Going cashless: At what cost?
Arushi Vats looks at the ‘digital’ push following demonetization, and argues for a stringent evaluation of its consequences.
This is the fourth essay in a five-part series examining demonetization from the perspective of policy, economics, and political agenda. Next up: Vikramjit Banerjee on the implications of demonetization for freedom and polity.
The jury is still out on the efficacy of demonetization, but the agenda has already shifted to the dream for a cashless economy. While it is projected as an evolutionary decision — in natural succession to demonetization and extending the purpose of curbing corruption and ‘black money’ — its execution is far more nuanced. Like demonetization, the move continues to restrict the definition of corruption with the possession and use of ‘cash’. However, the pitch for a cashless economy is highly strategic, unlike demonetization, which spiraled from a dramatic announcement to a proliferation of rules (an astounding 52 rule changes in 42 days), formulated, it seemed, on the go.
Consider the instruments selected to bring about a cashless economy: from persuasive tax incentives for businesses participating in digital transactions, to enticing state lotteries rewarding consumers and traders engaged in cashless transactions, to proposing stringent regulatory measures. In fact, the latter instrument is curious: a proposed bill to amend the Payment of Wages Act, 1936, imposing digital salary transfers for some industries.
The bill, placed in the winter session of Parliament this year by Bandaru Dattatreya, amends the Act to enable the Government, whether at Central or State level, to specify establishments which would necessarily have to pay all employees by cheque or by electronic transfer. The amendment presently doesn’t name any industry or establishment, but C. K. Sajinarayan, leader of Bharatiya Mazdoor Sangh, has mentioned ‘construction, textiles, and some state-run companies’ to be majorly hit.
This is an important amendment, as it imposes a compulsion upon employees and employers to partake in the digital banking system, affirming the first step to achieving a predominantly cashless economy: financial inclusion. In fact, the amendment plainly states that this compulsion is meant to ‘reduce the complaints regarding non-payment or less payment of wages, besides serving the objectives of digital and less cash economy.’ The debilitating shortage of the banking network in India, as well as the millions who remain beyond its purview has been one of the strongest criticisms of the cashless agenda. We do not have a robust and universally inclusive banking network. To augment this concern are statistics which demonstrate the urban bias inherent in cashless transactions, as only 18% of ATMs in India operate in rural areas, and the percentage of retailers equipped with card machines fall woefully short of the desired number. How far digital transfers will go in assuring salary compliance is uncertain, but with a clogged judicial system, it seems unlikely that it will be simpler for employees to obtain just remuneration. What is highly threatened, however, is the rights of individuals to choose their preferred mode of transactions.
The claim to go cashless is premised on the understanding that preference for cash as a mode of transaction is obsolete, and indicative of corrupt intent, despite the fact that cash accounts for over 85% of global consumer transactions. The association of cash as the primary enabler of corruption stems from to the earliest theories of ‘shadow’, ‘black’, ‘parallel’ or ‘hidden’ economies. So intrinsic is the relation of cash to shadow economies, that the most widely used method to measure the size the shadow economies across the world, the ‘monetary method’, relied purely on the estimated demand for currency defined as real cash holdings ,and the velocity of its circulation, to establish the extent of hidden economy.
While the study of shadow economy has evolved far past the monetary method to include shares, foreign currency, offshore accounts, bitcoin, and in the Indian context, gold, the discourse on demonetization in India has remained largely silent on this, choosing to perpetuate the understanding of cash as the vehicle of corruption. It hasn’t quite addressed the fact that cash is only estimated to be 1/20th of the black money held by Indians. Though there has been much talk of Government of India receiving details of Swiss bank accounts held by Indian residents from 2019 onward, it is a prospective move, and one which has been neatly relegated away from discussion, with the focus largely staying on the benefits of accessing digital finance. Sure, the benefits of holding an account that supports digital transactions are numerous, but it also needs to be approached cautiously. While it may directly expand financial mobility, it also creates conditions for the restriction of that very same mobility. Just as demonetization failed to understand that there are intended and unintended consequences of each policy, we may just be sleepwalking into a totalitarian nightmare by unquestioningly buying the dream of a cashless economy.
Even a preliminary survey of literature on shadow economies, or transition to a cashless economy, suggest that their leading cause is a tax regime perceived as unjust, which causes ‘consecutive flight’ into the hidden economy as an ‘exit option’. Transferring transactions to a purely digital plane erodes this ‘exit’ option as a strong critique of existing tax regimes. What is alarming is the level of control our reliance upon digital finance concedes to the state. Besides making it easier for the state to seize control of finances, as economist Thomas DiLorenzo warns, this allows the state to freeze assets and mobility under various guises, most notably through the PATRIOT Act in the US. Extraordinary laws such as this give the state great ambit to infringe individual liberty, and India has no dearth of such laws.
What the present push for a cashless economy doesn’t highlight is the massive amount of digital trace and data that would be generated from such a shift, and the control and deployment of this data in other contexts. Digital transactions generate massive data-sets, and are even presently, being utilized to map behavioral patterns from tracking consumption and other transactions. China, notorious for governmental data mining, has initiated a ‘social credit system’, which ‘harnesses digitally stored information to chivvy everyone into behaving more honestly, whether fly-by-night companies, or tax-and fine dodging individuals.’ In India, which lacks a privacy regime, or any legal articulation of privacy as a right, the implications of such data mining practices are stupefying.
It might be time to pause and consider the far-reaching implications of pushing for a cashless state. It is especially useful to examine the method with and the environment in which this agenda is being propounded. Like demonetization, this is a move to restrict based on compulsion, rather than dialogue and participation. The proposed amendment chooses to impose and restrict, rather than persuade or incentivise digital salary transfers. The very nature of these instruments betrays their intrinsic disregard for participation, and preference for acquiescence. Whether that is a policy habit that a democratic framework can sustain remains to be seen.
