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The government began with focusing on fake currencies and black money as the reason for demonetisation. As deposits started rapidly piling in banks and it looked increasingly unlikely that there was a lot of black or fake money being caught, the goalposts started shifting.

Soon it became evident that the supply of legal notes was nowhere near adequate and worse, going by the capacity to print notes, it would take another 5 to 6 months to return the amount of money withdrawn from the country. Then came disclosures of problems with notes, inappropriate prioritization of the 2000 rupee note, which is available relatively abundantly, but without the intermediate 500 rupee notes, only serves to reduce the limited liquidity with the existing 14% of notes left to people.

Suddenly the talk seemed to turn to a cashless India. Government spokespersons on TV as well as Modi himself have given up all talk of black money and suddenly demonetisation is all about a cashless India (which got rapidly ridiculed with comparisons to the cash-less reality) and upgraded to a less-cash India. This is a terrible idea.

Necessity is not utility

If it were useful for India's sellers to accept cashless payments by paying a charge on the transactions, they would already be cashless. The government wouldn't have to recommend it at all. The fact is, cash transactions are highly efficient. They work instantaneously and reliably with no other infrastructure needed - bank accounts, devices, connectivity, electricity to run said devices.... and they are FAST. Taking a note or five from a wallet, handing it over, acceptig change back takes way less time than devices connecting, verifying, blah blah blah. Even swiping a card takes more time. AND unlike cash, you pay a fee every time it is used. Whether it is the buyer or seller charged, the cost will ensure the buyer pays for it. No seller is an idiot.

A few sellers may have adopted these methods in a bid to increase the business the government killed, but it is highly unlikely that they will prefer these methods to cash, if they hadn't found them useful before. A few businesses catering to buyers likely to own cards may continue, but that is an entirely different planet from cashless India.

To give a very crude example:

Bottom line is that cash works. Starving the country of cash will not work because hoarders will hoard and the government will have to issue adequate cash to keep country running. This kind of deprivation will in fact cause more people to hoard. A domestic example (I'm full of them) - before the demonetisation, I'd been a happy mostly cashless user for over a decade. I live in a small town and yet my maid and grocer are paid with online transfers by the month. I very rarely had any cash other than the notes in my wallet which usually ran out and I lived a day or two on simple credit if needed - since I had no daily expenses as such beyond vegetables. Today, I have over 10 thousand rupees in my drawer - because I know I need to pay the other maid (whom I hired merely because she was desperate) in cash in another week or so, but then people will be crowding to draw salaries. I have also kept enough cash at home, because unlike normal times, when I could hop over to an ATM and withdraw when I needed, there is no telling when I may find an ATM with a queue I'm willing to brave. This is happening everywhere. 20 days of banks giving out money the best they can, and our local market looks like this:

People aren't even thinking of spending. They will not spend on anything unnecessary, no matter how much cashless you scream, till they feel reassured that they have enough cash for contingencies. That is going to be a long, long way away.

Inadequate penetration of debit cards

India has 24.5 million debit cards, most of them saturated in urban areas, and people often owning several among those who do. My home for example has two adults and 8 debit cards between us. so 24.5 million being the number of cards is unlikely to be anywhere close to actual card users. Further, cash withdrawals at ATMs is most of the use these cards are put to with 88% of transactions and 94% of the total monetary value of all debit card use. Which brings us right back to cash.

Inadequate penetration and extreme difficulty obtaining credit cards

A few days after demonetisation was announced, I got a call from SBI offering me a credit card. The limit was to be from 30 thousand to a few lakh - I forget details. Interested, I agreed. Ignorant of the ways of credit card companies, I expected that they would estimate my limits by my salary or deposits, etc. Turned out that they blocked a fixed deposit and issued a credit card against it for less than the amount of the fixed deposit. Unclear why anyone would use a credit card at all instead of their debit card, in that case. I got several other offers. Curious about this phenomenon, I replied to the offers with varying information about my income. Unsurprisingly, I found that I had to be rich enough to be able to spend the money directly in order to be able to use it on credit at rates that would put a shady rural moneylender to shame. It makes no sense and I don't think I'll be using that card. I think this option of going cashless is irrelevant to most of India's population - other than the corporate salaried class - got more interest out of them if I said I worked in an MNC - which, let's face it, may be the loudest population of India, but hardly the top empoyment.

