Forty days into the supposed ‘demonetization’, it is clear that the Modi sarkaar did not intend this as a move to eradicate black money. While it was always clear to us that this move was not about black money, what is to be noted is how the government itself has stopped speaking about black money and is repeatedly talking about a ‘cashless economy’.
Lobbyists For ‘Cashless’ Economy
While the government is only now talking about cashless economy, what is interesting is how people like Nandan Nilekani have been pushing for a cashless economy for a while now. In his foreword to a Credit Suisse report on the Indian Financial Sector (29 June 2016)[1], Nilekani repeatedly talks of taking our economy to a cashless mode. He speaks of how Aadhar, smartphones, the Unified Payment Interface etc will accelerate the move towards a cashless economy. A day after demonetization, in a interview to the Live Mint published on 10 Nov, 2016[2], Nilekani stresses that demonetization is a ‘defining point’ in India going Cashless.
Similarly, a report[3] published in July 2016 titled ‘Digital Payments 2020 – The making of a 500 billion $ ecosystem in India’, co-authored by Boston Consulting Group and Google states – Regulators need to emphasise awareness on cost of cash and incentivise the use of non-cash instruments.
On the other hand, International Funding agencies like the Bill and Melinda Gates foundation has given a grant[4] to promote digital payments and has been promoting[5] the National Digital Payments Payments Infrastructure. Meanwhile tech blogs and online articles have been talking about mobile wallets and other fin-tech products being instrumental in India going cashless for a while now. While PayTM, FreeCharge, Mastercard and Visa are obvious beneficiaries of a cashless economy, there are a host of other players in the Fin-tech sector also that are waiting for this move. One area of concern is the pay-day loan industry. Payday loans are predatory loans given by large corporate loan sharks to blue collar workers (for e.g in the USA) to trap them in a cycle of debt and encourage them to consume more. This works in a digital economy only – the moment a salary is credited to a workers account, the loan is debited from the account to the lender. The USA is moving towards regulating[6] these loan sharks and these companies are now eyeing emerging markets like India. There are a host of Indian peer-to-peer lenders too who are waiting[7] for this move towards cashless. Thus one suspects that the move towards cashless has been nudged in a large part by the fin-tech sector which is set to have windfall gains through this move. In fact this is part of a global trend.
Making Cash Look Criminal
For companies like Visa and Mastercard or PayTM , every transaction on cash is a missed opportunity to earn transaction fees or collect customer data (to monetise on later). Thus there is a move towards making cash look as regressive. As Brett Scott, author of The Heretic’s Guide to Global Finance: Hacking the Future of Money, in an article[8] points out how Visa has been trying to make Cash look redundant and even criminal. He points out to how in 2016 Visa Europe launched its “Cashfree and Proud” campaign, to inform cardholders that “they can make a Visa contactless payment with confidence and feel liberated from the need to carry cash.” He also points us to a press release[9] from Visa which declared the campaign “the latest step of Visa UK’s long term strategy to make cash ‘peculiar’ by 2020.”
However is cash really all that bad? As Anupam Manur points out in this article in Factor Daily[10], it is not that cash is bad, but there is a move to paint it as bad so that one creates a inevitability on the death of cash, making it a self-fulfilling prophecy.
Digital Big Brother Tracking Us
Going cashless has several disadvantages. These stem from the primary fact that what is a independent transaction between two people now requires 1 or many intermediaries. These intermediaries are banks, payment gateways, mobile service providers, internet service providers etc. The moment we have these electronic intermediaries, we create a digital trail – thus handing over the minutest part of our lives to these largely corporate giants – which bus we took, where we bought chillies, how many packs of cigarettes we bought and where, what products we prefer etc. All of these can be used for surveillance, for targeting products and services in a manner that people then get induced to consuming more etc. Privacy will be thrown out of the window. Banks, Insurance Companies, Hospitals, the Police – all of these will now be able to use the data to target us. In fact China is now considering giving citizens scores[11] on their behavior, and these scores will determine if they will be allowed to access basic services like travel, loans etc!
Corporate Control Over Our Money
Other than surveillance, we will also lose control over our own money and how we can use it. For instance, Visa, Mastercard etc prevented people from paying donations to WikiLeaks[12] a few years ago! Such arbitrary blockages cannot happen in a cash based economy so easily, but in a cashless economy, how do we prevent these? Similarly, when today we see that a bank is collapsing, we can rush and withdraw money, but if all the money is digital – how do we withdraw it? Today if interest rates come down, we can withdraw money and keep it in cash. Tomorrow, once all money is electronic – we have to suffer low or negative interest rates (as has been done in some European countries) or just spend the money! Once all money is electronic, we are giving a free hand to government to indulge in such macro-economic manipulation. Of course, speaking of control, one does not even need to talk of the situation in Kashmir or Manipur where internet and mobile phone services have been shut down – in such situations what would one do without cash?
