Why ‘cashless’ may be the new normal in India
The demonetization drive is not so much about curbing black money. Consider the likely outcomes of a cashless society, and read back from them the intent behind such a move
Perhaps the most significant development since the November 8 announcement of demonetisation is the shift in the legitimising narrative around the note ban. What was touted as a ‘surgical strike’ on black money, fake currency and terror funding has now become a radical ‘reform’ to transform India into a cashless economy. A series of measures, not least a high-decibel advertising campaign, are already in place to build national consensus in favour of this transformation.
Cashless Ki Baat
It was Prime Minister Narendra Modi’s Mann Ki Baat of November 27 that officially signalled this narrative switch. In a nuanced execution of a sophisticated communication strategy, Mr. Modi drew on the equivalence, in the Hindu imaginary, between ‘Swachh’ and ‘purity’, and ‘purity’ and ‘virtue’, to give a moral colouring to the binary of cash/cashless.
India is an economy where 90 per cent of all transactions are in cash. This is due to the large informal sector, which employs 90 per cent of the workforce. The overwhelming majority of them are not hoarders of black money. And yet, India cannot become a cashless society unless its mammoth informal sector transitions to digital payments.
Canny communicator that he is, Mr. Modi sought to pre-emptively quell the resistance such a forced transition would evoke by presenting the campaign for a cashless India as a campaign against black money and corruption. By dissolving the distinction between legal cash and black money, he cleared the ground for the treatment of all cash as potentially black unless proven white.
In other words, the informal sector is not an unintended casualty of demonetisation but the intended target. As the Reserve Bank of India Governor has clarified, the government was fully cognisant of the consequences of its move, and it was not at all an ill-planned operation, as some have suggested. As it happens, cash is the most powerful instrument of financial inclusion. Anyone can access it directly, without depending on rent-seeking technological or financial intermediaries. Once you have it, you could spend it whenever, wherever, and in whatever quantity you want to, without anyone being able to track you doing it. These are basic freedoms and rights that we take for granted. It is because these freedoms matter that there is resistance to their loss — a loss that is a given in a cashless society.
There was thus a logical need for a ‘phase one’ of demonetisation where the idea that it was about black money could be firmly planted in public memory. In phase two, which would kick in after ‘black money’ and national pride have been inserted into the demonetisation discourse, ‘cashless’ would be equated with ‘clean’, and cash with ‘dirt’ and the suspicion of dirty or black money.
In the cashless utopia that India is set to become, anyone who insists on using cash, a signifier of dirt, has a ‘dirty mind’, and is thus a suspect — a possible beneficiary of black money and the vices associated with it. Indeed, Mr. Modi concluded his Mann Ki Baat by explicitly equating ‘Swach Bharat’ with a cashless (or ‘less-cash’) Bharat, as he proclaimed, ‘Swachh Tan, Swachh Mann, Swachh Bharat, Mera Parichay’.
But what explains this urgent drive towards a cashless society? One way to answer this is to consider the likely outcomes of a cashless society, and read back from it the intent behind such a move.
One immediate outcome of a cashless India would be a sharp rise in indirect taxes compliance. Traders, small businesses, shopkeepers, and consumers routinely use cash as a means to avoid paying service tax, sales tax, VAT, and any number of indirect taxes and fees. This mindset needs to change if the imminent Goods and Services Tax (GST) regime is to actually work. Brutally enforcing a cashless payments system — by sucking out 86 per cent of paper money and letting people flounder for a period in a condition of acute paper money scarcity — is perhaps the quickest means way to get there.
Apart from the state, another big beneficiary of a cashless India is finance capital. At present, India’s low-income households access credit through informal systems — be it a pawn broker or employer or a relative with cash savings.
This informality has been partially dented with the arrival of self-help groups that can access formal credit. But given India’s population, both the debt and the savings of the working classes constitute an enormous market that global finance has so far been unable to access.
Forcing them to shift to cashless payment platforms instantly formalises this world of informality. As the Prime Minister himself has reiterated many times, the mass opening of bank accounts under the Pradhan Mantri Jan-Dhan Yojana is a means towards financial inclusion, but in reverse: it channels personal income (wages/cash transfers) to financial markets via insurance and pension schemes such as the Pradhan Mantri Suraksha Bima Yojana and Atal Pension Yojana. Thanks to forced deposits, unlike cash in a piggy bank or a plastic pouch, money in Jan-Dhan accounts can serve as a fresh source of liquidity for financial institutions.
Go in for cashless transactions and get discounts, says govt.
The third beneficiary is the digital sector, which enjoys a complex but symbiotic relationship with finance capital. Digital payment apps and e-wallet companies have enjoyed record downloads and deposits post-November 8. Their massive ad spends were possible courtesy the financial institutions that have invested in these finance technology (fintech) businesses.
Finally, in a global scenario of debt-soaked slowdown, extreme income inequality, and stagnating real wages, capital accumulation is only possible through a mechanism that systematically administers an upward redistribution of income — from the 99 per cent to the 1 per cent. While an indirect tax regime like the GST would accomplish this objective for the state, the integration of personal savings into the global debt economy would manage the same for finance capital. The primary requirement in both cases is to capture the circuits of capital and commodity circulation that lie beyond their respective domains of taxation and credit — that is, the entire cash economy. The drive towards a cashless society is hence the lynchpin for securing the supremacy of the state-finance nexus.
The definition of ‘normal’
From businesses to analysts to ordinary citizens, everyone in India is waiting for life to return to normal. But what would constitute this ‘normal’? An easy definition for most people would be: no long queues at ATMs. But the queues are long not only because there are too many people and too little cash. They are long also because there is a limit on how much cash you can withdraw at a time, forcing people to queue up multiple times at different locations. A proper return to the pre-demonetisation ‘normal’ therefore entails something more: removal of any ceiling on cash withdrawals.
Indian Government to fund digital discounts
Such a definition of ‘normal’ would be valid if the reason for demonetisation was either destruction of black money or fake currency, or even a recapitalisation of banks — all of which has either already happened or no longer matter. Assuming you are an honest citizen who uses cash but not black money, you could legitimately expect to go back to the pre-currency ban status quo, with one difference: instead of old notes, you use new ones, which should soon be available in numbers proportionate to demand.
But everything that the Prime Minister has said and done so far suggests that there may not be a return to this old ‘normal’. No matter how many currency notes are reportedly printed, how many ATMs are recalibrated, how many livelihoods affected in the informal sector, the ceiling on cash withdrawals may not be withdrawn any time soon — and no date has been indicated so far. The reason is simple: the demonetisation drive is not so much about curbing black money as it is about combating cash. The only way this could change is through extreme political pressure.
Not surprisingly, the banking sector is firmly behind the Prime Minister on demonetisation. So is the IT sector. Barring a few squeaks about the impact on growth, the corporate sector, too, is behind Mr. Modi. The only constituency that may not be, is the one targeted by demonetisation: the cash-dependent informal sector, which has taken a hit, and will continue to do so unless and until they switch en masse to digital payment platforms — which is what the government is expecting them to do.
While the political ramifications are a different story, one may view Mr. Modi’s push for a cashless India as the culmination of the economic logic of liberalisation unleashed by Manmohan Singh in 1991. From this ideological vantage point, a rapid transition to a cashless economy — even if it means not-so-subtle coercion — makes perfect sense.
Original Article published on The Hindu, an English Newspaper of India
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