The Strategist

Cash crunch in India: the inconvenient truth about cashless economy

04/26/2017 - 11:26

India is going through a major crisis affecting all walks of society from the very Prime Minister to the streets of Mumbai. The reason is cash. In a move towards demonetization and by pushing a cashless society, leaders have been exposed to have personal interests or to be corrupted by the dematerialize payment sector. Indians want their leaders out and the cash back.

Everything started on November 8th, when Prime Minister Modi announced the withdrawal of 500 and 1,000 rupee banknotes as he declared war on the supposed ‘black money’. He wanted to flush these high value notes out of the system to ‘end the country’s endemic corruption and widespread counterfeiting’. These two notes represented about 86% of all the cash in circulation in India. The notes were replaced with new ones that amounted to just a fraction of the value (and the 1,000 rupee had been discontinued completely).
The disruption created a chaos with hundreds of thousands of Indians trying to deposit discontinued notes at the banks. It was painful and made much worse by the poor implementation of the decisions. It paralyzed major segments of India’s economy which is still today almost entirely cash-driven. The crash also caused over 100 deaths and a complete distrust of the institutions. Many lost their jobs because there was no cash available for the employers to pay their employees. 
I’ve never had any land, and now I don’t have a job. I have two kids, one six and the other four, I’ve no idea how I’ll support them. My wife is now the only one in the family who has a job but even she doesn’t get paid any more,” (1) said Devle, a casual labourer who lost his job after Modi’s move.
Rapidly, the interests that PM Modi had in the dematerialized payment method sector surfaced. Modi was even attacked by the Congress itself calling Modi to be very clear about the reasons that pushed him to back up an impossible ‘cashless India’. “The Prime Minister should declare the names of international shareholders in mobile wallets, e-wallets, debit and credit card companies whose business prospects have flourished following the Centre’s demonetization move,” said Mohan Prakash, All India Congress Committee’s General Secretary.
India and its 1.3 billion citizens represent a very profitable potential market for the sector of debit cards, credit cards, e-wallets and mobile wallets. In a country where cash becomes rare or forbidden, it’s 1.3 billion potential customers that have no choice but to change their financial habits. Modi’s personal relations with foreign shareholders of the sector were brought to light: “Vested foreign powers had been striving for two years to increase their footprint in the country. The Prime Minister and his government is playing into their hands. They are acting as their agents,” claimed Mohan Prakash, who is in-charge of the party affairs in Maharashtra. He further alleged that it was “these very powers who were behind the government’s push for a cashless economy”.
An estimation was made that such foreign powers would collectively earn Rs 4 lakh crore (4 trillion rupees) of profits from the PM’s move. “It is for the PM and his ministers to clarify their position”, claimed Prakash.
The impact was tremendous and the small-scale industries that have been “adversely hit due to the demonetization-triggered liquidity crunch” (2). The Government was accused of ‘turning a blind eye to their woes’ by Prakash and his followers. Now, movements are asking PM Modi to resign and to compensate the families of those who have lost their lives while queuing up outside ATMs and banks.
Just one week later, the name of Prime Minister Narendra Modi re-surfaced as he was accused by the Aam Adam Party (AAP) of asking money from Paytm, an app that would reap the benefits of 10 new stations of Delhi Metro going cashless from January 1st.
Currently the Dehli Metro Rail Corporation (DMRC) uses cash almost entirely but according to an official statement from the ministry of transportation: "10 Metro stations of the Delhi Metro network will go completely cashless in their transactions from January 1, 2017, onwards as part of the Government of India's vision to transform India into a cashless economy.’’ (3)
Paytm would be the app allowing these cashless translations to happen. This decision came as following Modi’s push on a cashless India and because of his personal relations with the people directly involved in the app management and development, questions were asked about the counterparts he might have been getting from Paytm.
Today the case is being investigated and if the allegations were proved to be true it could very well be the end of PM Modi’s term as well as the end of the cashless fiasco. It is now known for a fact that India isn’t ready for a cashless society and that no one wants it besides the corrupted elements that might take advantage of it despite of the people of India’s distress.
(1) Note ban: will it make India, or break Modi?, SCMP, Debasish Roy Chowdhury, January 8th 2017
(2) Foreign powers behind PM Narendra Modi’s cashless drive, says Congress, Express News Service, December 23rd 2016
(3) PM Modi accused of bribery again as 10 Delhi Metro stations go cashless with Paytm from January 1, Arkadev Ghoshal, IBT, December 24th 2016