The goalpost of the present demonetisation drive keeps shifting every other day. Now the emphasis is to drive India to a cashless society. The debate often circles around the practicability or the move in a country like India. While this merits serious discussion, what is more important is to look whether the very move towards cashless society is desirable.
What is wrong with cash?
The proponents of the cashless economy often place their argument saying that currency driven economy facilitates parallel economy by being susceptible to illicit activities. On the other hand cashless economy potentially expands the tax base and eliminates the cost of printing currency. Cash could be stolen whereas cashless transaction it is safe. The advocates of the cashless economy also say this will enhance consumption and investment thereby providing a boost to employment and growth While it is true that cashless economy will expand the tax base, all other arguments are debatable to say the least.
In October 2015, the UK Government did a National Risk Assessment based on Money Laundering and terrorist funding. The study based on recent data revealed that the risk is highest with regulated institutions such as banks.
The risk of money laundering with Banks is placed at 158, with Accountancy Service Providers at 90 and Cash third at 88 risk points. This is particularly relevant in the present Indian context as the demonetisation move was projected as a fight against money laundering and terrorist funding. It is true that some use cash to evade tax but it is paltry when compared with the tax evasion of big corporates. How do we explain the stressed debts and Non-Profitable Assets (NPA) in Indian banking system if cashless economy prevents tax evasion? If the government is serious and sincere to curb tax evasion, it should start with the mass corporate tax avoidance which is facilitated by the formal banking sector.
We cannot blame this on Indian banking system alone as this is the case globally. Linking progress and growth to the financial banking system is also not supported by facts. In most places, the landline telephone connections are demanded for a bank account and credit. But a mobile phone and airtime required only cash. According to a UN study, six billion people have a mobile phone connection, much more than those who have access to a toilet, whereas only 1.3 billion have landline connections.
Many experts opine that the financial system was actually a barrier to progress for the poor where cash was a facilitator. The GDP gets enhanced in a cashless society but at a huge cost to the public. This is explained in later part of the article. Even the cost of printing currency is often exaggerated and such studies are often sponsored by payment intermediaries. The cost of printing 86 percent of our currency is now estimated as ₹12000 crores. The cashless system also comes with an even more operational cost but the difference is that this is often passed on to the public.
Is cashless society desirable?
Cash may not be bad but is a cashless state an equally good if not better one? A ' less-cash society and cashless society are entirely different. When every transaction you do is authorised and recorded by a bank, the banking system contains a transaction history of your entire life, right from your birth. In a country where people are being attacked, at least once in a while, on the basis of what you eat and where you go, how would one feel safe with such micro-surveillant possibilities? That apart, payment intermediaries like Mastercard and Visa could have a big data economic macro-surveillance system. Often the service providers have built in intrusion mechanism. For example Paytm was requesting access to read your web bookmarks and history.
Freecharge asks to ‘read call logs’. Almost all these wallets insist on reading our contact list. There is already an ‘external watcher’ that ‘assist, guides’ or ‘helps’ you in your life, tracking and logging your moves in order to influence you, as Brett Scott the author of 'The Heretic's Guide to Global Finance' puts it. The Swiss People Party's member Manuel Brandenberg recently proposed a legislation making the existing denominations of bank notes now in use, permanent. He said “ Cash is property and cash is freedom. It empowers the individual because it is tangible wealth. We want to guarantee that cash remains in force. If it's anchored in the law it's harder to change”. We know about instances where Visa, MasterCard and Paypal, obviously under instructions, attempting to choke WikiLeaks by refusing to process people's donations.
Uganda shut down the popular mobile money in February 2016 just before elections to block donations being received by opposition parties. The official version was that it is being done to prevent the opposition parties from paying the public for votes. Here again, every transaction was traceable and the guilty could have been booked but the censorship was enforced throwing the gullible public into further distress. Scott concludes his analysis saying “The proclaimed Death of Cash is thus an episode in the broader drama that is the Death of privacy, the death of breathing room, and the death of informal, non-measured, unaccounted-for behaviour. Every action you take must forever be attached to your digital persona, dragging with it a data trail extending back to the day you were born, We face creating an entire generation of people who do not know what it feels like to not be monitored”.
Not just a threat to our privacy, a cashless society is a threat to our financial security as well. Sweden is the world’s best example of a cashless society. There were reports about homeless people selling newspapers carrying a POS terminal with them. But the central Riksbank has set an interest rate of -0.5 percent for deposits. What does this negative interest rate mean? That one has to pay the bank for parking their money. And you have nowhere else to park your hard earned money. So in a cashless society what do we do? Like in a passing the parcel game, keep transacting money and never hold on to it. GDP would grow but at the expense of the consumer.Over a fifth of the global gross domestic product is now produced in countries that have negative interest rates. These negative interest rates do not go along with the concept of the free market at all. They destroy the impetus to save and build capital thereby negating their own theory.
The strategic campaign
We have to learn from somebody else's mistake. We cannot commit mistakes learn from it. Similarly we have to be live to the strategies that were used earlier. One such strategy is telling us over and over again that There-is-No-Alternative(TINA). There is a carefully orchestrated propaganda that involves projecting usage of currency as primitive and not in tune with the modern world. Cash is showcased as redundant, inconvenient and inefficient. Anyone defending cash would be termed anti-developmental and a nostalgic luddite. Cash belongs to the beholder. An account balance is not actual money but just a claim on money. But the propaganda will continue.We should not forget that every transaction done with cash is a missed opportunity for payment intermediaries like Visa, Paypal and MasterCard. Visa campaigns " Cash free and Proud" whereas Paypal shouts " new money isn't paper, its progress".
