Wednesday, February 22, 2017

Special PERSPECTIVES Series on Demonetization in India – Insights, Challenges, and Ways Forward

By Ursula Dalinghaus, Nima Lamu Yolmo, and Janaki Srinivasan

Demonetized  ₹500 and ₹1000 notes
Source: Frontera News

On November 8, 2016, India demonetized two major banknotes in circulation. According to the Reserve Bank of India (RBI) figures, the denominated notes accounted for 86% of the value of currency in circulation. Importantly, the 500 and 1000 demonetized notes have been replaced by new denominations of 500 and 2000. All of this took place before ATMs were even configured for the new notes! The most visible effects of demonetization were the long queues and cases of numerous casualties and deaths in front of ATMs and banks. With the issuance of the new notes of 500 and 2000, demonetization (“notebandi”) has largely taken the form of replacement, aimed at targeting counterfeiters.

While some see the demonetization move as part of the quest for transitioning to a more digitized payment system, the timing and procedures for the replacement did not take into account factors related to basic infrastructure, coverage, digital financial literacy, and knowledge about the ways in which payments function within formal and informal sectors, social networks and relationships, and barriers related to caste, gender, and literacy, among others.

What lessons does this exercise hold for research on digital financial inclusion in India going forward? 

In our Special PERSPECTIVES blog series on Demonetization in India, we asked IMTFI fellows to provide some preliminary reflections on these issues. In this post, we wrap up our series, highlighting key themes and questions raised by our contributors.

Series Overview

As Vivian Dzokoto (Before Money isn’t Money Anymore…) reminds us, India’s demonetization exercise is neither the first nor the last exercise in changing money’s material form. Monetary authorities guarantee what will count as money and its value, but they can also alter or even revoke it. Money objects are tied up with social relations, cultural repertoires of use, and a larger ecosystem of monetary practices. A change in money must take the user into account. Failure to do so results in loss of trust and social disruption. These outcomes can negatively impact the goal of financial inclusion and undermine the credibility and longevity of payment infrastructures.

Janaki Srinivasan (Demonetization and its Discontents) creates a roadmap for identifying gaps between user experiences on the ground and the categories and visions driving the demonetization experiment in India. Policy efforts to advance the project of greater digital inclusion are not necessarily helped by suggesting one is either for or against cash. Instead, the promise of digital platforms is their flexibility in providing choice among payment options. The user must be at the center of product design. For example, categorizing all unreported cash as “black money” risks putting into one policy basket the multiple (and legally valid) contexts that lead people to keep money hidden and store value in cash form. In particular, a large section of women, including many belonging to the middle class, have had good reasons to hide their small savings in rice bins and cosmetic jars, away from husbands and other family members. This cash is more than money – it is “women’s agency, built through years of under consumption and self-exploiting sacrifices” (Tara Nair, IMTFI financial inclusion workshop, 2016, Bangalore). Demonetization has suddenly compelled women to reveal to men their secret cash stashes, bringing women’s savings practices to the attention of their husbands - with potentially negative consequences for women’s autonomy.  Like Dzokoto, Srinivasan reminds us that one should be careful of “desirable solutions” that bypass the user.

Debashis Acharya (The Recent Indian Demonetisation and Cash Exclusion, Part one and two) gives a first-hand account of the demonetization move as it unfolded. He recognizes that this “policy-induced cash exclusion” has been experienced by particular segments of Indian society as a crisis. But he also suggests it is a positive shock - by being compelled to use digital alternatives, people may encounter positive dimensions of these tools. Success and sustainability will depend on the supporting infrastructure – technological and financial. In a follow-up post, Acharya and his colleagues Subbarao, and Venkatachalapathy test these propositions. They review data-supported trends in uptake and recount a visit to a village participating in a cashless village experiment near Hyderabad. Acharya and his team find that village bank representatives’ ("Mitras") role as intermediaries has become even more important. For grocers, new challenges have erupted with regard to PoS (Point of Sale) devices. How will cost-incentives be structured? Who will/should share the costs? How will the infrastructure be built out? User-centered answers to these questions will be essential to sustaining this digital drive, long-term.

