India's Marie Antoinette Moment
Amid the tales of mass misery and deaths due to cash crunch caused by his decision of demonetization, Narendra Modi asked people to go for digital transactions and in one stroke overtook Marie Antoinette, who is reported to have asked people suffering due to widespread bread shortages, to eat cake. Historians are not sure about the queen having ever said it, but the entire nation has been witnessing Modi's high pitched exhortations to have cashless transactions through digital media. Marie, with her royal lineage said it in feudal France three centuries ago, Modi claiming to come from a humble family of chaiwala with his mother working as a maid servant in others' houses says it in a democratic republic of India in 2016!
The drama of war against black money, terrorism and counterfeit currency through demonetizing the 500 and 1000 rupee notes has completely exposed the political unscrupulousness of the BJP and narcissist haughtiness of Modi. Leave apart catching black money, demonetization opened new avenues of making black money. The anger over the untold sufferings it unleashed on already distressed rural population haven't flowed onto streets as even the Supreme Court apprehended but may have its date in coming elections. The new ploy of promoting digital transactions is nothing short of rubbing salt on the wounds of millions of the working class. BJP is blissfully complacent with its victory in civic polls in five states that took place after demonetization was announced. It took it as the approval of demonetization by the people and thankfully appears out to repeat such blunders to its own peril.
Modi has mesmerized people with his theatrical skills and gift of the gab, giving them many slogans like "digital India", "make in India", "Startup India", "swachh Bharat", "sabka saath, sabka vikas", etc. but halfway through his tenure, could not deliver on any of them. The cashless economy is most fantastic of these slogans that he has come out with just to distract public attention from catastrophic demonetization. When he announced his decision on 8 November, he had mentioned "black money" 18 times in his speech and did not talk even once about cashless or digital economy. After 20 days when his bravado could not contain the disastrous consequences to people and mounting criticism of this inept act, he swiftly changed the goalpost and began talking about"cashless" and/or "digital" economy. This term occurred 24 times in his Mann ki Baat on 27 November, when he first mentioned it whereas black money occurred only nine times. The queues in front of banks and ATMs had not yet ended but the discourse was successfully diverted towards cashless transactions. In the face of horrific empirical reality even the sarkari intellectuals felt embarrassed to speak with conviction for demonetization, but most of them began comfortably speaking in favour of cashless economy. The spurt in use of digital wallets post demonetization emboldened them to project India was already ready for the 'cultural revolution' as BJP's Venkaiah Naidu claimed.
Can really India be a cashless or even as Modi corrected himself later, less cash economy in near future? As of now there is no definition of any of these terms and they only connote relative standing of economy in terms of the usage of physical cash. For instance, the Mastercard report on Measuring progress toward a cashless society (2013) categorized countries into four classes: inception (where cash accounts for 90% or more of all consumer transactions), transitioning (where cash transactions account for between 80–90% of consumer payments), tipping point (where cash transactions account for 55-71% of consumer payments) and advanced (where nearly everyone has at least a debit card and merchant acceptance is nearly ubiquitous). According to this report, India is placed in inception category at only 2% of consumer payment transaction done using non-cash methods as compared to the advanced category cases of Singapore (61%), Netherlands (60%), France and Sweden (59%). The report presented trajectory score (growth during the previous five years) of cashless transactions for the subject countries. As against Singapore (39%), Netherlands (20%), France (14%), Canada (16%), India's score was 11%, far behind some of the members in its category such as UAE (65%), South Africa (53%), Kenya (51%), and even Nigeria (12%). The report listed pre-requisites for going cashless and estimated readiness score for various countries. Sweden scored top at 89, Singapore 80, Netherlands 88, France 74 and India just 29, behind even the countries like Kenya at 30, Thailand at 48, and Malaysia at 56. It should be clear that India is not ready to go anywhere near cashlessness at least during Modi's tenure.
