Demonising cash: A high price to shift to e-transactions

Even as paper currency is 'demonised' and much of rural India lacks reliable connectivity, the echo chamber of the new economy believes the country merely needs energetic leadership to realise its preordained future of digital payments

Amid the whirl of conspiracy theories that persist, even a month on, of who was party to the government’s fateful decision to withdraw 86 per cent of the currency in circulation, one is driven to still more speculation. Asked specifically on Wednesday whether the recommendation had come from the Reserve Bank of India (RBI), Urjit Patel and his lieutenants chose not to answer the question. The obscure Pune think tank ArthaKranti has laid repeated claim to this certifiably bad idea, but its website reveals only a gift for grim, animated cartoons such as one with bags of black money lying by the hospital bed of a hapless taxpayer. The black money is represented as sacks of red blood being drawn from the patient. Spend enough time staring at the Amar Chitra Katha-styled Venn diagrams and you will soon be casting about for just about any other explanation.

 
Given this government’s passion for face time with the billionaire bosses of Facebook, Apple and SoftBank and its fluent use of the techno babble of the new economy, the Startup India conference early this year, attended by the founders of Uber, SoftBank and WeWork might as easily have been the genesis. Last week, Power Minister Piyush Goyal discussing demonetisation told the Hindustan Times Leadership Summit that Indians “loved” disruptive change. Arguably, the clues were there for all to see at the Startup conference in January. Panels entitled “Show Me the Money: How Do We Capitalise Entrepreneurship?” foreshadowed the gloomy mood of many small and medium enterprises today unable to find the cash to pay suppliers and employees. And the late insertion of the words Stand-Up India into the “Startup India, Stand-Up India” conference title was a bid to be inclusive towards Scheduled Caste entrepreneurs, but could also be read as a forewarning that 2016 would end with all of us standing in queues outside banks. Perhaps, driverless cars to cure the traffic jam will be next. Giriraj Singh, minister for micro, small and medium enterprises, might consider advocating virtual sex to control the population, not nasbandi (sterilisation) as he did this week.

 
Only in the echo chamber of the new economy is it possible to believe that India merely needs energetic leadership to realise its preordained future of e-wallets. Never mind that scarcely a fifth of ATMs are in rural India and that these  have been even more erratically replenished than those in urban India in the past few weeks. (“ATMs unserviceable; Inconvenience is regretted” declared the pedantically truthful signs at Mumbai airport on Sunday.) Or that only a tiny fraction of the population has heard of mobile payments and that India lags parts of Africa in adopting this. On Sunday, Prime Minister Narendra Modi, an energetic Twitter user, reported that he had seen a video on WhatsApp of a beggar who, when confronted with people saying they had no change, whipped out a credit card machine. The video was, of course, a set-up, posted a couple of years ago on YouTube by a techie who says she never asked the beggar’s name, but reports that he did exactly what he was told. Using a beggar as a poster-boy for digital payments displays a patronising pseudo-socialism.

 

Meanwhile, we have demonised cash, but as Suyash Rai of the National Institute of Public Finance and Policy points out citing a study, fake Indian currency notes account for all of 0.02 per cent of the total and cash accounts for five per cent of the money seized in income tax raids a few years ago. Still, on Wednesday, the RBI justified withdrawing currency primarily on these grounds; transitioning to digital payments as a collateral benefit.
 
One possible old economy explanation for the over-confidence that the country is ready to leap to a future of widespread digital payments even in the absence of reliable connectivity in much of rural India is that the decision to demonetise was taken in Lutyens Delhi, a comfortable imperial cocoon all its own. Outside this bubble, I accompanied an 85-year-old friend to her SBI branch in New Delhi last week. Angry crowds in the queue allowed her to pass, but understandably even the women among them shouted at me not to go in. I explained I wasn’t withdrawing money, but soon beat a hasty retreat. When the bank closed an hour later, the police had to be summoned. Across town, North Block felt like another world, looking much as it did 25 years ago — and about as far from a transition to a paperless office. As the afternoon sun fell on this red sandstone mausoleum to honour India’s byzantine bureaucracy, it lit up the irritating exhortation engraved by the British on its exterior: “Liberty will not descend to a People. A People Must Raise themselves to Liberty.” To embrace, even “love”, this disruptive change, in other words, all we need do is start afresh, or stand straight. If the experiment fails, well, as an NRI economist told me last week, that’s the fault of the rulers of the past 70 years that financial literacy in India is so poor.

 
With this column, Business Standard revives Country Code