Online and mobile banking

Let me narrate here an incident in my home recently. My maid, who pays for her gas in cash and uses her debit card strictly to withdraw money from the ATM as needed, got an SMS from her gas provider saying that she could pay for the gas online. The conversation went something like this:

The fact of the matter is, online transactions are complex and to the internet illiterate are a financial catastrophe waiting to happen. It is far better for people to learn about internet security with Facebook accounts and verifications and email passwords and lost passwords and recovery and hacked Twitter accounts than to begin their internet experience with a high stakes gamble like the contents of their bank account because their government forced them to do it for survival.

Make no mistake, if people don't have cash and get taken in by this propaganda, very soon you are going to have operators of cyber cafes with passwords to a hell of a lot of accounts as aunties line up their with electricity bills and bank slips containing their login ID and passwords in hand to pay the bill so that their electricity is not disconnected or to charge their Paytm account so they can pay their grocer. And they would not have the knowledge of how to change their password either. They would learn eventually, likely with hard lessons that leave them with nothing to protect, and this is not the way to do it. Too much risk.

Literacy rate in India

India's literacy rate stands at 74.04% - but this is an illusion. A lot of "literate" people of poor economic status are barely able to read and rarely in English, which is currently required to transact efficiently online, understand bank statements, secure their accounts, change passwords and PINs and more. Some things like using cards or withdrawing cash from ATMs can be done in Hindi or other languages, but even examining transaction slips and more still happens in English. Internet banking is mostly in English.

Computer literacy is even lower. Smart phone usage may be slightly better, but it is still under 30% of the population.

Electrification and internet penetration in India

I am not even going to talk of percentages here. To go cashless, an absolutely uninterrupted electric supply and internet connectivity is non-negotiable. And, to put it very very mildly, we are nowhere near 100%

Business margins

Business margins over every single transaction are absurd replacement to freely exchanged cash. For high value and infrequent sales, it may make sense. To buy your vegetables, Paytm may earn more than the vegetable seller's profit at the end of the day. Tomatoes are selling at 10Rs a kilo. One kilo is a hell of a lot of tomatoes.

Business readiness

Twitter is currently awash with stories of cashless fails. I had one yesterday. I couldn't find my debit card, so rather than risk it being stolen and misused, I blocked it. Five minutes later I found it. But while I can block it online, I cannot unblock it using the same security available to my entire bank account with access to online banking. If a thief has access to online banking, they don't need to unblock cards, they can simply transfer all the funds out. The bank has my phone, my email AND my access to online banking secured with passwords and OTP, yet something as simple as unblocking a card can't be done within minutes of blocking it and I must go to my home branch 2 hours away. If the card got blocked by someone while trying to pay after two hours of filling a shopping cart, would be a really fantastic cashless experience! This is the country's biggest bank!

If I was in a city and living cashless as Modi recommends, what was I to do? Beg for money to get home in spite of having plenty? Banks like Bank of Baroda or Indian Overseas Bank don't allow online generation of PIN for ATM cards - you must go to the home branch. How is a cashless India even possible with the biggest jugglers of money being so primitive?

Other issues like Paytm account blocking in the event of a lost phone being completely abusrd, to inexperienced sellers charging over a lakh rupees instead of over a thousand rupees accidentally and not knowing how to reverse charges. There are plenty of nightmare stories.

Security issues

Internet banking is a lucrative area for hackers, and India is not extraordinary on security. Just weeks before the demonetisation was announced, an ATM hack had defrauded many people of their money. While banks blocked cards and issued new ones, there is no information on any investigation or arrests made. Or, for that matter, for most cyber crimes beyond "objectionable" content on social media, which is usually busted because of a lack of anonymity - a newbie mistake, no hacker into financial systems will make.

There are security issues with banking apps

I'm just going to paste this here.

