The Pulse

If India’s Demonetization Was All About Going Digital, Then Why the Rush?

If it was about going digital, what was the hurry to demonetize?

If India’s Demonetization Was All About Going Digital, Then Why the Rush?
Credit: CC0 Public Domain via Pixabay

Nandan Nilekani, the former chairman of the Unique Identification Authority of India, has hailed Indian Prime Minister Narendra Modi’s move to demonetize high-value currency notes—removing 500 and 1,000 rupee notes, which together comprised 86 percent of the cash in circulation—saying it will boost India’s digital economy.

“The shock given to the currency” will accelerate the process of the digitization of the economy and what could have taken three to six years can now be expected in three to six months, said Nilekani, the architect of Aadhar, the 12-digit unique identity number that has so far been issued to over 93 percent Indians after collecting their biometric and demographic information.

His comments come at a time when the government has begun pushing cashless transactions in a big way, promoting digital payments through e-wallets, mobile and Internet banking, and bank cards. Niti Aayog, the National Institution for Transforming India, the institution that replaced India’s Planning Commission after Modi came to power in 2014, has launched a country-wide campaign to create awareness on digital payments. It is conducting training workshops for government employees in various ministries and administrative services.

“We want to make digital payment a mass movement,” Niti Aayog CEO Amitabh Kant was quoted as saying. “It is not just about ministries and states we will go down to the panchayat and taluka levels (grassroots level administrative units). We have whole teams of people who will teach digital technology to people. It is a complete campaign in which we want to instil a sense of pride in going digital.”

Prime Minister Modi himself has tweeted in Hindi and English the different methods, one of them being the bank account-linked Aadhar card, by which people can make financial transactions without having to touch cash. The concerted drive also saw other leaders such as Smriti Irani, the minister of textiles, Piyush Goyal, the minister of power, and K. Chandrashekar Rao, the chief minister of Telangana, joining in.

A “complete campaign to instill a sense of pride in going digital” propelling Digital India towards a new, cashless, corruption-free future is not really a bad idea, even though it sounds like another India Shining story. One seriously hopes it becomes a success, taking India to the promised new heights. And if it does, the question still remains: did it have to happen like this?

What should have come first?

India, despite its reputation as an information technology hub, has precious little to show for as a digital economy. According to a 2015 report by the PwC, 98 percent of all transactions in terms of volume and 68 percent in terms of value are conducted in cash.

But, it is not the lack of “a sense of pride” that is the sole contributor to this massive cash economy. India is home to 21 percent of the world’s unbanked adults. As of last year, only 53 percent of its population had bank accounts. Moreover, the country’s official literacy rate is 74 percent, and this includes people who can barely sign their names.

It is perhaps better not to even speak of financial literacy. With such low figures of financial inclusion and literacy, both of which are a must for a digital economy, can a cashless economy happen overnight? Nilekani is right. Only a “shock,” like demonetization, can make it possible. But what does it say of governance if such a “shock,” a coercive measure of such enormous scale, is the only way to get things done. How fair is it on the part of the government to resort to something as severe as demonetization ever so casually, in such a ham-fisted manner?

The government was completely unprepared to face the resulting situation from a sudden removal of 86 percent of all cash in circulation. Over 55 demonetization-related deaths were reported from different parts of the country in less than 10 days. The elderly died in bank queues after waiting for hours, and sometimes days, to withdraw money from their own accounts; bank employees collapsed at work and many committed suicide, shocked that their life’s savings were worth nothing any more.

The Indian economy has been served a jolt and no one really knows when it will recover fully. Growth is feared to slow down. Agriculture has taken a hit and food production is likely to drop. Daily-wage earners are among the worst hit; migrant construction workers, unable to find work, are returning home.

All this is being passed off as “minor inconvenience” or “short term pain,” in Nilekani’s words. Anyone complaining is seen as an anti-national, siding with the tax-dodgers and the corrupt. In fact, popular support for demonetization is unwavering, despite all odds. Evidently, people are fed up of India’s legendary corruption and want to give government a chance to clean up the system. They are willing to give Modi the 50 days he asked for to give citizens the “India you desired.”

The question, more moral than political, is how right is the government was in exploiting the trust and sentiments of the people, by suddenly plunging them into deep economic uncertainty? The government’s explanation for the suddenness of its action is the need for secrecy so as not to allow cash hoarders a chance to divert their cash, or find an escape. In its blinkered obsession with taking to task cash hoarders and tax evaders, the government did not take into account the ordeal facing the common people, mainly the poor.

The government could have handled this better. To be fair to Modi, he deserves credit for putting a lot of stress on financial inclusion since assuming office in 2014. Reportedly, 219 million new bank accounts were opened through the Jan Dhan Yojna scheme he launched two years ago. It is a different matter that most of these accounts were lying idle without any balance or transaction, until demonetization when they suddenly saw a surge in deposits.

What was the hurry to demonetize? The massive campaign that the government has launched now to promote digital economy, could have come first. Not all people dealing with cash are criminals; a large chunk of the population is not aware of cashless options. Financial literacy could have helped them.

Demonetization should have been used as a last resort.