Demonetization, the informal economy and civil society

The 50 days of the ‘Demon’ are now done. Even as the nation waits in apprehension, wanting to know what lies next, there have been several humorous responses to the same. Church Street Social, an upscale pub in Bangalore has announced that their customers can get a drink of beer at Rs 31, for every time that Modi says ‘Mitron’ in his speech today (Dec 31). By the time this article is published, the joke may well be upon us, again!

Meanwhile, even as we all wonder what was the real reason behind demonetization, by now it is clear that neither has this helped recover the estimated 6% of black money, which was in the form of cash, nor has it done anything to stop the generation of new black money, nor has it stopped counterfeit money, corruption or terrorism. The frequent Income Tax raids which uncovered crores of new notes, counterfeit notes and continuing corruption all point to a monumental failure on this front.

What then has been the real reason for demonetization? In response[1] to an RTI Query asking for the reasons of demonetization,  the Reserve Bank of India refused to put on record the reasons for demonetization, hiding under Sec 8(1)(a) of the RTI act. Sec 8(1)(a) is as follows – information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence; How the information related to demonetization will fir in with this clause is incomprehensible. Even the PMO has declined[2] to give details about decisions on demonetization, under the same section 8(1)(a)!

Why Demonetisation?

What then could be the reason for demonetisation? Is it to shove down our throats a cashless economy[3]? Nandan Nilenkani certainly said so[4], the day after the demon was unleashed and the government certainly seems to be stating that all the time!  As Usha Ramanathan eloquently argues,  that we  now have an Aadhar-enabled cashless economy so that the state and businesses can track our every move and expenditure[5]?  Indeed the fin-tech sector has been pushing for a cashless economy for long. Sample this chapter heading from the Boston Consulting Globe and Google (!) report titled Digital Payments 2020[6] –  INDIA DIGITAL PAYMENTS – A $500 BN POT OF GOLD . I guess, that is why we saw companies like PayTM putting out full page colour advertisements thanking Modi for this kind gesture! Many of our comrades have also pointed out how thanks to this demon, banks are now flush with cash again, ready to dole out many lakhs of crores in loans to the Mallyas, Adanis and Ambanis! Maybe this was an added incentive too to the mega-corporate friendly Modi government?

Of course there could be political factors like the upcoming UP elections and the need to show decisive action on the black money front, irrespective of impacts. It could also be part of what Shiv Visvanathan states[7] is Modi’s move towards building an India where the ideas of discipline and punishment, nationalistic jingoism are used to create an authoritarian state.

Whatever be the reason, we are now left to deal with the impacts. To deal with the narrative that cash is bad and cashless is good. That informal economy is bad and the formal economy is good. To wonder what to do with our rage on having restrictions on accessing our money, even beyond Dec 31, a move that does not even have the sanction of the law.

Impact of Demonetization on the Informal Economy

In the past few weeks, we have seen some national level NGOs tie-up with payment apps like Mobiqwik to help street vendors embrace demonetisation. We have seen NSS volunteers going to small retailers and street vendors and teaching them to go cashless and digital. But is this really a good thing?

For one, there are huge practical difficulties in street vendors and small retailers using digital means – a large percentage of them are simply not adept at using the smart phone . Using a smartphone to make and receive payments also means that you need to have one in the first place, have your data enabled all the time and have access to a charging point for the phones. Secondly, if there is an issue in receiving or making payments, one has to call the toll-free number/ send an email etc. , which can be tedious for street vendors and small retailers who have transactions which are generally lower in value but are high in volume. That being the case, if one were to swipe, use PayTM, use IMPS etc to make and receive all payments, the amount of time it would take itself results in less time to attend to other customers!

Imagine paying Rs.10 for a cup of tea through PayTM versus cash! The government is of course pushing for the Aadhar enabled e-payments where the customers will not need a smart-phone and can use their thumbprint. How reliable is this? There are enough reports to show that fingerprint based authentication is failing[8] . One of the street-vendors from Shivajinagar whom I work with asked a very pertinent question – “ when Vijay Mallya’s and Rahul Gandhi’s online accounts are not safe from hacking, what about the privacy of our digital accounts? How do we ensure that it doesn’t get hacked?”