 

Forget cashless India. Go pre-dawn to some ATM that gives out Rs 2000 notes - they have shorter queues. Do this a few days and you'll have some cash to use till this nightmare is done.

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Two nights ago, Modi suddenly appeared on TV and told people that the currency notes for Rs. 500 and Rs. 1000 would not be legal tender after midnight and anyone accepting them did so at their own risk. Then followed information on how how people could deposit them into banks or exchange them for legal 100 rupee notes at banks and post offices. There also followed information on places that could still accept the notes for an additional 72 hours, like government hospitals, petrol pumps, railway counters, etc. Banks wouldn't work the next day and ATMs wouldn't work for the next two days. New currency for Rs. 500 and Rs. 2000 would be issued after three weeks. Don't panic, he said, you will get your money back or something. He has vanished since then, even gone abroad while the country faces chaos and did panic.

What this meant was that the people had absolutely no chance to organize themselves and plan their finances for the near future. People stopped accepting those notes well before midnight. Others rushed to ATMs, which was a bad move, since most ATMs nationwide give only Rs. 500 and Rs. 1000 notes and only a select few dispense Rs. 100s - which was the need of the hour. Those emptied fast.

What ensued was absolute chaos. While stating that petrol pumps and railway counters and such would accept the banned currency, the government had done zero to ensure that they had adequate legal currency to offer back in change and necessity soon forced these places to stop accepting the banned notes, regardless of what the Fuhrer had decreed. As outrage grew, hasty additions were made to the list that would accept the banned currencies like all hospitals, medical stores and such. Frankly, on the ground and in order to be able to do any business at all, it translated to pretty much anyone with enough change to return for the banned notes accepted them.

It didn't work, as people held on to the increasingly scarce Rs. 100 notes for necessity and local economies ground to a halt. By morning, the situation was clear. Shops accepting cards and such (mostly in the metros) continued to do business, while small town areas like ours were completely shut in the day - there was no money to do transactions with anyone.

By the evening, the classic Indian jugaad had helped some more, and solutions like doing purchases worth the cost of the banned notes was practiced (absolutely everywhere, not just in government listed places). A few places like medical stores took to issuing notes signed by the owner for the balance amounts that could later be exchanged for medicines. But such trade was largely limited to essentials. The economy basically ground to a halt.

The complete abruptness of the move resulted in enough lack of information to do irreparable harm. From money being abandoned or burned to a heart attack from shock that the hard saved 2k a woman was to deposit in the bank was no longer a legal note. Another woman in Telangana sold her land for 50 lakh in cash and committed suicide on discovering the ban, believing that her notes were now worthless. People with weddings in the family were completely stumped for money. Necessities from cooking fuel to vegetables were out of the reach of people. There simply wasn't enough cash for transactions to happen.

There was panic over urgent needs for cash, medical emergencies, travel, weddings and other functions, bill payments and more. Many couldn't afford food. Sellers of perishables made huge losses because their investment spoiled before people had money to buy it.

A thriving black market bloomed overnight that will vanish just as untraceably later over - ironically - national currency. People desperate for money to buy things accepted change for a lesser amount (varied from Rs. 300 to Rs. 450 for every Rs.500 note). Television channels were monuments to the absurd, loudly proclaiming "noton ki jabardast black market" (Black market of currency) one moment and how this move was preventing corruption black money (the government script) at the other.

Supporters of the ruling party took to suggesting anyone who criticized this to be hoarding black money. Others helpfully suggested cashless wallets (incidentally, the Prime Minister appears to have promoted one coinciding with this ban, raising all kinds of questions from quid pro quo to propriety). There was an abundance of information on how to deposit, withdraw or exchange cash. Except.... the banks were closed, as were the ATMs.

By the end of the day, the devastation this move had caused people - and particularly the poor - was so obvious that the need to rapidly return cash to people was beyond obvious, and the government decided that the banks would immediately start supplying the new currency notes for Rs. 500 and Rs. 2000 when they opened. This announcement was pretty much a declaration of the failure to curb black money (or whatever it is the government imagined it was curbing) by strangling the cash flow of the whole country, as the Prime Minister himself had stated that the higher value (also debatable when a large pizza costs more than Rs. 500) notes encouraged hoarding and that is why their ban was a step toward clean money. Not only would new higher value notes be right there, there was one that was higher than the value of any currency circulating so far. But then our ruling party isn't famous for logic.

