It is almost one year after demonetisation was initiated and 86% of Indian currency was invalidated overnight. In the confusion and immense hardship that followed this move, various explanations were offered for the initiative: that it would reduce hoarding of black money, cut funding for terror and work against counterfeiting. We were also told that one of the avowed purposes for demonetisation was to make India a cashless society.
In the severe cash crunch that followed demonetisation, people were scrambling to buy and sell things, continue trading, pay employees, acquire raw materials, sell produce in the market; carry out all regular transactions in a largely cash based economy. The government belatedly claimed that the demonetisation was a means to bring out behavioral change in India – to accelerate e-commerce and encourage digital payments.
With 500 and 1000 rupee notes withdrawn, serpentine queues outside ATMs, ceiling on daily withdrawals and the immense difficulty of getting hold of cash in the days following demonetisation, people were willing to try any payment method simply so they would be permitted to continue to function.
The inability to use cash forced countless people to download digital payment applications on to their phones, use instruments such as bank cheques and so on. In shops and commercial establishments, numerous small and big businesses installed card swiping machines so that they could continue to do business; so that their income would not dry up completely. People who had never made digital payments had to learn in a hurry.
Electronic payment platforms and businesses such as PayTM benefited hugely in the aftermath of demonetisation; however the forced transition to digital payment systems was burdensome for most.
Given the poor infrastructure to facilitate the transition to cashless systems – poor internet speeds, relatively low internet reach, particularly in rural areas, difficulty accessing banks and the complete reliance on cash in the informal sector – the government amended the goal of going ‘cashless’ to ‘less cash’. Under the government’s flagship programme Digital India, bank cards, pre-paid cards, USSD, mobile wallets, internet banking and many other systems received a push.
Many Indians bravely embraced cashless systems, believing that they were supporting a noble move to end black money proliferation and willing to undergo cost and hardship to support this initiative. Ibrahimpur in Telangana’s Siddipet district is one example of citizens voluntarily and enthusiastically embracing cashless systems. The 1,200 odd residents of the village famously refused to accept cash even for snacks and auto fares and taught even their senior citizens to become digital savvy; becoming India’s first ‘cashless village’.
However the euphoria quickly faded for most of those who embraced cashless transactions in good faith, when bank charges and various transaction fees came to light. While large and well established businesses were able to absorb the 2% credit card transaction fees, small businesses were much harder hit. The banks levy various charges for transactions and business owners have to pay a monthly rental for card swipe machines regardless of the number of transactions the machines are used for.
The residents of Ibrahimpur had proudly switched to POS swipe machines in December 2016; however the rentals for the machines cut into their profit margins; as a result most people have returned their swiping machines to banks and returned to cash transactions.
The much vaunted behavioral change has clearly not occurred as per expectations; even though people were willing to change. The fact is that India is still overwhelmingly a cash-based economy and will continue to be so given the still-high illiteracy rates, difficulty accessing banks and digital payment systems.
We have seen that in spite of the political push behind digital systems and people’s willingness to support it; the attempt at going cashless has come a full circle in the months following demonetisation. When people saw that impact of demonetisation on black money has been negligible, many supporters lost faith in the move itself.
Cash is back in the system, many people still don’t have debit and credit cards, network connectivity remains an issue, the charges levied by financial institutions and digital platforms continue to be a deterrent. People simply found cash to be quicker and simpler and less troublesome. All those who so willingly joined the digital movement have gradually lapsed back into old, cash based ways of doing business.
We have learned the hard way that the transition to cashless systems cannot be forced; it can only happen organically, over time. We have learned that an authoritarian policy disguised as a paternalistic push towards behavioral change cannot succeed; even if the intentions behind it are supposed to be for our betterment.
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