It is a very valid question, especially consider the fact that PayTM itself has lodged a complaint[9] saying it has lost money because its own employees and customers connived to swindle PayT. There are several other reasons why going cashless does not work for street vendors, as I have argued elsewhere[10]. However, the central government seems to be intent on pushing people to go cashless – what else could explain how only Rs.2000 notes are in some levels of circulation but not Rs.100 or Rs 500.

Making people go cashless pushes a significant portion of the customers move from small retailers and street-vendors to large retail. In fact one can argue that this move has further helped lay the ground for FDI in Retail. Customers who move from street vendors to stores like Reliance Fresh, More etc will be easier acquisitions for a Walmart, TESCO etc.

Aruna Roy of MKSS in fact in a recent interview[11] has said that this move will almost finish off the informal economy. Several neo-liberal economists have been pushing for the formalization of the economy and this demonetization has served well in pushing the economy to that direction. The irony that is to be noted is how this whole demonetization and a move towards a cashless economy is claimed to benefit informal sector.

Payment banks were set up in India[12] on the basis of the Nachiket Mor committee[13] on “Comprehensive Financial Services for Small Businesses and Low Income Households”. It is unclear how this will help achieve financial inclusion. What it will in fact do is choke the informal economy, while not wiping it out immediately. Those who are remaining will help the larger corporations and the fin-tech sector make money.

Looking at the design of PayTM for example – till a few weeks ago, a customer would be charged for moving her own money from her PayTM wallet to her own bank account. The idea is that the customer spends the money again using PayTM eco-system. Of course the huge amount of data generated through cashless payments will further boost consumption, for those who have access to that data – and that is most definitely not your pani-puri vendor or small farmer or the local carpenter! The BCG and Google co-authored report quoted earlier in fact states the following –

Payments will drive consumption—and not the other way  around:

Payments will provide access to customer transaction  data, enabling payment service providers (PSPs) to offer relevant  deals, offers and coupons to consumers, thereby influencing their  consumption decisions

Digital identity to accelerate customer acquisition:

Using Aadhar for online authentication and confirmation of KYC data  will boost growth of digital payment systems

Informal economy participants such as street vendors are now bound– yet going cashless poses a huge amount of practical problems. It will force them to do tedious record keeping to show tax compliance.  This also forces their entire eco-system – small farmers, Mandi Owners, other wholesalers  customers to go cashless and this may not work for all, certainly not for the small farmer who is today struggling to get access to electricity forget the internet! What this will lead to is a move towards formalization and corporatisation.

On the other hand if the street vendors do not go cashless, they also risk losing a portion of the customers, who even after Dec 31, will struggle to find the non-existent cash!

What are the other issues with a cashless economy?

The simple fact that, what was essentially a private transaction between two individuals (exchange of currency) now requires electronic intermediaries on both sides,  resulting in several entities storing our data. Where you buy chillies, which town you travelled to and when, whether you purchase alcohol – all of this data is now available for sale, for surveillance.

Anupam Mathur diligently lists out several dangers in his article[14]– macro-economic manipulation, censorship, the fact that you cannot do a bank-run once all your money is digital, etc.

 

What is civil society’s role now?

At this point of time, as civil society our task is cut out. Firstly, the whole demonetization exercise has thrown the rule of law outside the window[15] [16]. How does one counter a situation where the head of the state throws the law out, weakens statutory institutions like the RBI  and uses his personal charisma to rule?

How do we move ahead when Modi has a large section of those suffering, willingly bearing the suffering, in the honest belief that it will reduce income inequality or at the very least, prick the rich for once? Several of the street vendors and powrakarmikas we have spoken to support Modi’s move. Several small shop-keepers who lost business support his move. Only people in ivory towers will think that the entire nation is against demonetization. While surely with every passing week, peoples patience is thinning and the fog is lifting, a large section of the poor do believe that this was a great move which will reduce black money and reduce corruption. That their Prime Minister only means well.