Isabelle Guérin, Santosh Kumar, and G Venkatasubramanian (The Dangerous Liaisons between Demonetization and the Indian Informal Economy (Part one and two) also raise critical questions about the impact of digitization on informal economic practices. In North India and Coastal Tamil Nadu, these have provided a primary safety net for the poor. In part one, they discuss widespread distrust of banking and digital transactions. Demonetization has impacted financial circuits and strained social relationships in these communities. The move – as an instrument of formalization – raises new questions about who will benefit. Far from fighting the informal economy, demonetization is strengthening it. In part two, they outline some crucial questions: What measures can be taken to ensure social protections, fair pricing, and privacy for the poor? Like Srinivasan (and Nair, see above), Guérin and co-authors underscore how cash has been instrumental for women in creating "micro-spaces of freedom" in the household, but also for men, who have their own social networks. How will the move to digital payment forms take these existing strategies into account? Will it facilitate greater financial inclusion?

Disruption. Inclusion. Ways forward…

To conclude, we call attention to some productive dissonances in how contributors approach the implications of this demonetization policy move. Srinivasan is critical of the compulsory nature of this demonetization policy and emphasizes the importance of preserving choice in payment forms. Guérin and co-authors point to the significant technical barriers to implementation of digital finance, which, combined with widespread distrust of formal banking, have the potential for severely disrupting the informal, cash-based networks of social security and exchange upon which the poor greatly rely. In contrast, Acharya folds demonetization into a broader move toward cashlessness and streamlining of payment forms, to the possible exclusion of cash at some point in the future. Pre-paid card projects and other digital experiments are introducing people to the benefits (including security) of e-payment forms, while the need to establish trust in these new technologies remains an ongoing challenge.

These “different takes” on the demonetization move remind us of the politics of payment infrastructures, most visible at times of disruption and change (Rea et al, 2016). Dzokoto’s recent work on currency change in Zambia, where both currency redenomination and the introduction of mobile money were taking place at the same time, shows that a technical change in money always has political implications for policy makers, providers, and for users. For research going forward, it is therefore important - particularly in the wake of this major policy and technological shift - to attend to the interplay of specific payment forms in everyday social practices as a variety of social actors and institutions in India come to terms with these changes.

Insofar as demonetization, as a state policy, has been proclaimed as a move toward greater financial inclusion, there is a need to attend to the crucial question of what do we mean by “inclusion”? By definition, ‘inclusion’ means the involvement of more components and participants. What practices and networks of financial transactions are people being “included into” or “excluded from” by such policy shifts remains a vital question. Have we identified criteria that will help us understand whether a policy or technological intervention is financially ‘inclusive’ or ‘exclusive’? These are questions worth considering every time we encounter a disruptive innovation.

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Monday, February 13, 2017

Special PERSPECTIVES Series on Demonetization in India: The Recent Indian Demonetization and Cash Exclusion (Part 2)

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 Debashis Acharya, V V Subbarao, and T K Venkatachalapathy, School of Economics, University of Hyderabad

Mr. A Kalyan Kumar and Mr. A Nagesh “Bank Mitras” of Allahabad Bank,
demonstrating the use of D180 MPOS terminal and Evolute Impress biometric
 reader for cashless transactions in the village.  (Photo by V V Subbarao)

It’s been two weeks since I (Debashis) summarized the recent demonetization move as a crisis-led financial inclusion drive in the first part of this blog. Since then, we (myself with V V Subbarao, and T K Venkatachalapathy) have been following the trends in uptake of digital payments at the national level and the efforts of the local government, i.e. Government of Telangana. The Government of Telangana has been working on furthering this national effort towards a more cashless economy. The experiment has begun in more than twenty villages and these villages have been declared to be cashless villages.1 The report of the committee on digital payments – chaired by a former finance secretary, the Government. of India, and the present principal advisor to NITI Ayog, Government of India – is now in the public domain.2 Before we discuss one of these cashless villages around Hyderabad, let us look at the trends in digital payments before and after demonetization. Though, it’s too short a period to assess the impact per se, the trends in such payments can provide some insights.

The recent data on digital payments published by the Reserve Bank of India (RBI) indicate sharp growth in pre-paid instruments (PPIs) as alternative to cash payments. The PPIs as compiled by the RBI include m-Wallet, PPI cards, and paper vouchers. Payment by m-Wallet is the highest over the financial years 2012-13 to 2016-17, followed by PPI cards and paper vouchers, both in terms of volume of transactions and value of transactions. The figures 1 and 2 plot these trends in PPI based on uptake in digital payments. It’s worth looking at the daily transactions data on PPIs published by the RBI to judge the incidence and possible impact in the future to go cashless. The data on PPIs have been made available, effective from 2010. Data on other digital/electronic payments are available from 2004-05. The apex bank has even been alert to daily transactions through digital modes, effective from Jan 1, 2017.