The new day began with more of the same. Cash shortages. ATMs closed. Banks, supposed to open early, as per government propaganda, mostly didn't. In any case, by 11am, news of banks running out of cash started hitting social media. The situation on the ground is mostly unchanged, because the few people who have been able to exchange currency simply haven't got enough currency in hand to spend it unless necessary. Being able to officially exchange only Rs. 4000 in 14 days makes a mockery of living costs in India. Though of course, people immediately found ways around that - going to multiple banks, using different ID proofs each time, etc. But the fact remains that not even 1% of the population was able to get their hands on usable cash. And no one has so much that they would send it right back into the market with transactions (I also suspect the black market the government has so helpfully invented traps and trades any that circulate, instead of merely using it to provide change at real value).

While some got their cash without much hassle, many spent hours in queues and increasingly angry crowd only to discover that banks had run out of money. Daily wagers lost wages trying to get money, only to not get it and be forced to try again tomorrow. The alternative, of course was to lose anything between 10% and 20% of the value of their hard-earned money and change it in the black market. And this black market was the complete creation of Modi and his government because of their absurdly short notice on the ban and closing of banks immediately after announcing it. While the government propaganda suggests that such suddenness was necessary to prevent illegal hoarders from planning their moves, they can still plan their moves, since the government not being able to replace it rapidly will mean that they have a long time to plan and do it in, just like the other citizens - and particularly the government, which doesn't seem to have realized the mathematical difficulty of replacing 86% of the nation's currency with 14% of the nation's currency and been caught completely unprepared for the results of their own actions.

What is worse, is an insecurity and mistrust about the government and national currency. Talking with people on the street "How can they do this? How can they just cancel our money any time they want?" was a recurring sentiment. People are scared of losing their money. Even when they get their hands on legal cash, it will be a while before anyone forgets that their hard earned money could be rendered worthless on whim and they could suffer for necessities even after working hard and earning enough and the government actions have shown that it is inclined to act on such whims for the sake of drama that is literally funded by the people with insecurity, deprivation, losses of income, inconvenience, sometimes loss of life or social status or money in the black market. As an angry woman put it "How can the government force me to buy my own hard earned Rs.500 for Rs. 400 or not have food for dinner? What is the meaning of this? Why have government guaranteed notes if they can be banned without warning?" People are angry about the ruling party. What is worse, they are in a new position of having to factor in such losses. Ironically, this appears to have made people MORE inclined to hoard money, not less. Most people I asked said that they would now try to keep a larger emergency buffer of money at home and this time would make sure that they had notes of different denominations. Though of course, they still had nowhere near enough for immediate needs, let alone the hoarding they were planning.

Regardless, by afternoon, the government was now making noises about a Rs. 1000 note as well to be introduced. Essentially, it means that the whole tamasha does mostly nothing useful. Not just are the denominations targeted to remain in circulation, an additional and higher denomination has been added while talking of high value notes increasing corruption.

Given that one five hundred rupee note will be replaced by five one hundred rupee notes that no one wants to part with, at the slow pace people are getting money, it is going to be a long and painful time before normalcy returns.

This is what happened. Part 2: will look at this situation with more analysis of other factors and fact checking.

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and so on.

With minor variations, the story is the same. A miracle fix for our country's water woes. Affordable drinking water. And so on. Sarvajal currently not making a profit is seen as a halo, but creating a market out of a fundamental need is hardly a loss making proposition, so I'll save my tears of concern here.

Most of the articles are very upfront that this is not an NGO, but a for profit company Sarvajal backed by Piramal Enterprises. The era of purchasing drinking water and praising the lord that it is cheap, is here. Except, none of the articles have noticed it in the flood of clear, drinking water. Paid for by an ATM card, of course.

