By Silvia Masiero
In the immediate aftermath of demonetization, two twin arguments emerged on the implications of the sudden move made by the central government. The first pertained to the effectiveness of the move on curbing black money, abnormally diffused in the cash-intensive Indian economy. The second asserted that digital infrastructures would mitigate the effects of the move, especially for the unbanked poor who conduct most of their transactions in cash. The Aadhaar system, centred on biometric data captured to improve access to social services, is the heart of this infrastructure.
[su_pullquote align=”right”]But so far, there has been limited effective discussion of the potential of digital technologies to reduce the backlash of demonetization for the poor and marginalised.[/su_pullquote]
On the first argument, reactions have been diverse. Many commentators (example Ghatak 2016, Sen 2016) have expressed doubts on its tenability, reminding that black money is mostly held in real assets and existing businesses rather than in stocks of cash. On the second one, fewer immediate reactions emerged: at present, the multiple effects of demonetization on the unbanked poor are sadly visible. But so far, there has been limited effective discussion of the potential of digital technologies to reduce the backlash of demonetization for the poor and marginalised.
In this article, I examine the potential of an Aadhaar-centred inclusion system to help marginalised, unbanked communities to deal with demonetization, and ease their transition to a ‘cashless’ economy. I find three constraints to this, lying in issues of technology ownership, access to informational networks, and infrastructural readiness for cashless transactions. As a result, it seems that the poor cannot be easily included in the cashless economy prospected by demonetization, and digitality should be supplemented by other means to reduce the humanitarian backlash of the move.
The tech aspect
Launched in 2009, Aadhaar or Unique Identification number (UID) is a 12-digit individual identification number issued by the Unique Identification Authority of India (UIDAI) on behalf of the Government of India. It captures the biometric identity – 10 fingerprints, iris and photograph – of every resident, and serves as a proof of identity and address anywhere in India. As stated by the Economic Survey (2014-15), the main purpose of Aadhaar is that of simplifying delivery of primary social benefits, eliminating existing leakages and ensuring correct delivery to those entitled. In doing so Aadhaar is combined with the Pradhan Mantri Jan Dhan Yojana (PMJDY), a financial inclusion programme aimed at universal banking, and mobile phones which can facilitate access to financial services. Can the “JAM Trinity” (Jan Dhan, Aadhaar, Mobile technology) so devised contribute to overcoming the cash crisis?
Aadhaar provides users with a digital identity, so they can exist in a cashless ecosystem: but to transact in it, two more items are needed, namely a space to deposit digital money and a means to exchange it.
Aadhaar offers a digitally-verifiable identity, whose ubiquitous value makes it possible, for those enrolled, to change cash at an enabled banking facility. But the same does not hold for entering a cashless economy, which is a system of actors connected by one or more digital platforms. Aadhaar provides users with a digital identity, so they can exist in a cashless ecosystem: but to transact in it, two more items are needed, namely a space to deposit digital money and a means to exchange it. Due to technology ownership constraints, neither of the two is easy to obtain.
First, if someone’s savings are stored in cash, to operate in a cashless world they first need to be deposited in a bank or post office account. To the unbanked poor this means long queues at banking facilities, for applications which are often turned down after excruciating waits. Opening a bank account is no simple operation, and requires paperwork – in terms of multiple supporting documents – that a plethora of vulnerable citizens do not know how to get. Exposed to conflicting and incomplete information, many of the poor are unable to deposit their money.
Besides, a cashless economy involves exchanges of digital money. This is not only transacted through bank cards, but also and increasingly through the so-called digital wallets, which require a smartphone device to work. Smartphones however are owned by only 17% of the Indian population: to clarify, Paytm and Mobilekwik are not similar to m-PESA, the Safaricom mobile money service that runs on basic mobile phones. In the absence of bank accounts and digital means to transact, chances for the unbanked poor to join a cashless economy are limited.
Network access for Indians
The government’s idea is rooted in the concept of demonetization through digital transformation. But the basic tools reviewed so far (a digital identity, a bank account, a means to transact) are not sufficient for actors to take part in the new ecosystem. Access to the digital space is another requirement, and it is meant as continuous access, given the frequency with which people make transactions in their daily lives. However this is dependent on access to the internet, which in India is geographically limited.
