Tuesday, January 24, 2017

Special PERSPECTIVES Series on Demonetization in India: Demonetization and its Discontents

In IMTFI's PERSPECTIVES blog series, IMTFI fellows take on the recent demonetization move in India. This series aims to foster an open dialogue on issues around money, technology and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events - based on their research and areas of expertise. The topic of demonetization will conclude with a curated commentary by IMTFI on key themes, important questions, and what we can learn from these contributions for digital financial inclusion going forward. 

By IMTFI Fellow Janaki Srinivasan

A popular whatspp image that started circulating soon after the demonetisation announcement

Demonetization. A term most people in India had never encountered before November 8 last year, today dominates newspaper headlines, electronic media discussions and everyday conversations in the marketplace alike. (There are even short forms for it! My favourite? Demon!). Several aspects of demonetization have been extensively analyzed, including the legality of its adoption and declaration, and the repercussions of this move for the credibility of the Indian central bank, besides its short and long-term implications for the everyday transactions of various sectors (especially the ‘informal’ and digital payments companies) and the overall economy. 

IMTFI researchers will recognize from their own work across the globe the importance of several of these dimensions in shaping people’s monetary and spending practices (Indeed, in our own research, my co-PI Elisa Oreglia emphasizes the link between abrupt shifts in monetary policies, including demonetization without convertibility, in Myanmar and people’s lack of faith in banks and in currency as well as the practice of saving in gold prevalent in the country). One aspect that several of our research projects have gone on to highlight is the diversity of such practices. What I want to talk about here is the disconnect between this diversity on the ground, on the one hand, and the universalizing terms and concepts we are seeing employed to present the vision and rhetoric of demonetization in India, on the other. I am especially concerned with the implications of this disconnect for financial inclusion (and exclusion).

Take the idea of ‘black money’, for example, whose elimination was among the first rationales offered for the demonetization move in India. As economists and policy analysts have now been pointing out, ‘black money’ is many things. If corruption is the ultimate target, cash might well be the wrong place to look for ‘black’ wealth, which is more likely to be in the form of real estate or gold, and in circulation rather than stashed at home. Moreover, in its passage from personal stashes to the bank, ‘black’ wealth is often converted to white with the help of brokers of various kinds, thereby challenging the association between demonetization and the elimination of illegally obtained cash. Meanwhile, if ‘black money’ includes all unrecorded transactions (transactions in cash without a bill, money that is not in bank accounts etc.), this quite often encompasses cash that is legally earned but that individuals may wish to keep hidden for a variety of reasons unconnected to corruption. IMTFI researchers and many others working on the practices involved in monetary transactions have pointed to the many ways in which people choose to keep their cash at home because they may not trust banks, or because they may wish to save money away from the eyes of their family or community members (see here for Tara Nair’s discussion from our Nov 11, 2016 financial inclusion workshop on the repercussions of demonetization on women’s small savings in cash). Given the variety of reasons that motivate people to record transactions or to keep them hidden, it is safe to say that a policy conflating all these motivations and types of holdings into a single category of ‘black money,’ and attempting to wipe ‘it’ out, will cause deep distress to large sections of the population.

Photo credit: Janaki Srinivasan
Another rationale for demonetization that came a few days after the official announcement was the need to move towards cashlessness. Like ‘black money,’ ‘cashless’ is a baggy term. People did in fact go cashless in the aftermath of the demonetization – but perhaps in ways that the policy makers had not quite imagined! There were stories of people going back to a barter system in some regions. Several neighborhood shops – and a snack shop at the place I work – started creating credit registers for their customers, agreeing to be paid once normalcy returned. But, of course, neither of these approached the desirable state of cashlessness that was being advocated. One of the perceived benefits of going cashless was the lower transaction costs of using digital money compared to paper currency. However, in light of the demonetization, we have been seeing how several kinds of transaction costs are encountered in going cashless using digital money too. 

Again, this is (especially) not news to IMTFI researchers: questions of literacy, digital literacy, the cost of devices that can handle digital money transactions, regulation limits on such transactions etc. are all reasons that make cashlessness costly for many potential users (in addition to the many hurdles currently being faced because of the transition and inadequate physical infrastructure). These costs vary drastically by the point of transaction and volumes. We have been reading that small scale businesses and street vendors, for example, that are customer facing, have few personnel, and operate on low value transactions are struggling to deal with the time and monetary costs of operating through a PoS machine or an app such as Paytm for every customer (especially since they often have to deal with several such customers at the same time).

Paytm deals appear on my mobile everyday now 
Finally, I want to point out the binary of cash and digital that has become prominent post demonetization: you are either for cashlessness or a supporter of cash. Cash is messy, costly, and for those who don’t know any better. This binary thinking, I argue, takes away the flexibility that I once thought digital platforms offered me. Prior to demonetization, the growth of digital money was very slow in India despite the presence of payment platforms for some time. In fact, in my IMTFI research, I was hard pressed to find vendors or users of digital money in the Kerala fishing town I was studying back in May 2016. Within the often tough circumstances of people’s lives, the decision to use cash over digital payment platforms indicated some limited amount of choice that people exercised in the context of their economic transactions. Whether because they didn’t have access to mobile devices, or because they were uncomfortable using the interface or were not literate, or indeed because they liked the feel of physical currency in their hands, people continued using hard cash. Even for those of us without such constraints, there was a choice to use digital platforms or cash as the situation warranted – I would go so far as to say that flexibility was part of the value that digital platforms offered!

ATM queues at a market in south Bangalore 3 days after the announcement
Photo credit: Janaki Srinivasan
The use of digital money could have been incentivized in many ways which would have involved dealing with the range of issues that people had with digital money that I outlined above. But making it impossible to get one’s hands on physical cash was not one most people would have advocated. Today, the use of digital payment platforms has grown tremendously post demonetization in the face of the limited availability of currency notes, especially change (the demonetization introduced a higher denomination Rs. 2000 note after discontinuing the Rs.1000 note, besides introducing new Rs.500 notes to replace the old Rs.500 notes). But, the adoption of digital payment platforms today is out of compulsion rather than a choice for many (though it is being called a sacrifice for the nation rather than compulsion). It is critical that we examine who is compelled to use digital platforms and who can choose to do so.

Notice at a popular chain restaurant in south
Bangalore letting customers know that
Rs.500 and Rs.1000 will not be accepted
Photo Credit: Janaki Srinivasan
Design 101 tells that an analysis of user needs should form the core of designing a product (whether in technology or policy). Yet, time and again, we have seen that the design of technologies (and of policies) starts by identifying a problem and solutions that are assumed to be desirable (cashlessness), and a vision that is neutral and unproblematic on the surface (who could be against eliminating ‘black money’ and ‘corruption’?), without consulting with its diverse potential users. While we have made headway in identifying the diverse practices on the ground that inhabit every monolithic category or concept on paper, it is perhaps time to explore in parallel how ‘desirable’ solutions get constructed in the first place and on whose interests and experiences of desirability these are based.

“No cash”: Where there’s no queue outside an ATM, we have learned that there’s typically no cash

You can read more about Janaki Srinivasan's research here and here

For further reading:
Dhingra, Swati and Amartya Menon (2016) "Demonetisation is not the way to tackle corruption" LSE South Asia Blog, November 30, 2016.
Masiero, Silvia (2016) "Demonetisation and information poverty: Insights from slum areas in Bangalore and MumbaiLSE South Asia Blog, December 5, 2016.

Stay tuned for more posts to come on demonetization~

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