Like ‘sustainable development’ which made many lives unsustainable, so is the new mantra ‘Financial Inclusion’. This is a policy to exclude many from doing any commercial activity. While the banks want more account holders who will use their whole gamut of services, banks cannot make a profit from marginal users who use their card to make low-value payments. The move to a complete bank based transaction system will completely alienate them. If you do not have official stamps of approval like university certificates it is going to be difficult. If you have a criminal record or been expelled from your college or even a bad CIBIL score then that is it. Despite this we were discussing financial inclusion.
The Indian society right now is very much a cash society. USAID did a study which reveals that 77 percent of respondents received income in cash and 79 percent made savings in cash and 90 percent who used debit cards, used them only to withdraw money from ATMs. RNCOS business consultancy services research paper, titled Indian Prepaid card Market Outlook to 2017, says 97 percent of retail transactions are carried out through cash. World Bank Global Findex database says only 11 percent of consumers used a debit card for purchases. RBI says the number of non-cash transactions per inhabitant per year is 6.7 in India. Only 6 percent of the merchants accept digital payments.
There were only 14.61 lakh point of sale (POS) machines in the country as on December 11 2016 as per RBI records.The number of POS machines per million is 693, the lowest in the world, according to Ernst & Young; 70 percent of these POS machines and 75 percent of the transaction happen in 15 cities. There are 1.5 crore retail outlets and 94 percent of them operate in less than 500 square feet of built up area. This shows we are so dependent on currency and that the infrastructure required for a shift to plastic money is simply missing.
RBI came up with a concept paper in March 2016, which makes public and official the inadequate card acceptance network in the country. “While there has been a significant growth in a number of cards, the growth of infrastructure has been lower both numerically and in terms of geographic spread and this has impacted the card usage”, says the concept paper. Hence the government urging people to use cards after withdrawing currency is effectively driving people away from the 1.4 crore retail outlets to the less than 10 lakh stores, which have POS machines.
RBI has also listed seven possible reasons for the poor growth in card acceptance infrastructure. The high capital cost of POS machine, recurring maintenance / servicing cost, difficulty of servicing POS machines in rural areas, low footfall of cards in rural areas forcing acquiring bank to withdraw services, lack of telecommunication infrastructure, lack of incentives, merchant discount rates, awareness level of consumers and concerns about the security of using this facility are all cited as major constraints in our journey to a less-cash society.
RBI had suggested two approaches to improving the card acceptance infrastructure- mandating banks to install terminals in some proportion to the number of cards they have issued and setting up of Acceptance Development Fund to subsidise the cost of acceptance infrastructure. As per World Bank, though 53 percent of adults in India have bank accounts a mere 15 percent of adults reported using an account to make or receive payments. World Bank estimates that there are 33 crore internet users in India and that mobile subscriptions went up from 23 crores to 96 crores between 2007 and 2015. As per Airtel CEO Gopal Vittal, smartphone penetration is 39 percent with 60-70 percent having a data connection. These connectivity details showing a fairly good growth pattern are insufficient to shift to a cashless economy.
Government record on managing infra
At the slightest provocation or anticipated provocation, the government blocks the existing infrastructure to the public. During the unrest following the killing of Hizbul Mujahideen militant Burhan Wani, mobile internet was suspended in Kashmir for straight 133 days. Internet access on prepaid mobile connections continues to be suspended. During the Jat quota agitation in February, Haryana Government suspended the internet for 10 days in several districts. In the last 3 years there were 39 forced internet blackouts across 12 states for almost 250 days.
When the government urges all to shift and depend on this infrastructure alone for all our transactions they are urging us to be in a state where those in power can switch on or off our lives at will. Whether a government will do it is a question but whether we should leave the government with such an option is another. The policy framework also needs to ensure interconnection and consumer protection. Today the payments regulator, the RBI, prevents a Paytm customer from paying a Mobikwik customer. If RBI does not trust these players then how would a customer trust them?
Lack of currency notes might force people to shift to plastic money. Of course, there is a huge business opportunity out there and they are on an all-out campaign as if going digital is the end of black money. The gadgets, the POS machine manufacturers, the payment intermediaries - together is a business worth lakhs of crores. Demonetisation offers a great realisation too. If money which is current cash could be demonetized at one stroke, what about the money in accounts? Accounts are just a promise or a claim on money. The lack of currency notes might force people to opt for plastic money. But if this was the intention of demonetisation, as is stated now, then government and the Prime Minister should be feared. They are not democratic, to say the least.
Restricting options and suffocating those who are already starving for fresh air and to drive them to a cashless economy is authoritative and should be defeated because of this reason alone. If the state continues to push for a cashless society, then we should also look at technological ways of bypassing spying commercial banks acting as intermediaries. Crypto-currencies such as Bitcoin could provide a counter-power to the hegemony of banks and intermediaries. Cash is in fact the only direct way we can hold government money. This is why people convert their commercial bank deposits into cash when they lose confidence in a bank, causing a bank run.
Does that mean only Cash?
This doesn't mean all transactions have to be in cash alone. We should leverage advantages that technology brings to us. But the choice of using cash or plastic money for a transaction should rest with the citizen. It can take away larger denominators and make doing transactions of a larger amount of cash extremely difficult. Maybe, even mandate that transactions beyond a certain amount should be done through accounts. But the move and advocacy for cashless society should be resisted at all cost since it costs us our freedom.
(Joseph C. Mathew is a political commentator and former IT advisor to Kerala Chief Minister. A longer version of this article was originally published in the Deccan Chronicle on 13 and 14 December , and is reproduced with author's permission)