Exactly a year ago, on the evening of 8 November 2016, Prime Minister Narendra Modi announced in a surprise broadcast that beginning midnight, currency notes of Rs 1,000 and Rs 500 were denominations to be pulled from circulation, and would be rendered invalid for any transactions. On 7 November this year, ANHAD, a non-governmental organisation run by the social activist Shabnam Hashmi, and 32 other organisations released a report titled Demonetisation: Exorcising the “Demon.” Over January and February, ANHAD conducted a survey of 3,647 respondents across 21 states and union territories in the country, on the public perceptions of demonetisation, and its aftermath. In addition to the findings of the survey, the report also includes the analyses of several issues that arose out of the policy decision, such as its effectiveness in dealing with the initial goals of eliminating black money, counterfeit currency, and terror financing; the government’s shifting narratives on the motive behind demonetisation; and the impact on people across the country.
In the following excerpt from the report, PVS Kumar, a retired scientist who was formerly working with the premier national research and development organisation the Council of Scientific and Industrial Research, analyses the government efforts towards establishing a cashless economy, and the related concerns that arose out of demonetisation. Kumar notes that, “Going digital should be a choice of the citizen, the consumer and not the government’s dictate.” He adds, “Eliminating this choice is excluding those who cannot or do not wish to go digital.”
The big difference between cash payments and other “digital /electronic” payments (the so-called cashless payments) is as a service fee—paying by cash is free at the point of use. When I pay you in cash, neither of us incurs a fee for my settling my account with you by handing over notes or coins.
For using e-payments, a fee needs to be paid for every transaction, over and above the cost of a good/service that we wish to exchange. This fee is usually charged to the vendor, or sometimes the buyer (when insisted by the vendor). The transaction charge is usually in the range of 2–2.5 percent of the cost of the good/service. Apart from an additional source of revenue flow, the main reason the RBI [Reserve Bank of India] wants to get rid of cash is the sense of anonymity cash transactions provide. Where that anonymity is used by criminals and tax evaders, then the state should punish such actors, but criminalising everyone because we use cash would be illegal and unethical. Government and RBI can act as a Big Brother—a panopticon—recording everyone at every transaction, when these are done through electronic payments, sometimes in real-time, when the credit/debit cards we use are also geo-tagged.
The attorney general of India has even claimed before the Supreme Court that Indian citizens have no constitutional right to privacy. Given the situation, the spectre of a cashless economy is scary indeed. Most of us do need the comfort of anonymity that cash provides, even while carrying out legitimate and harmless businesses. It will require a fair amount of informed debate before the privacy rights of citizens can be properly worked out, and it will definitely be premature to consider going cashless before such a debate can happen. The government needs to clearly spell out the technical standards and the legal measures required to ensure the protection of privacy of its citizens, even from the government itself. The possibility of electronic mass surveillance on all monetary transactions does not augur well for civil liberties and democracy. Loss of privacy is the biggest threat, in addition to risks of loss of money due to hacking/data-security, etc. India does not have effective regulatory mechanisms governing the use of electronic payments/payment gateways, which can infuse trust among the consumers toward use of these mechanisms. In the absence of these institutional mechanisms, coercing citizens to go cashless is taking away the freedom of the citizens.
Going “cashless,” or changing into a digital economy, has a long history in India. These efforts were billed as “financial inclusion” for those who do not have bank accounts or the accessibility of banks are either distant or difficult. The main obstacle was the lack of citizen identity record for many people.
It started with the UPA [United Progressive Alliance] government’s massive Aadhaar project—[by the] Unique Identification Authority of India (UIDAI)—which sought to provide every Indian citizen a biometrically validated identification number, an Aadhaar number. Modi government had misgivings on this scheme—initial reports suggesting that it had even scrapped this project. But later, this scheme was strengthened by joining mobile phone numbers—which had achieved high prevalence—and these two linked to opening of Pradhan Mantri Jan Dhan Yojana. Pradhan Mantri Jan Dhan Yojana (PMJDY) is the Indian national mission for financial inclusion to ensure access to financial services in an affordable manner—launched by the prime minister of India Narendra Modi on 28 August 2014.
Seventy-six percent of Jan Dhan accounts were zero balance till one rupee was added to many accounts to bring down zero-balance accounts to 23 percent so that the concentration of money deposits would not be noticed. There was a rise of Rs 32,000 crore in Jan Dhan deposits in the two weeks since demonetisation. Jan Dhan bank accounts are the tip of the iceberg in terms of bank accounts opened with UID as the sole KYC and which have been used as ‘mules’ by the hoarders of cash to avoid detection.
This “trinity” of Jan Dhan, Aadhaar and Mobile (JAM) is the platform to achieve “digitization,” or cashless transactions. … The Economic Survey of 2017 admits that JAM may have made significant progress but still faces significant challenges. It elaborates on first-mile, middle-mile and last-mile issues that will need to be addressed if the successful Direct Benefit Transfers (DBT) [a government programme through which subsidies are transferred to the bank accounts of individual beneficiaries directly] is to be scaled up in other areas.
