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Modi’s revolutionary fervour unlikely to wean Indians off cash
Country lacks infrastructure for the radical, overnight change its PM desires
Global Insight
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8 HOURS AGO by: Amy Kazmin in New Delhi
When Prime Minister Narendra Modi banned banknotes that make up 86 per cent of India’s cash in circulation last month, he described the drastic measure as a “movement for purifying our country” and vowed to “break the grip of corruption and black money” on the country.
The abrupt prohibition of Rs500 and Rs1,000 notes would punish “antisocial and antinational elements” — corrupt officials, tax evaders, counterfeiters and the like — whose hidden stash of illicit cash would become, in Mr Modi’s words, “just worthless pieces of paper”.
But as more than $100bn worth of banned notes flooded into banks, possibly less than anticipated, the government’s rationale has expanded.
The exercise, which economists warn will be a big drag on growth until the cash crunch eases, is now being depicted in more radical terms as the “big bang” that will prod a highly traditional, cash-driven society into the 21st century, with all its technological promise.
It is, says M Venkiah Naidu, the minister of information, part of a “grand cultural revolution” spurred by Mr Modi, with his belief that the “entrenched old order needs to make way for a new normal”.
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That new normal is intended to be a sharp reduction in Indians’ pervasive use of cash and a greater embrace of modern cashless payment methods such as debit cards and digital wallets. These will make transactions far easier for officials to track — and tax.
“A least-cash society needs to be our goal,” Mr Naidu wrote in the Indian Express newspaper. Demonetisation, he said, was furthering that goal by “ushering in a behavioural change at all levels of society”.
Undoubtedly, Indians are changing as they try to cope with the acute cash crisis. Digital wallets, such as PayTM and Mobikwik, have reported a surge in use of their services, and demand for point-of-sale machines to swipe bank cards has climbed.
But not all the adaptations are so modern. In rural areas, some Indians have resorted to barter, while some small manufacturers unable to get cash to pay their workers have instead given them supermarket gift certificates. Many Indians are simply deferring spending.
In reality, India lacks supporting infrastructure for the radical, overnight change its leaders desire. Indians hold about 700m debit and credit cards, but previously these were mostly used to withdraw cash. The country has just 1.5m point-of-sale machines — or one for every 1,785 people, compared with one for every 60 in China.
Mr Modi launched a campaign for access to a no-frills bank account for every Indian household, which saw nearly 256m such accounts opened and around 195m debit cards issued. Yet before the cash ban, nearly a quarter of the accounts were empty and a study found that only a small fraction of account holders felt ready to use their new debit cards.
But the premier is blazing ahead. In his weekly national radio broadcast he exhorted India’s tech-savvy youth to contribute to the “nation-building effort” by teaching 10 families each day how to make digital payments.
Top officials from Mr Modi’s office held a workshop on using mobile banking apps, and newspapers are running full-page, government “how to” ads, which instruct Indians on the process of making digital payments — even with the old-fashioned GSM phones still so widely used. Mr Modi set up a high-level panel this week that will advise on overcoming the bottlenecks deterring greater use of digital payments.
But for all the revolutionary fervour unleashed by Mr Modi’s administration, it is not hard to imagine that cash will still be king once the current crunch eases, as the government has promised it will. The long queues at banks, and searches for functioning ATM machines, suggest the smell of money is still very much on Indians’ minds.
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