The objective of generating and compiling such data, as well as keeping it in the public domain, reflects the vision and policy expectations of the current regime and the apex bank. The Government of India has just approved a grand digital literacy program – named Pradhan Mantri Digital Sakshrata Abhiyan(PMDISHA) – for six crore rural households on Feb 9, 2017 (reports Business Standard).3 Figure 3 shows an increasing trend in the daily value of PPI transactions. Here, one sees an increasing trend, even though cash has increasingly been made available on a daily basis over the last two months. In addition to these modes, one could transfer money from one’s account in any bank to another account in any bank through Aadhar Enabled Payment System (AEPS) or PIN PAD using ATM PIN. For instance, AEPS transactions are done using Evolute-Impress biometric machines and the PIN PAD transactions are done using D180 mPOS machines in villages near Hyderabad. We don’t have disaggregated data on such transactions at the moment.

Figure-1 Uptake of Digital Payments by Pre Paid Instruments (Volume of Transactions)

Based on data from the Database on Indian Economy, Reserve Bank of India, 2017.

Figure-2 Uptake of Digital Payments by Pre Paid Instruments (Value of Transactions)

Based on data from the Database on Indian Economy, Reserve Bank of India, 2017.

Figure3: Trend in Daily value of PPI transactions in Dec 2016 and Jan 2017

Let us now turn to some local stories around Hyderabad on cashless village experiments by the local government bodies. As reported by a national daily, the Hindustan Times,4 the first village to go cashless has been Ibrahimpur, 125 kilometers from Hyderabad. Andhra Bank, a public sector bank, has ensured that all villagers have bank accounts and debit cards. The report also notes that some women in the village said they are happier than before with their debit cards since they don’t have the fear of parting with cash for their husband’s buying of alcohol.

The first grocery store in Kasala, as we enter the cashless village.
(Photo by V V Subbarao)
To supplement the macro figures reported above and to learn more on the above said cashless village experiments, we just visited Kasala, a village in the district of Sangareddy, about 60 kilometers from Hyderabad, to study the ongoing cashless experiment. The district administration has declared this village a cashless village. The office of the Collector of this district has had discussions with the Village head and people to promote cashless transactions. As we entered the village the first Grocery store we encountered displayed in the form of a pamphlet an appeal to the villagers to adopt cashless modes of payment,  i.e. through mobile wallet, paytm, and bank account.

This grocer had to manage his payments to the wholesaler by visiting the bank branch, or though the “Bank Mitra” (representative)5 of the village, to procure grocery for his retail outlet in the village. He transferred money to the wholesaler’s account from his account since cash was not available. Before demonetization he preferred cash transactions to the transfers mentioned above. Similarly, the villagers transferred funds to the grocer’s account through Bank Mitras and bought their grocery by producing charge slips given by the Bank Mitras. This was due to lack of cash at hand and for small transactions starting at Rs.200/-. Bank Mitras have been working as business correspondent agents even before demonetization to facilitate financial literacy and awareness on banking, including transactions such as deposits, remittances and withdrawals, etc. They have worked in a variety of ways to bridge the distance between the village and a brick and mortar bank branch. Their importance seems to have only increased after demonetization. However, mobile-based transactions have been very few to date, according to the grocer.

Pamphlet to adopt cashless payments
(Photo by V V Subbarao)
We had an opportunity to interact with the Bank Mitras of Kasala and two other villages nearby. To quote Mr. A Kalayan Kumar, “Bank Mitra” of Allahabad Bank serving Kasala, “The total transactions, post demonetization until Dec 31, 2016, amounted to Rs. 49 lakhs for about 1047 transactions. The transactions per head has been approximately Rs. 4680/-. Before demonetization the transactions used to be Rs.300-400/- per month, amounting to Rs.2 lakhs.” At present, the cost of two of these machines – i.e. a laptop and the Evolute Impress biometric reader – are borne by the Bank. But the Bank Mitra pays about Rs.5000/- for the PIN PAD i.e. D180mPOS, which is used to swipe ATM-Debit cards. An increase in cashless transactions shall prove to be lucrative for the Bank Mitras, given the fact that cashless transactions have increased after this digital push. In villages, Bank Mitras never made a living on the banking activities alone. They used to engage in other economic activities for their livelihood. This could be due to different reasons. Bank Mitras usually get a fixed monthly remuneration and the rest of their earning is commission-based, i.e. a fraction of the transactions they carry out. The commission differs from bank to bank. Hence, Bank Mitras may see a bigger volume of transactions if this digital push is sustained in the days to come and their earnings from commission may increase.

