Musing #21: Going cashless

I have never been one for blind jingoism but wholeheartedly support the demonetization move, at least in its intent even though the execution seems to be lacking. While the move has certainly flushed a modicum of black money out of the system, it was never going to extinguish it. In fact, success of this move depends on the steps taken henceforth to prevent the re-occurrence of this unwanted phenomenon. Reintroduction of new notes with enhanced security features is never going to be a deterrent since it will eventually be counterfeited and hoarded over the long term. So hopefully, there are better means of tracing the flow of the higher denomination notes in place and also a limit on its quantum wherein it is not allowed to grow to 86% of the cash economy once again. While the rumours of the presence of various chips was simply ludicrous, any smart features that enable immediate electronic validation of the note would have been a great addition even though it would have admittedly been not economically feasible. Speaking of economics, the true benefits and costs won't be realized until some time, but beyond the numbers, I hope that this initiative does something to change the cash-driven mindset of the masses. Education along with eradication of corruption will be the real game changer over the long term.

While demonetization will certainly lower the cost of funds for banks and will be a welcome relief for loan seekers, it has not come without a cost to the common man. I should define the common man here as the everyday worker, vendor and rural population rather than even the middle class since they have been impacted the worse. A significant section of this population subsists on small cash holdings carried forward on a daily basis and demonetization has perhaps hit them the hardest even though they are the smallest spenders. This section of the population can ill-afford to stand in queues during working hours and they really don't have the need for Rs. 500 or Rs. 2000 notes. But the collective panic of the population has resulted in them being unable to withdraw even Rs. 100 notes that they are in dire need of. The mass hysteria and herd mentality is something that should have been accounted for since people can tend to be irrational as far as money is concerned.

While I am sure the wise men would have given a lot of thought to the process, the problem seems to be more technical than financial in most cases. So, would it have helped to introduce the new Rs. 500 notes and to a lesser extent the new Rs. 2000 notes in a phased manner? Would the introduction of these notes in small quantities a week or two prior to the demonetization ticked off the hoarders? If not, it would have certainly taken care of the hardware, software and logistical problems that are being faced by the banks and the ATM loaders. If the entire banking machinery worked seamlessly during the transition, then the hardship would certainly have been less noticeable. While government monitoring of any aspect of life is usually worrisome, I hope that no effort is spared in scrutinizing financial transactions and identifying illicit ones.

The real solution, however, is limiting cash usage altogether and shifting to cashless in a major manner. This demonetization move will certainly act like a catalyst for a huge section of the population that might have till now hesitated in even using their debit cards. But for this to have a lasting effect, cashless has to become a more convenient avenue than cash itself for the vast majority of the population. Sadly, that is not yet the case. While expecting a majority of the population to have internet access is unrealistic, the fact is that USSD mobile banking is already in place and allows for IMPS transfers without internet access. However, the awareness is sorely lacking.

For me, cashless has always been the defacto option and demonetization has not even registered a blip on my radar for all I had were a couple of Rs. 500 notes that were gracefully accepted at the bus depot allowing me to rid myself of old world money in a matter of minutes. Not everyone might be comfortable using BigBasket, Grofers for grocery or Swiggy, Zomato, Scootsy for food or Amazon, Flipkart for everything else; but it is heartening to see that even the sedate governmental machinery has taken baby steps towards a cashless economy by allowing online payments for local rail, bus passes and gas refills, though few may be aware of it. It is seldom the case, but in this instance plastic is indeed better than paper/cloth.