[su_pullquote]Based on India’s IDI data, internet access still represents a problem: the country is ranked 138 worldwide, behind nations (example, Gabon, Nigeria, and Zimbabwe) that rank significantly lower on economic and human development.[/su_pullquote]
The International Telecommunications Unit (ITU) calculates an ICT (Information and Communications Technology) Development Index (IDI) for 175 countries, using it to monitor technology developments worldwide. Based on India’s IDI data, internet access still represents a problem: the country is ranked 138 worldwide, behind nations (example, Gabon, Nigeria, and Zimbabwe) that rank significantly lower on economic and human development. The problem lies in high inequality between computerised megacities and large unconnected peripheries: this relegates many rural and tribal communities to isolation, making it hard to enter the digital space.The spread of internet and awareness about its usage is gradual among the Indian poor | Photo Courtesy- Wall Street Journal
Access to operational information on how to handle the current cash crisis is also limited for the poor. Recent ethnographies reveal widespread confusion among the marginalised, especially on how to first approach a bank and handle the practicalities of opening a new account. As things stand, poor and vulnerable groups are forced to change their saving and purchasing habits, but are surrounded by confused and distorted guidance on how to handle the transition.
State of information infrastructure
An Aadhaar-based identity, operating as a substitute for physical documents, would allow the many undocumented poor to become visible to the State. But for a digital inclusion apparatus to inscribe them into a prospective cashless economy, the right infrastructure should be in place. Current infrastructural readiness, however, seems suboptimal for such purpose.
First, technology enabling digital transactions should be in place nationally. But 24% of the Indian population lives without electricity (compared, for example, to 0.2% in China), and gaps in electrical and mobile coverage are concentrated in rural and tribal areas. Hence construction of a cashless economy cannot be based on an existing backbone, but would need to take place largely from scratch, in a short time given the suddenness of the government’s move.
[su_pullquote]Recent studies, even in computerised cities like Delhi, show beneficiaries being turned down due to technology failure, and being hence denied the food rations they are entitled to.[/su_pullquote]
Second, once established, digital infrastructure needs to be reliable. But recent precedents, particularly the use of Aadhaar for the identification of social scheme beneficiaries, cast doubt on this. Recent studies, even in computerised cities like Delhi, show beneficiaries being turned down due to technology failure, and being hence denied the food rations they are entitled to. If this is a serious concern for a food security programme, it would be even worse for a cashless economy, as technology failure would then prevent users from even carrying out basic day-to-day transactions.
[su_pullquote align=”right”]While such system provides enrolled users with a digital identity, operating in a cashless economy requires devices, access to networks, and a support infrastructure that the system does not provide.[/su_pullquote]
While the JAM trinity may well be a step forward, the constraints illustrated here reveal that the current Aadhaar-based system does not protect the poor from the backlash of demonetization. While such system provides enrolled users with a digital identity, operating in a cashless economy requires devices, access to networks, and a support infrastructure that the system does not provide. As a result, the poor are still unshielded from the consequences of cashlessness, which is even causing denial of lifesaving medical facilities, among other critical things, to those without valid currencies (Nagarajan 2016).
Digital inclusion is part of the response, but can by no means operate alone. The first necessity is that of providing the poor and marginalised with clear, easily accessible operational information on how to obtain cash and access to basic facilities under transition. The second involves tailoring humanitarian response to mitigate effects of cashlessness on resource-constrained groups: while arrangements were put into place for the first 72 hours, the crisis has persisted well beyond then. As such, it is of vital importance to ensure equal access to basic-need facilities, making arrangements for all those who, excluded from a cashless economy, are still struggling to find appropriate coping mechanisms.
Dr Silvia Masiero is a Lecturer in International Development at the School of Business and Economics, Loughborough University. Her research focuses on the use of information and communication technologies (ICTs) in the field of socioeconomic development.
This article first appeared on Ideas for India.
Featured Image Courtesy: TaraSpan
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