There was some skepticism on the part of the Public Distribution System (PDS) agents, other businessmen, and farmers we interviewed in Kasala. According to Mr. Kalyan and Mr. Nagesh (Bank Mitras), out of 3000 households in the village about 40% preferred cash to cashless transactions, post demonetization, even in spite of the promotional efforts of the local government to go cashless. The PDS agents and businessmen, including grocers, were concerned about the fixed and variable costs of PoS machines needed for cashless transactions. To quote another grocer:

“It’s difficult to invest Rs.10,000/- for one PoS machine on my part and pay a monthly rent of Rs800/-. Why can’t the government bear this cost for at least two grocers in this village? This will instill confidence among us and the users too. We won’t mind paying for this once we realize the benefits.” 

The PDS agent expressed his concern in a similar tone. But the farmers had a tough time paying wages to the laborers due to the daily withdrawal limits. Even though most of them had bank accounts, laborers did not know how to use the ATM card. Although there is no fear on the part of the grocers, small businessmen, farmers, and PDS agents to go cashless and adopt digital payments, the fixed and variable costs of PoS machines seem to be an impediment for sustaining this digital drive in the long run.

As we returned from Kasala, we saw an announcement by the National Bank for Agriculture and Rural Development (NABARD) in favor of some stakeholders, i.e. the PDS agents. The Indian express on February 6 reported:

“In a major push for cashless transactions, PoS machines for credit/debit cards, as well as Aadhaar-based transactions, will be installed at all PDS shops and fertilizer depots over the next few months. In an interview to PTI, Finance Secretary Ashok Lavasa said over 1.7 lakh PoS machines have already been installed at public distribution system (PDS) shops and more will be done in the next few months. ... NABARD has committed to supporting banks through the Financial Inclusion Fund for deployment of up to two PoS devices per village, to cover one lakh villages of tier 5 and 6 areas.”6

The PDS shops have been transacting in cash to date. This announcement is aimed at digitizing a particular segment - i.e. PDS shops and the fertilizer depots - providing free PoS machines as an incentive to induce uptake of digital payments.

The crisis of cash exclusion seems to be turning into an opportunity for businesses, households, and also for the government. Here, business refers to those engaged in the digital payment business who are taking advantage of this digital push. The households partly benefit since they don’t have to keep all the cash with them at a given point of time, thereby avoiding involuntary lending of the extra cash or the risk of theft. The government benefits from transparency in the transfer of benefits.

With “Bank Mitras,”Farmers, and a PDS agent in Kasla village,
Sangareddy District, Telangana. (Photo by V V Subbarao)

What is the future of cashless payments in India? Is this digital inclusion sustainable? The report of the committee on digital payments submitted to the Finance Minister7 cites the high cost of cash as one of the key factors for going digital. To quote the report, “India's dependency on cash imposes an estimated cost of approximately INR 21,000 Crores on account of various aspects of currency operations, including the cost of printing new currency, costs of currency chest, costs of maintaining supply to ATM networks, and interest accrued. Transitioning to digital payments for government payments alone could save Rs. 100,000 crores annually with the cost of transition estimated at Rs.60, 000 to Rs.70,000 crores." However, it is difficult to predict anything clearly either from our macro figures or our brief study of Kasala. For instance, the modalities of a cashless village and the underlying incentives to go cashless seem to be ambiguous in our study of Kasala. There have been two meetings held by district administration with the households and village head in Kasala. The PoS machines have not reached either the grocers or the PDS agents. There is no clarity on the sharing of costs of the machines and the rentals of the machines. Further, the cost discussed in the report of the committee on digital payments may be limited in its scope. The variety of payment options have suddenly gone up in the post demonetization phase. Therefore, the costs associated with different payment options may be different.