Digital money may be desirable but its proliferation presupposes financial inclusion of all people, macro-economic and cultural factors; merchant scale and competition; and technology infrastructure. Towards financial inclusion, the government has made some progress by opening 256 million bank accounts for the poor. Many of them under the Prime Minister's celebrated Jan Dhan Yojana, however, are the second accounts, a quarter of them being zero- balance non-operative accounts, and therefore a burden on the banking system. With regard to accessibility of financial services, there are about 2 lakh bank branches for total of 6.5 lakh villages; 2 lakh ATMs, mostly in cities, 85% of which are still running on outdated Windows XP. Thus, a large population of the country still does not have access to financial services. Even if the financial services reach out to all people, a vast majority will still be excluded simply because they do not have money. The NCAER-University of Maryland's income based survey (2011-12) established that for the lowest percentile of population, consumption is about twice the income, and everybody up to 33rd percentile consumed more than their income. Are these people expected to transact digitally?
The spread of mobile telephony is flaunted as the platform to leapfrog into digital space. The latest figures from the Indian telecom regulator TRAI show that, as of 31st July 2016 , India had a teledensity of 83%. This may, however, need correction because it is based on number of connections and not users. Many people using multiple SIM cards, this number may be scaled down significantly. There are about 350 million Internet connections of which about half are on broadband (3G + 4G + wireline broadband). For the top four telecom operators, the number of mobile connections (smart phones) that are data enabled is just about 30%. There are total 6 crores debit cards and 2.5 crores of credit cards, which are barely accepted in cities. This is not the infrastructure for 1.3 billion people to go cashless. The security infrastructure required for digital transaction is still not up to the mark which does not induce confidence even in educated people to transact online. Today, 95% of all transactions take place in cash and only 4% people do online shopping, most of which with cash on delivery. With 90% of India's workforce in informal sector that run on cash, Modi-speak makes a pure daydream.
Aata or Data
There are apparent advantages of digital money over paper currency but to assume that everything is green with it will be grossly erroneous. Paper currency costs to produce and runs a risk of being counterfeited but then digital money is not free; taking current commissions being charged by the payment platforms, the cost of digital transactions could run into thousands of crores of rupees. A currency notes incurs cost of production and logistic for its circulation but it copes with on an average 100,000 transactions. If its cost is spread over these transactions, the per-transaction cost is almost zero. Contrast it with the cost of digital transaction either by credit/debit cards or e-wallets. They charge anywhere between 1 to 4% transaction value. As the user base widens these unit costs are expected to come down but not completely vanish because their issuers' business model is premised on that revenue stream. The digital money, moreover, suffers from various security risks. In course of time, like costs, risk associated with digital money also may come down but they can never be zero. Eventually, these risk and cost shall be borne only by common people.
Basically, digital or physical, it is a question of money which majority of people simply does not have. Digital money may suit Modi to score political mileage, hyping it as development but it should be understood that there is no essential difference between the physical and digital money, insofar as they both constitute liability of the issuer and operates as a transferable claim in transaction mode. Digital currency tends to increase velocity of money and become virtual. Virtual money is just a digital representation of value, which is issued and usually controlled by its developers. If digital money is transacted between person to person (P2P) and used in the real world for physical goods and services, it remains digital but if it is used only for virtual world purchases in closed loop systems, then it turns virtual. The intrinsic tendency of digital money to become virtual is hugely speculative.
Then why is Modi after cashless economy? Cashless economy makes it difficult for many in informal economy to escape the tax net and significantly add to the indirect taxes when GST is implemented. Already, indirect tax contributes two-third of tax revenue; its increase would enable dampening of direct taxes on wealthy. Politically, it lends complete control over people because they can now be profiled with their transaction data and targeted for effective surveillance. It directly benefits digital wallet companies like PayTM, which is said to be making Rs 120 crores per day since demonetization was announced and surged in its valuation by 4.7%. The space has already attracted many players but in long run the winners would be those platform-gateway companies which also sell data. Reliance can surely be named because its Jio strategy catapults it to be the lord of the digital world. The vast majority however will be forced to buy data over aata (ration).
Marie Antoinette's impudence led to the French Revolution, to the overthrow of the monarchy and to her being guillotined. Can we not hope for a small change in India!