'Truth spoken without moderation reverses itself'
This blog is a source for intellectual exploration. It includes a list of alternative resources and a source of free books. The placement of an article does not imply that I agree with it, merely that I found it thought-provoking. There are also poems and book reviews. Texts written by me are labelled. Readers are free to re-post anything they like.
Sunday, December 18, 2016
ASEEM SHRIVASTAVA - Weapon of mass digitisation: PM Modi's gambit has nothing to do with black money
One of the least noticed
features of the introduction of economic reforms in India 25 years ago was the
manner in which addressing a short-term payments crisis on the country's
external accounts became a pretext for the government to introduce - without
any debate befitting a supposedly democratic society - sweeping, long-term
changes. One need not be a
votary of the license-permit raj to have observed the stealthy manner in which
international financial institutions dictated the key policy shifts of the next
decade of what (inappropriately) came to be called "liberalisation"
('corporatisation' would be a more accurate description). It permanently
changed the very character of Indian economy and society, not to forget the
ongoing devastation of the country's ecology.
huge, inequalities have risen alarmingly in this past generation and,
ominously, over 400,000 farmers have committed suicide. The last fallout being
a direct consequence of the open-economy agriculture dictated by the agreements
under WTO. Meanwhile, more than
4,000 multinational corporations are doing lucrative business in India today.
Whatever else they may have achieved, the stealth reforms since 1991 have
certainly gold-plated their way.
STEALTH REFORMS 2.0
PM Narendra Modi's
recent demonetisation call - shrouded in high executive secrecy - is deeply
reminiscent of the manner in which the reform era began in 1991. Its long-term
significance in terms of digitising the Indian economy in the global corporate
interest should not be underestimated. Its far-reaching implications are likely
to last much longer than the man who brought it about. Those running the
larger world have a keen grasp of how policies favourable to their interests
can be enacted through Indian leaders, ever conscious of their global ratings,
no less than of their domestic popularity.
It is slowly dawning
on a few waking heads that Modi has not acted as a cashless solipsist in a
country that runs mostly on cash. There are forces much
more powerful than him who have successfully utilised his impatient political
opportunism, his high office and his inflated popular image to push through the
demonetisation of currency notes of the highest denominations, ostensibly aimed
at removing black money, a shortage of cash in the country. Their aim? To nudge,
and shove where necessary, Indians well beyond the aspirational classes to end
their digital deprivation and begin making payments for their transactions
According to research conducted by the Boston Consulting Group
there is an annual jackpot of $500 billion (a quarter of India's GDP) waiting
to be made within the next five years in the digital payments industry. But
this is only if millions can be persuaded to abandon cash as the preferred mode
of daily transactions. Even if the top half
of the Indian population can be drawn into the digital net, there are big
fortunes to be made. The bottom half can be ignored, unless they become
politically restless and vocal.
WHAT LIES BENEATH?
Events of big
consequence in history are polysemic in their significance. Whatever his own
motivations might have been, in effect, Modi has been prompted by the
globally-agile digital finance companies to demonetise and drain the liquidity
out of the banks (damaging banking as we have known it), effectively compelling
hundreds of millions to go digital. The recapitalisation
of Indian banks is temporary and incidental. Indian banking is all set for a
disruption. The digital disruption of banking is as inevitable as of media and
retail have been in the past. Digital payments are a
possible threat to traditional banking everywhere now (as this McKinsey report makes clear).
Once digital payments
banks have taken over, banking would reach almost every Indian in the next
decade (or so we are told) and the mobile would have become a virtual ATM.
Airtel will go where ICICI cannot.
WHO MAKES THE MOST?
A handsome share of
this digital booty is likely to accrue to the already wealthy. Two days after
the announcement of demonetisation on 8 November, an important
business event took place.
Jio Payments Bank, a "first-of-its-kind" joint PPP venture between Reliance Industries and
State Bank of India, was incorporated. It aimed to marry
Jio's mobile subscriber base and SBI's vast national database to build a
formidable distribution network and grow into what is likely to be one of India's
largest companies in the future.
Reliance has already
invested over $20 billion in 4G infrastructure. It is obviously quite sure of
making good on the huge investment. Jio Payments Bank is
one of the several other banks slated to occupy the digital payments platform
in India. Others in the Fintech game with Jio are Airtel Payments Bank, Paytm
Payments Bank, India Post Payments Bank, NSDL Payments Bank, Aditya Birla Idea
Payments Bank, Fino PayTech, and Vodafone m-pesa. These entities have
globally dispersed ownerships, though their promoters are Indian.
billionaire Nandan Nilekani, one of the architects of Aadhaar, and now one of
Modi's consultants, drew attention to the merits of the digital transformation
of banking by pointing to the key breakthrough of a 'unified payment
interface' (UPI) launched by RBI Governor Raghuram Rajan before he
left his job. UPI greatly simplifies
the transfer of money by consumers. Nilekani argues that this will "shift
the business models in banking from low-volume, high-value, high-cost and high
fees, to high-volume, low-value, low-cost and no fees".