The government seems to be transitioning to payments based on Aadhar issued by the Unique Identification Authority of India and the BHIM app simply to reduce costs. These options interfere with the existing big players like VISA and MASTER Card. A point worth noting is that of investment in security innovation. These two big players invest a lot on security and continuously innovate on security features to avoid frauds. How feasible is it for the Government of India to invest in security innovation? Without security and coming to an understanding with these big players, it may be difficult for the Government to sustain this move. I am also reminded of my pre-paid card project and issue of preference for soiled notes by villagers here. Technology needs to be trusted by people in terms of its immediate and long term benefits. A sudden surge in payment options may confuse potential users too.      

Let us sum up our discussion of the macro figures mentioned above on digital payment uptake and our field observations in Kasala. The sustainability of digital payments, from the supply side, will largely depend on savings in terms of cost to the economy. However, not clear at this stage are the cost calculations associated with a broad spectrum of payment options. The voices from our field clearly indicate the need for clarity on cost savings for different stakeholders. For instance, the grocer wants to understand clearly the model of cost sharing and the benefits to be derived. The Bank Mitras are of the opinion that financial literacy drives led by outsiders such as NGOs work better in improving uptake of digital payments. Finally, sustainability may well depend on customized digital payment modes winning the trust of users. This is especially important when the overall infrastructure is not geared up to provide seamless service of a particular digital payment  (such as mobile wallets that are not functioning due to poor networks) and PoS machines failing due to link failures. We will need to allow some time to see how these challenges are addressed in the near future -  and how diverse stakeholders respond.  

For part one of this post, see here


2 Report of the committee on Digital Payments, Ministry of Finance, Govt. of India, December, 2016



 5 Bank Mitra is a representative of the bank. He is available in the village with a laptop, D180 mPOS, and Evolute Impress biometric reader to facilitate digital payments. In this village the Bank mitra serves about 3000 villagers.


7 Report of the committee on Digital Payments, Ministry of Finance, Govt. of India, December, 2016

Tuesday, February 7, 2017

Special PERSPECTIVES Series on Demonetization in India: Before Money isn't Money Anymore....

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 Vivian Dzokoto, Virginia Commonwealth University

Demonetization of currency notes -  as the recent one in India - is a reminder about what money really is: material that does not possess inherent value unless society or in this case, an issuing authority decrees that it does. The case of the Reserve Bank of India’s demonetization of 500 and 1,000 rupee notes late last year also reminds us that “money-ness” can be revoked as easily as it can be accredited. While India’s recent change in its moneyscape has been a focus of many critics, it is important to recognize that:

(i) India is not the first country to demonetize its national currency (in part or as a whole and as a matter of fact, this isn’t India’s first demonetization exercise)

(ii) India will most likely not be the last country to demonetize its currency (either in part or as a whole), and

(iii) The world needs to learn from India’s case, just as India should have factored in lessons from the demonetizations of yore.

It is of course easy to be a critic after things go wrong. Hindsight is 20/20, after all. The fact is: being in charge is not an easy task. Tough decisions have to be made. The question to ask at this point is how tough do such decisions have to be, and what needs to be taken into consideration when tough decisions are made? In the case of demonetization exercises, the myriad factors often taken into consideration include the state of inflation, counterfeiting, taxes, the black market, political symbolism, the denominations of the existing notes, people operating outside the formal banking sector, and the efficiency of cash handling systems. Are these important? Absolutely. Should these be taken into consideration? Absolutely. Is this list exhaustive? Absolutely not. 

One thing is often missing from deliberations, especially in cases of demonetization exercises that fail or experience a significant number of hiccups. The user. In particular, the everyday interactions of the everyday person with the material that is money, the ecosystems that have developed around the different objects that are used as money, the convertibility of one form of money into another, and the degree of equivalence of function in cases where conversion is in fact possible. How do disruptions (actual and potential) to the moneyscape affect the lives of the everyday user? How do people learn about, understand, use, and build practices around new iterations of money? Simply put, prior to demonetization, redenomination, or alternatively tinkering with a material’s “money-ness,” issuers of money have got to understand the world of the user better.

"The Way of the Dinosaur" by Mark Wagner
Photo Credit Mark Wagner
Money in the form of cash is many things. To the issuers, it’s legal tender. For many, it’s a political statement. To a baby, it’s one of the numerous things you’re not supposed to put into your mouth. To the R&B artist, it’s the stuff “rain” is made of. To the drug addict, it’s …. Never mind. For techies, it’s an exasperating dinosaur that should have been extinct by now. But it sure looks like cash is here (that is, in many countries) to stay for a while. That means we (students of money, and agencies that deal with the issuing, processing, storage, and securing of money) have to fully understand its various and evolving roles, pathways, practices, and the like in the societies that it serves. And what tinkering with a financial ecosystem does to the user. And what redundancies can be worked into the system as structural changes to the monetary systems are planned. And not just understanding such information: acknowledging it, and factoring such knowledge into public policies and into the logistical planning of national exercises that impact money-ness. Who knows, some of this information might also be relevant to future forms of money.