What stance do we take when companies like Visa start campaigns like #KindnessIsCashless ? When globally, cash is made to look bad when it in fact helps us retain our independence and privacy? Brett Scott, author of The Heretic’s Guide to Global Finance: Hacking the Future of Money, in an article[17] points out how Visa has been trying to make Cash look redundant and even criminal.

Firstly, we need to take a step back , read up, talk to more people and see the linkages behind this move. What is the link between Aadhar, Nandan Nilenkani, going Cashless, the Nachiket Mor committee report on financial inclusion, Bill and Melinda Gates foundation (which Mor now heads) , IFMR who is funded by the Gates Foundation for work[18] on moving the economy towards cashless etc.

Secondly, there is no way out other than spending time and talking to people about this, raising the right questions. At the end of a two hour long discussion with a street vendors union on demonetization, several of them did begin to see how demonetisation may not be about black money and in fact might hurt them in the long run.

The opposition parties have really been ineffective during the past two months. In the coming days it is for civil society to step up, ask the right questions, hit the streets and show this move for what it is – a move taking us many steps forward into an authoritarian, mega-corporate friendly, surveillance state. One where independent, self-respecting farmers, artisans and vendors might be forced to abandon their livelihoods and become contract employees of a corporation.

By Vinay Sreenivasa

 

 

[1]     https://thewire.in/90462/rbi-refuses-give-reasons-behind-demonetisation/

[2]     http://timesofindia.indiatimes.com/city/chandigarh/PMO-refuses-demonetisation-info-under-RTI/articleshow/56129472.cms

[3]     http://cpiml.org/liberation/january-2017/demonetization-the-digital-wolf-in-a-sheeps-clothing?cur=1

[4]     http://www.livemint.com/Industry/AqU2dNhaoihMSR1LaVHXXM/Scrapping-of-Rs500-Rs1000-notes-a-boost-for-cashless-econo.html

[5]     https://scroll.in/article/825049/data-is-the-new-gold-and-aadhaar-is-the-tool-to-get-it

[6]     http://image-src.bcg.com/BCG_COM/BCG-Google%20Digital%20Payments%202020-July%202016_tcm21-39245.pdf

[7]     http://www.asianage.com/opinion/oped/231216/how-modi-is-trying-to-rework-idea-of-india.html

[8]     http://scroll.in/article/822764/chhattisgarhs-way-of-dealing-with-aadhaar-when-fingerprints-fail-take-photos

[9]     http://indianexpress.com/article/india/cbi-files-fresh-cheating-case-on-paytms-complaint-4439131/

[10]   http://cpiml.org/liberation/january-2017/demonetization-the-digital-wolf-in-a-sheeps-clothing?cur=1

[11]   http://www.caravanmagazine.in/vantage/interview-aruna-roy-demonetisation-effects-rural-india

[12]   http://www.livemint.com/Opinion/S6yWm5lUrQh6APraAOaTPI/Cashless-transactions-and-the-poor.html

[13]   https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0ahUKEwiizbWss57RAhXBK48KHT5vBq8QFggrMAI&url=https%3A%2F%2Frbidocs.rbi.org.in%2Frdocs%2FPublicationReport%2FPdfs%2FCFS070114RFL.pdf&usg=AFQjCNG5cVYnwrNY-x2Wu2Hx57akWXgK9w

[14]   http://factordaily.com/digital-payment-cashless-society-good-or-bad/

[15]   https://thewire.in/81325/demonetisation-legally-unsound/

[16]   http://scroll.in/article/821484/is-the-modi-governments-restriction-on-bank-withdrawals-supported-by-law

[17]   http://thelongandshort.org/society/war-on-cash

[18]   http://www.gatesfoundation.