India’s push to a cashless society has a high cost.

India Wants a Cashless Society. But There’s a High Cost.

India Wants a Cashless Society. But There’s a High Cost.

The citizen’s guide to the future.
Nov. 28 2016 7:00 AM
FROM SLATE, NEW AMERICA, AND ASU

India Wants a Cashless Society. But There’s a High Cost.

A sudden government change has created chaos—and long ATM lines.

Cash crisis in India
A security guard closes the shutter of State Bank of India ATM after it stopped dispensing cash in Agartala, India, on Nov. 15.

Jayanta Dey/Reuters

Earlier this month, the world watched as voters in the United States went to the polls to elect their new president. The same day, the government of India—the largest democracy of all—suddenly announced that more than 80 percent of all its banknotes are no longer legal tender. At once, $200 billion of hard cash became worthless.

On Nov. 8, Indian Prime Minister Narendra Modi, a right-wing nationalist who had made the fight against India’s endemic corruption a key campaign issue on his way to victory in the 2014 general election, stunned 1.25 billion people by going on television and telling them their 500- and 1,000-rupee notes (approximately $7.50 and $15, respectively) would be valid for only another four hours. After that, they would have to be exchanged at banks for newly designed 500- and 2,000-rupee notes, with a grace period of just a few weeks. This in a country where nearly half of the population doesn’t even have a bank account, and 90 percent of transactions are made in cash. There has been utter chaos ever since. Actually, chaos may be an understatement.

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This government is trying to fight corruption and move towards a more digital economy. In India, people have stashed away huge amounts of money—income that has never been declared and is then laundered through extravagant weddings, construction work, luxury vehicles, jewelry. Nobody knows exactly how much “black money” there is, but it’s safe to say that there’s a lot. By forcing people, apparently without warning, to go to banks and change the old notes for new ones, the government is trying to account for a huge quantity of money and bring it rapidly into the system.

Many in India agree with the principle of demonetization, as it’s become known, because corruption has been so detrimental to the country’s progress and limits opportunities for honest people. There are parts of the capital, New Delhi, for example, in which dozens of newly built mansions have new BMWs and Jaguars on the forecourt, driven by teenage offspring and polished every morning by the families’ drivers. It’s an open secret that much of this is fueled by black money, and it infuriates many Indians.

But millions of people are struggling badly. There is not enough cash available, and the government has had to impose limits on how much can be exchanged. The rules keep changing. There are long, debilitating queues for banks and ATMs. Wages and bills have not been paid. Rural Indians often have to travel a long way to reach a bank, and an estimated 300 million people don’t have the official ID that’s required to process a cash exchange. In some places, a barter economy has even re-emerged. That’s a marker of ingenuity, perhaps, but hardly the modernity that India is striving for. India’s most decorated economist, the Nobel Laureate and Harvard Professor Amartya Sen, says: “The move declares all Indians — indeed all holders of Indian currency — as possibly crooks, unless they can establish they are not.” Meanwhile, the people with the most black money—the people the policy was intended to target—are unlikely to have wads of cash under their mattresses. Their money will be safe in foreign bank accounts and property holdings.

Most people have been exchanging their 500- and 1,000-rupee notes for more cash. But the Finance Minister Arun Jaitley has also made it clear that the government wants to jumpstart a transition to a cashless society. Alongside the fight against corruption, another of the Indian government’s key policy initiatives is Digital India, an ambitious plan, involving several government departments, to connect the country’s huge population to the internet and tap into the social and economic opportunities from which other countries have benefited. Launched in July 2015 by Modi, it consists of three core components: infrastructure, digital literacy, and delivery of services. Banking and payments are the kinds of services that are becoming rapidly digitized elsewhere in the world.

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While demonetization isn’t officially part of Digital India, there is certainly overlap. It would be harder to hide money if the country were to rely less on cash, with more goods and services bought and sold online. One of tech’s global leaders agrees: Bill Gates, the world’s richest man—and, through the Gates Foundation, a major philanthropist in India—recently praised Modi’s policy. “The bold move to demonetize high-value denominations … is an important step to move away from a shadow economy to an even more transparent economy,” he told the prime minister and his Cabinet colleagues in Delhi. He also said, “I think in the next several years India will become the most digitized economy, not just by size but by percentage as well.”

India’s digital payment startups have responded very quickly. Within days of Modi’s announcement, Paytm, which is based near Delhi, had produced several new advertisements, urging Indians to adopt mobile money and avoid the hassle of dealing with cash. The company tells me it experienced a 300 percent increase in downloads of its app following the announcement and that it now has 150 million users.

But only about one-third of Indians currently have internet access. And most of them can get it only through mobile devices because the country’s broadband supply is so limited outside urban areas. There simply aren’t enough wires in the ground. Mobile connectivity is patchy, even in cities. This reflects wider infrastructural problems that have never been solved: Hundreds of millions of people are also without a stable electricity supply or efficient sanitation. In India, grand ideas are plentiful; implementing them is rarely straightforward. And a country that is largely offline is perhaps not ready to go cashless.

On Nov. 19, Coldplay headlined a show in Mumbai, in front of 80,000 people who are unlikely to struggle for access to money. Jay Z had been on earlier. During the British band’s set, Modi appeared with a recorded video message, opening with the kind of comedy for which he is not noted. “You have been smart in asking me to only address the gathering and not sing,” he quipped. “Else I’m pretty sure your audience would be asking you for their money back, and that too in 100-rupee notes.” Most people are not laughing.

This article is part of Future Tense, a collaboration among Arizona State University, New America, and Slate. Future Tense explores the ways emerging technologies affect society, policy, and culture. To read more, follow us on Twitter and sign up for our weekly newsletter.

Hasit Shah is a journalist based at Harvard University’s South Asia Institute, where he researches the emergence of digital media in India.