Over the years, ignoring such information has resulted in negative consequences for the user. In the past, previously wealthy and suddenly penniless owners of huts filled with suddenly worthless cowrie shells in colonial Africa (Saul, 2004) could be seen wringing their hands and contemplating their purpose in life. In India, we have seen long lines, daily activities disrupted because of logistical mishaps, and sadly, lives lost. What negative consequences are there going to be in the future? The answer lies in what we know, and how we use the knowledge that we know. Money is, after all, meant to be used by people. Before going a-tinkering with it, it’s vital to understand how the people interact with it – and do so in its various complexities and forms.

Read more about Vivian Dzokoto's IMTFI research in Ghana and Zambia here and here

Wednesday, February 1, 2017

Special PERSPECTIVES Series on Demonetization in India: The dangerous liaisons between demonetization and the Indian informal economy (Part 2)

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 Fellows Isabelle Guérin, Santosh Kumar and G Venkatasubramanian

The first part of this blog post argues that so far, demonetization has mostly caused a boom in the informal economy, especially informal debt. One could argue that the boom in informal debt is only temporary and that digitization will gradually bring about formalization. Here too, we have grounds for doubt. The link between digitization and formalization raises some crucial questions:

January 2016. (a) A group of women complaining to a clerk officer that their labour welfare benefits 
cannot be withdrawn from the bank. Photo credit: Santosh Kumar

Firstly, what is meant by 'formalization'? Is it a matter of accountability and traceability or is it a matter of social protection? Both are of course interrelated: accountability allows for taxation, which in turns gives the financial means for social protection. The wage payment transparency that digitization offers might well encourage employers to declare their laborers and gradually offer them protection (more than 90% of Indian laborers do not have any social protection). But as the history of European welfare states has illustrated, transparency is neither a necessary, nor a sufficient condition for this. The priority should be to define and implement labor laws. However efficient it may be, digitizing wages is no substitute for labour regulation. Ethnographies of labor have repeatedly highlighted the multiple strategies and tactics employers use to control laborers and cut wages, from the use of kinship and caste networks to making subtle alliances with local authorities and political parties. It is difficult to see how digitization could stop this1. Some exploitative labor relations may evolve however, for instance those based on wage advance, which are a rule in various forms of seasonal activities. This year it seems that most employers haven’t been able to provide advances, and yet workers have accepted to start working. Will this be only temporary or can it start new forms of relations?

January 2016. (b) A group of women complaining to a clerk officer that their labour welfare benefits 
cannot be withdrawn from the bank. Photo credit: Santosh Kumar

The second question, which is related to the above, concerns social protection itself. Demonetization aims to formalize the economy without any extra effort on providing protections. At present the informal economy gives a form of social protection, however flawed. As we argue above, many people are embedded into complicated webs of rights and obligations that ensure their daily survival through the constant circulation of cash, goods and services. In our 2010 survey in Villipuram and Cudallore districts in Tamil Nadu, we found that almost 90% of debt arrangements (most of which were informal) also included additional services such as access to information, employment, government resources, health services or simply financial help. Eliminating such arrangements without offering alternative protection would be a crime, as we have argued elsewhere2. The failure of microfinance to substitute informal lending, something which has been fought for over than a century, illustrates this.

Thirdly, we need to consider the consequences of the rise in e-payments. Many citizens don’t use their bank accounts for deposits, as it goes against a vision of wealth as something that should constantly circulate. E-payments may have a more promising future, but here too there are questions to raise:

January 2016. (c) A group of women complaining to a clerk officer that their labour welfare benefits 
cannot be withdrawn from the bank. Photo credit: Santosh Kumar

a) Pricing is the first issue. Who will pay for these transactions and how much will this all cost? As in many other contexts, due to high levels of household debt, the Indian laboring classes are already crushed by financial costs. Increasing monetary grabs to raise the profits of financial providers would be really unfair, although in fact this is already happening3. It is urgent to analyze the true costs of digital payments in depth. This would involve taking both direct and indirect costs fully into account (for instance, traders may increase their selling prices to cope with the cost of digital payments). This would also involve a prospective mid-term analysis, as costs are likely to be low at first to attract customers, and then rise. It would be extremely helpful to make international comparisons, in order to get a reliable picture of fintech business models.