How ‘Cashless’ Hits Street Vendors, Small Shops, Small Farmers
While the above mentioned reasons are those that impact all people, there is a very specific impact on the informal economy – street vendors and small shops. After demonetization, there business has come down across the country. Most people either prefer or are forced to buy in supermarkets or online shops which allow for digital /card payments. This is making street vendors consider options like IMPS, Mobile wallets like PayTM or even options like UPI apps. However, these forms of payment do not really work for street vendors or small shop keepers. For one, once you get locked into these systems, you are left at their mercy as far as transaction fees are concerned. Today it might be 0 or 1%, tomorrow one does not know if they will hike it. Plus of course, mobile wallets also charge you for moving your own money from your wallet to your bank account! This is done so that for e.g, people spend money received through PayTM, in the PayTM ecosystem itself!
Secondly, there are several practical issues – you need a smart-phone to use these, you need a data-pack, you need internet and need to be able to use all of these. One also needs to be able to be comfortable with reading and typing numbers on a cell phone, something which a significant portion of vendors are still not comfortable doing! And assuming you have all of the facilities required and the person knows to use it, one must have the time to do this for each transaction! A tea-stall owner, if he has to receive online payment for every cup of tea, will have to spend between half a minute and a minute to make sure the transaction happened, whereas earlier a cash transaction would have just been a matter of seconds! And in case there is an issue where a customer insists he made a payment but the vendor does not get the notification as has been reported in several places, heated arguments ensue and clarifying from the payment gateway will take a long time- time which is crucial for vendors. Many vendors also change their phone numbers once in a while, in such a situation where the phone number is linked to the account, they need to run around to ensure that the new mobile number is linked!
Today we have a situation where PayTM has been cheated by people and the CBI case has been filed on the same. When digital wallets are not able to secure their own money, the question is how do users – merchants and customers feel safe about their money? Thirdly, once street vendors start using digital solutions to receive money in the bank, they are easy prey for authorities to look at newer forms of taxes and if one wants to avoid it, one has to start maintaining record books for each transaction to show how much has been spent and how much earned! Imagine a street vendor making all payments to wholesalers in cash and then having received a payment of Rs 30,000 a month from customers. Now the profit might be only Rs 10,000 but the authorities can see only the Rs 30,000 that came in. And to show that the 30,000 is not profit but total revenue, one has to maintain records of all transactions, making it difficult especially for the poor and financially illiterate. They will not need to pay a tax under the tax slab, but to show that, they have to jump hoops! The transaction time for online transactions, the cost overhead, the time overhead all these will serve to make street vending less attractive. The state is as it is trying to evict vendors on some pretext or other other, now with this move towards cashless, one is only going to further harm them while encouraging big retail. The move to allow FDI in retail, coupled with the changes to our cities where we build wider roads and evict vendors, and going cashless will push the vendors further into trouble.
Similar is the case for small farmers. If APMCs and Street Vendors etc start receiving only online payments or will make only online payments, what is the fate of the small farmers? Today we have villages such as those in Rajasthan’s tribal district of Banswara where there is so little electricity that people walk to nearby tehsils to charge their phone! How does one make digital transactions in these cases? We are not able to provide farmers with power consistently, will we be able to provide them with internet? What will happen is that small farmers will have start packing up and only those farmers who are rich and have enough agency to go digital will survive , while also hastening the move towards corporatised agriculture.
In fact, people like Nilekani have also been talking of the advantages of ‘formalising’ the economy while talking about cashless. He has also been speaking of how more people will have access to formal credit, once the economy is cashless. If there is political will, farmers and street vendors can get easy access to credit today, one does not need digitization. What digitization will lead to is huge gains for the fin-tech sector and will result in the pushing out of the informal. It is clear that the Indian state wants to move in this direction. The demonetization has only served to give a leap towards going cashless. We now need to work with the people to show that cash is not bad, cash is not regressive and that cash gives us freedom and control. We need to go out into the street and talk about whom a digital economy helps and whom a digital economy hurts.
Notes :
1. https://www.credit-suisse.com/media/cc/docs/cn/india-digital-banking.pdf
2. http://www.livemint.com/Industry/AqU2dNhaoihMSR1LaVHXXM/Scrapping-of-Rs500-Rs1000-notes-a-boost-for-cashless-econo.html
3. http://image-src.bcg.com/BCG_COM/BCG-Google%20Digital%20Payments%202020-July%202016_tcm21-39245.pdf
4. http://www.gatesfoundation.org/How-We-Work/Quick-Links/Grants-Database/Grants/2016/06/OPP1150986
5. http://nextbillion.net/nexthought-monday-its-the-ecosystem-stupid-exploring-the-digital-poverty-stack-part-1/
6. http://www.newyorker.com/business/currency/why-its-so-hard-to-regulate-payday-lenders
7. http://scroll.in/article/813264/now-startups-allows-you-to-borrow-without-going-to-a-moneylender-or-even-a-bank
8. http://thelongandshort.org/society/war-on-cash
9. https://www.visa.co.uk/newsroom/visa-europe-launches-cashfree-and-proud-campaign-1386958?returnUrl=%2fnewsroom%2fcash-free-and-proud-video-female-22806.aspx
10. http://factordaily.com/digital-payment-cashless-society-good-or-bad/
11. http://www.independent.co.uk/news/world/asia/china-surveillance-big-data-score-censorship-a7375221.html
12. https://wikileaks.org/Banking-Blockade.html
