A Cashless Society via Demonetization?  India’s uncertain future

By George Abraham

When Dr. Manmohan Singh, the former Prime Minister of India, criticized the ongoing demonetization program championed by the Narendra Modi Government as “organized loot” and “legal plunder”, it struck a cord with many of the skeptics including me, who felt initially that if this program could reduce corruption and eliminate black money, it would be well worth the effort. Then again, it was quite uncharacteristic of Dr. Singh to use such strong words without reason. He called the whole initiative a ‘monumental management failure.’ It is noteworthy that this rebuke comes from a person who had served the centre as chief economic advisor, finance secretary, the finance minister, deputy chairman of the planning commission, and RBI Governor.

There is little doubt that what is unraveling in today’s India is a near disaster probably not brought upon the nation with bad intentions but certainly with botched execution by the Modi administration. Today, India is reeling from the disastrous implementation of the demonetization program with no end in sight. The crisis started when the Prime Minister surprised the nation on Nov 8th with the announcement that he would withdraw two-highest Denomination Bank Notes, (500 and 1000). He injected an element of nationalism in his speech and exhorted Indians to join this endeavor to ‘make his contribution to the country’s progress.’

In a country where cash is used by 98% of the consumer transactions, a sudden unavailability of money has brought untold sufferings to people across India especially in the rural areas forcing factories to be idle; small retails shops to close and the farming industry to come to a near halt. Millions of people are now spending their valuable time waiting in line at the Bank branches or ATMs to exchange or withdraw their money under various restrictions imposed by the Reserve Bank of India.

This whole effort was made under the assumption that the banknotes are a way the rich people have stored their wealth. The poor folks are made to believe that those corrupt rich guys are finally getting soaked for their past sins, though the real burden of this reform measure has mostly fallen upon them. It is quite delusional to think that the rich have kept all their black money in 500 and 1000 rupee notes in a pillow case somewhere under the floor.  The truth of the matter is that the ill-gotten wealth of the much rich may only be added up to 7% in cash, but the rest are invested in real estate, equities, and jewelry or other investments. With more than 13 lakh crores of rupees that already returned out of the 15.44 lakh crores and the rest is expected to be accounted shortly, Government is vigorously challenged to explain what happened to their assumptions on black money?

The biggest casualty in this regard appears to be the credibility of the banking system. Anand Sharma, senior leader, and spokesperson for the Congress party alleged that ‘crores and crores of newly printed currency notes are going out” from the “back doors” of the banks while ordinary people were denied their right to withdraw their hard earned money they have deposited in these banks. “People had faith in the banking system, however, today, people’s trust in the Indian banks is shattered, and the reputation of RBI is dented,” Mr. Sharma told reporters in New Delhi.

There are also stories of BJP leaders going on a buying spree of real estate just before Prime Minister’s announcement. A report by ‘Catch news’ alleged that the BJP had brought land worth crores before announcing that RS500 and RS1000 notes are no longer valid. They also claimed to have the deeds of ten such transactions done by BJP functionaries on behalf of the higher-ups in the party, including party president Amit Shah.

As many as 111 deaths are directly attributed to this crisis so far along with stories of struggles of daily laborers, shopkeepers, and farmers for their daily survival. P. Chengal Reddy, Secretary General, Consortium of Indian Farmers Association says that the country is divided into India and Bharat. ‘Farmers are like a living corpse in India’ he added. The ruling class that includes the bureaucrats, Industrialists and so-called City-based experts do not see their plight and the demonetization have amplified how detached they are from this vital sector.

The government has also decided to exclude co-operative banks from this demonetization process alleging that they are not trustworthy. There are those who suspect that it is a deliberate move to destroy these cooperative banks in favor of big commercial ones or to bring them under stricter reserve bank guidelines. In thousands of villages, people depend on these cooperative banks for their banking and unfortunately they are allowed to run dry with little or no infusion of new currency notes.

To any independent observer, it is quite amusing to watch how the Government is dealing with the crisis with ever changing terms of the scheme and daily issuance of new directives. Originally, the purpose was to expose black money and to stop the terrorist funding directed by Pakistan. Lately, the BJP leaders sound as if they had a hidden agenda for this program all along that is to transform India into a cashless society.  One doesn’t know whether it was the original intent or shifting of the goalpost since the game has started. If it is all about black money, one wonders why Modi has failed to take any action against the unaccounted fortune hidden in offshore accounts!

Any rational mind would know that most of the Indian villages are a century behind the urban centers. They still do not have necessary facilities for education, medical care or banking and it is preposterous to talk about digital transactions and cashless society with these folks before helping them to meet minimum goals in human development. I am not sure whether our political leaders are making these decisions based on the cost-benefit analysis with an ample input of the current capabilities of the target population or they are falling victims to the utopia offered by the titans of the service sector which are dominated by Tech companies.

It is a known fact that half of the Indian population does not have access to any credit or debit cards. Also, only 53 percent of the population has access to a bank account, and the Internet is unavailable in the remote areas of the country. Security is also of paramount concern to many as the country is still reeling from a massive leak of credit card information from a database of 3 million card holders.

Sweden, an advanced economy with 10 million people, is currently undertaking the cashless experiment and the latest report showed that Sweden’s central bank had put a brake on that effort in the interim. With only 20% of the retail payments in Sweden were made in cash, they were in a better position to make that effort. However, they are having second thoughts stating that ‘we welcome digital development, but cannot leave any group behind’!  Riksbank, Sweden’s central bank has recently advised all those online banking services to change their business model to include cash.

After all, Prime Minister Narendra Modi’s demonetization may have this ulterior motive of digitizing the Indian economy. If the demonetization is a step in that direction, the government needs to be deliberate and transparent in that process. The digital payment industry supported by the World Bank, multi-nationals, Bill and Melinda Gates Foundation and USAID seem to be hard at work nudging world leaders who are susceptible to political opportunism and conscious of their inflated ego to demonetize and drain the liquidity of the banks. For those global elitists, there is a fortune to be made in the days ahead and if it takes leaving half of the population behind, so be it!

More than a month after demonetization, many city dwellers especially the working poor still support the policy. However, the country can’t wait any longer to get back on its feet and normalize the situation. If this is not resolved in the immediate future, some of the damages inflicted on the real economy from this protracted economic slowdown may end up being irreversible!

(Writer is a former Chief Technology Officer of the United Nations and Chairman of the Indian National Overseas Congress, USA)

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