The first-mile is identification of beneficiaries—Aadhaar is only an identity authenticating system; it is not an eligibility authenticating system. There is a need for accurate and legitimate eligibility databases.
The middle-mile is transfer of money to beneficiaries. The middle-mile challenge relates to coordination among service delivery agencies—bethey government or private.
The last-mile is beneficiaries must be able to access their money from banking channel – the problem of banking infrastructure in rural areas and the failure of the banking correspondent model to take off. The Survey admits that “despite Jan Dhan Yojana’s record breaking feats, basic savings account penetration in most states is still relatively low”—46 per cent on average—and that mobile payments have not quite taken off in the rural areas.
A survey shows that only six states had preparedness index of above 60 percent (Andhra Pradesh, Telangana, Madhya Pradesh, Chhattisgarh, Rajasthan and Haryana). In the case of the rural preparedness index, the performance of all states was abysmal—only Andhra Pradesh and Haryana notched more than 4 percent followed by Karnataka with 3.5 percent. But the Biometrically Authenticated Physical Uptake (BAPU) preparedness index shows an interesting picture. In this exercise, beneficiaries verify their identities through scanning their thumbprint on a POS [point-of-sale] machine while buying the subsidised product—like kerosene or rations at the PDS shop. BAPU necessitates automation of all [Public Distribution System] shops as well as installing Aadhaar-enabled POS machines at these shops. In sparsely populated areas, such as in Rajasthan, the BAPU experiment has necessitated customers to climb up the trees or even trudge up the hills, where the POS machines are located in order to get better connectivity to register their biometric data.
After having their biometric data verified, the villagers are asked to travel some more distance to get their rations from the PDS shops. The villagers are asked to get equipped to climb trees—arboreal skills to get their rations!
Demonetisation is part of the overall plan of the [United States] strategy called “war on cash.” There are reports that as a part of the “global war” against cash economy, the US—through its agencies such as USAID [the US government agency responsible for administering foreign aid]—played an active role in the demonetisation exercise.
In his blog, Norbert Haering reports USAID’s announcement regarding the establishment of “Catalyst: Inclusive Cashless Payment Partnership” with the goal of effecting a quantum leap in cashless payment in India. The USAID in its press statement of 14 October 2016 says that Catalyst “marks the next phase of partnership between USAID and Ministry of Finance to facilitate universal financial inclusion.” This announcement is backed by an extensive survey of the feasibility of cashless transactions across the country.
The goal of the Catalyst is to take one city and increase the digital payments ten times in six to 12 months, according to its CEO Badal Malick, less than four weeks before demonetisation in the whole of India. And then in November it became clear that the whole of India should be the guinea-pig-region for a global drive to end the reliance on cash. Similarly, in a report published in June 2016, on the digitalisation of the Indian payment system, Boston Consulting Group and Google urged payment providers to “mine customer data to build additional revenue streams.” The promise of mining customer data will help payment system providers to manipulate consumers into buying more. “Payments will drive consumption—and not the other way around.” On the steering board of this study were Visa and Vodafone (M-Pesa), [the phone-based money transfer and financing service].
The omnipresent desire of the “financial inclusion” community is to eliminate cash, even if it is by means of coercion. This is a clear case where the interests of the poor diverge from the interests of the payment providers. If the option of using cash—a very accessible, reliable and cheap technology for them—is taken away from them, they will be worse off. The payment providers will benefit “at poor peoples’ expense.” Since it helps the business of payment providers and furthers the security interests of the US, the various groups and panels advocating “financial inclusion” support financial exclusion of poor people by preventing them from using their preferred and often only means of payment—cash.
A tidal shift from hard currency to digital money will need to be accompanied by an equally massive effort on securing the systems, educating millions of technology-challenged users and setting up of cyber defence capabilities. Recent hacking effects into the debit card details of some of the Indian banks in June–August 2016 resulted in losses of data relating to about 3.2 million customers show the vulnerabilities of our banking systems.
In a country where there is no regulatory framework on digital transactions and violations against individual privacy, digitisation is a dream of the political and bureaucratic class and bane of the poor and deprived classes. The digital payment systems typically work on uninterrupted power supplies, reliable telecommunication systems for backhaul of the data and more importantly the trust of the consumer-citizens.
Going digital should be a choice of the citizen, the consumer and not the government’s dictate. Eliminating this choice is excluding those who cannot or do not wish to go digital. In a country with 70 percent people living in rural India, 95 percent of who are unbanked, and less than 9 percent of who have access to internet, digital banking is exclusion of the people. Even in urban India, mobiles experience call drops, their bandwidths don’t work all the time, the complaints don’t get addressed. Furthermore, there is no inherent virtue in going digital, nor a constitutional requirement to become a digital republic.
This is an extract from Demonetisation: Exorcising the “Demon,” published by ANHAD in 2017. The extract has been edited and condensed.
PVS Kumar is a retired scientist who was formerly working with the Council of Scientific and Industrial Research.