Indians prefer using cash for good reason. Cash keeps the economy moving even when there is a power cut and bank branches are shut, or when automated teller machines are not working. Cash doesn’t rely on how far a bank branch is from where you live or work; cash doesn’t require you to remember complicated passwords, and cash works even when telecom networks are shut down because of unspecified terror threats, and even where cellphone network is spotty. The woman who sells vegetables at your doorstep wants only cash. The man delivering milk won’t accept a cheque. Some shops don’t accept cards. Cash is the language of transactions, with which you, and millions of others, are used to conducting business daily. Cash is trusted, understood, legal; keeping it is legal; it is yours.
But only just. The government has taken a series of measures that have undermined the value of cash. You do technically have money in your account, but the choice of how much you can take out or spend is being taken away from you. If chip-and-pin cards and e-wallets seem indecipherable to you, then you may have to trust intermediaries—like typists at post offices—who will do business on your behalf for a fee. The transaction cost it adds may be negligible for people who announce on social media that they had a haircut for Rs661 and the barber shop accepted the money electronically, but that segment of the market is but a sliver. Six hundred and sixty-one rupees is nearly three weeks’ income for someone who lives on the poverty line.
It is patronizing and paternalistic to assume that the poor need to be educated and compelled to open bank accounts; that they aren’t doing so out of ignorance or obstinacy. The poor know how they are treated at branches if their bank balance is low, and smartphones aren’t cheap.
To be sure, many of the constraints that have kept nearly half of India’s population unbanked can be fixed. More branches should be opened away from the cities and they should operate at hours convenient to account holders, not the staff. ATMs are useful only if they work and only if they have cash. Both branches and ATMs should be spread throughout the country, and not concentrated in major towns and big cities. Power supply should be uninterrupted and telecom networks should not be shut down without proper cause, and if shut down, alternative means must exist for people to go about their daily lives.
This requires sensible sequencing and persuasion—instead, the government has issued a diktat and starved the economy of liquidity, to force people to act as the prime minister and his select group of advisers have determined.
Correct sequencing is important before any transformative change is undertaken. Singapore’s former prime minister, the late Lee Kuan Yew, hated traffic jams. He didn’t want his island republic to suffer the fate that befell Bangkok and Jakarta. In 1975, Lee established an area licensing scheme (ALS) which levied a small charge on cars entering the central business district during peak hours. Since the levy wasn’t high, people continued to drive into the city, and so in 1990, a vehicle quota system was introduced which made it prohibitively expensive to own a car (those who wished to buy a car had to bid in an auction to acquire a certificate of entitlement, or COE, which was like a permit that allowed the individual to buy a car). Three years earlier, in 1987, Singapore started operating a mass rapid transit system, and by 1991, sleek trains started running, connecting a little over 40 stations across the island. The stick—of COEs and ALS—hurt, but there was the carrot—the MRT—which softened the blow by providing a world-class transit system. Then, in 1998, a more sophisticated electronic road pricing system was introduced.
Think of the sequencing—a surcharge to enter the city; creating an efficient transit system; raising car prices; then pricing roads. In the Indian context, it is as if people are told to return their cars to the state with the promise that new cars will be distributed, but they are being rationed, and the mass transit works only sporadically, benefiting a few, compelling people to walk long distances, and the government’s cheerleaders are telling those pedestrians—walk, it is good for your health; don’t be selfish, walk; soldiers guarding the borders walk miles daily as part of their drill, and you say you can’t walk a little bit for the greater good of the nation?
The prime minister wants to change Indian habits. Those habits have a rationale—people prefer cash because there are no functional alternatives. The reasons given to change their habits have changed week by week. Indians have good reasons to use cash—convenience being one, anonymity being another. The government may find such stubbornness annoying. But democratic governments change people’s behaviour by persuasion, not through coercion. The glaring failures in implementing the currency note swap shows either incompetence or deliberate design. The former is inexcusable; the latter, dishonest.
Maybe going cashless is good in the long run. But the short-run pain is unconscionable, and much of it is borne by people who have little money, and none of it is black. They are the collateral damage in this quixotic battle. Like the commander in the Vietnam War who destroyed a village to save it, the government has made life harder for those who had little and now even less.