moreover the top-down coercive nature of such a move was evident in his tweet in the aftermath of demonetisation, “Making India a digital & a formal economy would ‘ve taken 15 years.#DeMonetisation will make this happen in 15 months” [sic]. There is evidence that this is working. Paytm which took out Page 1 ads the morning after the Prime Minister’s 8 PM demonetisation announcement has seen an exponential expansion in its business in the week after demonetisation. Merchant sign-ups have gone up from 4000 to 25000 per day. Daily transactions have jumped 250% compared to before demonetisation. Daily transactions are now above five million (and at the time of writing seven million), which is more than the point-of-sale card sales issued by all banks and cards combined. The RBI has doubled the monthly limit for mobile wallet users to Rs 20,000 from Rs 10,000 earlier. Demonetisation doesn’t just help mobile wallet companies. Bloomberg reports that payment networks Visa Inc. and Mastercard Inc. will see a “surge in transactions and cardholders” after demonetisation and have been “pushing for this kind of change in India, where a McKinsey & Co. study found that more than 90 percent of transactions are still conducted in cash”.
It is far from clear that this is a good thing for the Indian public at large. There are serious privacy concerns of moving from the anonymity of cash to trackable digital payments. Trading physical cash for electronic cash also gives the Government control over the economy in a manner which overrides citizen autonomy, such as through the use of negative interest rate by Governments to force spending (which citizens could bypass if they held physical cash). In the immediate term, this is a misuse of State power to coerce citizens into the user base of private for-profit companies. Moreover, mobile wallets come with negatives not apparent at first glance. Paytm for instances charges between 1-4% for withdrawal of cash; Reliance JioMoney FAQs ominously note that there is no expiry period for the money in JioMoney account “for now”. On the other hand, transacting in cash is free and permanent store of value. In any case, even if there are unexplained benefits of moving to a cashless economy, no democratically elected Government can be allowed to literally freeze people’s own money plunging the country into chaos to promote some technocratic ideal. Till the time adequate liquidity is injected back into the system through new notes, the Government must allow free use of old notes. At the same time, the Government must come clean about its intentions – not through rhetoric but greater transparency of the deliberations and its participants which preceded the unprecedented and far-reaching demonetisation decision.