b) Household budget management is another issue. When monthly wage payments deposited into bank accounts became mainstream in Europe, the adverse effects on budget management were multiple, though widely underestimated. People have complicated and subtle methods of balancing expenses and resources, often through moral and physical earmarking, especially when they can’t read or write4. Juggling debt also helps to manage budgets5. People combine various financial tools to support ongoing borrowing, repayment and re-borrowing (one borrows from one place to repay elsewhere). People alternate between debtor and creditor roles. Even the poorest people are also likely to be creditors. Juggling debt can help to substitute cheap debts for expensive ones, and help to manage different repayment time scales set by lenders. Social motivation also counts. Juggling practices often reflect conscious strategies to multiply or diversify social relationships, and strengthen or weaken the burden of dependency ties. The subtle and complex trade-offs involved lead to a plethora of complementary and often incommensurable, non-substitutable financial practices. How are these subtle and complicated methods of management going to evolve with digitization?

c) Privacy is another important matter. There is of course the tricky issue of personal data. How public and private stakeholders are going to use it is a key question. Markets of the poor South are major emerging markets and one can easily figure out the outstanding importance of collecting big data on markets which are yet to be built. Privacy at the local/community/household level is another factor. We have already raised the issue of complex webs of financial circuits. Many of these are hidden, especially within households, where men and women often have their own networks. Indian women are rarely allowed to manage and control their own budgets. In order to maintain micro-spaces of freedom or simply to be able to make ends meet, they often deploy various strategies to bypass male and in-laws’ control. This can involve hiding some purchases and lying about prices, storing small amounts of cash in various hidden places in the home or with a neighbor, buying small pieces of gold, investing in saving groups with neighbors or relatives, etc. The same goes for men, who are often pulled between their obligations to their wives and children, versus their parents and sisters. It is unusual for accounts to be kept, be it listing income and expenses, or keeping bills. But this is not just due to illiteracy or the prevalence of oral culture, as is often thought. Opacity may serve the clear purpose of allowing women and men to maintain their own financial circuits, and to steer between conflicting obligations. Demonetization has brought these hidden circuits to light  – a wife having to reveal the 5000 INR under the mattress for her daughter’s education, a husband indebted to a neighbor for the marriage of his niece and so on. This has resulted in much tension and conflict. Well beyond these tensions, which are likely to be temporary, the prospect of digital – and therefore traceable – payments is an important cause for concern. It implies transparency and the possibility to track every expense and transfer. Far beyond taxation issues, which many ordinary villagers worry little about for the moment, how will privacy within households be maintained, especially for women for whom individual freedom is a daily struggle?

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  1. See for instance Harriss-White B. (2003), India Working, Essays on Society and Economy, Cambridge University Press, Cambridge. Guérin I., Kumar S., Venkatasubramanian G. (2015) Debt bondage and the tricks of capital, Economic and Political Weekly, June 27, Vol. L n°26-27, 11-18. Picherit D. (2012) ‘When manual labourers go back to their village: Labour migration and protection in rural South India’, Global Labour Journal 3 (1): 143-62. Pattenden J. (2016). Labour, state and society in rural India: a class-relational approach, Manchester: Manchester University Press. 
  2. See Guérin I. Kumar S. (2016) The uneasy relationship between market and freedom. Is microcredit a source of empowerment or domination for women? Journal of Development Studies, Early view DOI: 10.1080/00220388.2016.1205735
  3. Twelve days after the 8th of November, Paytm, one of the first Indian provider of e-wallets, announced daily sale revenue of de 1,2 INR billion (see According to the international consultancy firm BCG, in 2010, the annual Indian markets for digital transactions will be 35000 INR billions. On the basis of a profit of 1% of the transactions, expected income represent 350 INR billions (
  4. See the seminal work of Viviana Zelizer on this. Zelizer V. (1994) The social meaning of money, New-York: Basic Books.
  5. See Guérin I. Morvant-Roux S. Villarreal M. (eds) (2013) Microfinance, debt and Over-indebtedness. Juggling with money, London: Routledge