There is a strong
constituency both in the corporate sector and the government which believes it
thus has the "solution" to financial exclusion. The expected windfall of profits is
incidental, of course.
GO DIGITAL INDIA
Modi has always been a
digital enthusiast. With the creation of more than 250 million Jan Dhan bank
accounts for the hitherto financially excluded, and its huge promotion of the
Aadhaar card (a creation of the UPA government before him) as a means for
accessing financial services and the transfer of subsidies - all that the Modi
government thinks it now needs in order to push the Indian economy towards
cashlessness is a mobile-mediated digital payment system.
To its thinking, Jan
Dhan and Aadhaar-linked mobile payment (JAM) will achieve the desired goal of
digital villages - where mobiles are already available on EMIs. Just like most
of India skipped land-line telephones to acquire mobiles, it is believed that there
is no longer any need for physical bank branches across the country. Mobile
phones will be enough.
Small wonder then,
that the government's Niti Aayog has been cooking up schemes to financially "incentivise" digital
payments in grassroots India, long accustomed to cash. The prime minister's
pro-poor rhetoric at his public rallies notwithstanding, it is perfectly clear
what this government's actual priorities are. If some of the poor can also be
seen to benefit, all the merrier.
Cashlessness ("less-cash" for
the time being) has from the beginning been the unstatable long-term goal of
the plank of policies of which demonetisation is likely to be the
first. The full digitisation
of the economy is the greater goal. The process may take 10-20 years in all, but
the globally-agile plutocrats have made a daring start in (a napping) India. 'Black money' (or
busting terrorist financial plans) was just the excuse/pretext to usher in
digital coercion. It is hardly the main goal.
Cashlessness will make
even plastic obsolete. In addition to working as a virtual ATM, the mobile will
work as a debit (and in favourable circumstances in the future, a credit) card
too. What Modi and the
digital payments artists in India are doing is completely in line with the
recent World Bank line for developing countries). A World Bank Press
Release approvingly quotes the CEO of Bill and Melinda Gates Foundation:
"Governments have to take the lead and drive digital financial development
forward...We need governments to establish the vision, the digital platforms
and the regulatory assurance to pull the hundreds of millions of currently
excluded people into full participation in the modern economy."(Bill Gates
has himself offered an enthusiastic endorsement of demonetisation). And governments are
doing just that.
IS THIS REALLY ABOUT
Nobody - beginning
with the previous Governor of the RBI - with any knowledge or experience ever
believed that demonetisation would put an end to black money, even temporarily. The very fact that -
half-way into the 50 days the prime minister had asked for - most of the
demonetised currency is already back in bank deposits, is a tribute to the
resilience of laundering habits in the country. If the isolation of
black money was the main goal of demonetisation, as the government has
repeatedly been telling the people, it is failing miserably. Another few weeks
will make the picture perfectly clear.
It is the drive
towards a cashless economy which is likely to outlast the hunt for black money
(which can resume its journey after a gap with the help of the new currency
notes). The assumption, all
along, is that digitising the economy would enable a full record of
transactions, robbing the cash-driven parallel economy of its informal,
invisible power. Formalisation of
economy in this manner, we are told, will somehow make human economic behaviour
In fact, a claim could
be made quite convincingly that digitisation might ultimately greatly increase
the scale and impenetrability of the black economy. Technology is not known to
impart a conscience to human beings, somehow rendering them more honest, even
if it sometimes appears to make cheating difficult for small thieves in the
short-run. In a time of digital
opacity, the risks are particularly high. Don't believe this author, just go
and speak to regulators anywhere who have to deal with the mounting menace of
offshore banking where astronomical fortunes casually evade the hawk eye of
governments across the world. The sums involved make
the black money the prime minister has gone after in his stentorian moral
crusade seem like bashful pennies.
CHANGING GOAL POSTS
In fact, it is worth
asking him why he has so far failed to take any action against the large
unaccounted fortunes hidden in offshore accounts, which appear to be the final
destination of much of the wealth spirited away from the country. Unsurprisingly, the
frequency with which the prime minister has mentioned "black money"
or "fake notes" has declined sharply if one tracks his speeches
through the month of November. At the same time, the
objective of moving India towards "cashless" digital payments has been
heard much more frequently in his speeches. The goal-posts have shifted
noticeably to prepare the public for what is to come, especially after the
patience of the anguished public wears thin after the promised day of
reckoning, 30 December.
The popular appeal of
demonetisation - and the reason why Modi Sarkaar still survives despite the
criminal disruption of the Indian economy - rests on the government's claim
that it will put an end to black money in the country. If things had been
presented to the public the other way around, and the government had been up
front about the objective of achieving a cashless India (the removal of black
money being but a secondary goal), there is little doubt that the policy would
have been immediately unpopular.
As things are laid
out, it will take a while for the public to see through the rhetoric of
patriotism. This is how stealth reforms are meant to take effect. Meanwhile,
just like in 1991, the economy is subject to fait accompli policy-making,
digital coercion being a necessary part of the bargain.