Animation of dripping water
Animation of dripping water

Considering that there is an abundance of people who think lie a certain ex-CEO of Nestle and see water as a commodity that must be paid for, rather than a basic human right, I'm not going to get into that ugly debate here. I'm going to raise several other questions about this miracle.

  1. This company digs bore wells (or makes its franchisees dig borewells) to access water to treat through reverse osmosis to sell. Underground water aquifiers are a national resource and the indiscriminate use of them, particularly in a way that spoils the quality of water is a crime against the country. Even if you pay people to use the water instead of selling it cheap.
  2. The Sarvajal plants are using the waste water from the reverse osmosis to recharge the ground water. I have no idea why they are doing this, but then I have no idea what else they could do with brine either. Offer it as a substitute in processes that need salt water? My guess is that "recharging the ground water" is just a pretty term for treating a borewell like your gutter, because the brine from the Reverse Osmosis contains the Totally Dissolved Solids from the water that got cleaned as well. In other words, if you are operating on a 50% efficiency (the plants are capable of 65% according to the blog of someone who worked there), then the waste water is TWICE as problematic as the water you began with. Dumping that into the water source makes zero sense.
  3. But it isn't like these concerns haven't been raised. A Business standard article from January says: D C Garg, hydrologist at the district groundwater department, says this process may increase the TDS content in groundwater. But Anuj Sharma, chief operating officer of Sarvajal, argues that only 0.5 per cent of the extracted water is used for drinking. Most is used for agriculture, shows groundwater extraction data. The rather casual answer is worrisome, because it ignores the fact that the Sarvajal plant will make the water worse for those who are not their clients and still use ground water for drinking. A sort of self-fulfilling business if the purification plant is making the water worse than it used to be, so that it can't be used without their technology. This is rather alarming when you are speaking of the water of an entire area at large. The casual dismissal of concerns about water quality should raise alarms.
  4. But can the 99.5% of water used for agriculture purposes be dismissed so easily? An irrigation experiment with saline water at different concentrations was carried out over a 7-year period on the same clay–silty soil in the Volturno Valley at Vitulazio to evaluate long-term effects of irrigation with saline water on crops and soil. The abstract of the research paper ends with the following paragraph. Irrigation with saline water led to an increase in ESP and a degradation of the soil physical properties that were estimated indirectly by measuring aggregate stability in water (IASW). The index of aggregate stability in water for the top layer (0–0.15 m) was inversely correlated to the ESP values, even after the leaching due to the autumn–spring rainfall. Can a business be allowed to risk this for the entire region?
  5. While drinking water does not need approval from environment ministry, how can it be that adding undrinkable water to the water aquifer is not prohibited? The Environment Ministry needs to answer for why it allows clear degradation of the quality of the water across the country so that dependence on commercial methods increases.

Sudden epidemic of Solar-Powered ATMs in newsFinally, I think it is not about the cost of the water, but the responsibility of the water. Citizenship of the country cannot be divorced from the right to life essential resources in it. It is not a question of who provides the cheaper water, but a question of the responsibility for providing clean water being transferred to individuals without access to water bodies, so that they end up becoming purchasers of a fundamental need. It is a different matter if the Reverse Osmosis unit were owned by a village to provide water for people in it and the resulting degradation of the water table were accepted by the residents of the area jointly.

This is also a convenient excuse for the government to abdicate its responsibility to ensure sustainable water distribution across the country and hand over more and more of this precious resources into the control of corporations. The low price is the lure, but the destination is still the abdication of your right to clean drinking water. The destination is yet another place where people buy a product in the place of what they had for free.

Sudden epidemic of Solar-Powered ATMs in newsAlso, it is not true that extracting ground water is the best choice for drinking water. Rainwater harvesting is a far superior method of collecting and storing drinking water that needs no processing to be drinkable. Rainwater harvesting is also an urgent need in a country that is expected to be mostly water scarce in another couple of decades. Depleting ground water is a dangerous way of getting water, as depleted tables will mean the need to sink borewells deeper and deeper. Ground water is also not infinite, and reckless extraction will result in wells running dry.

To base a method of substituting a government responsibility with a product that is created through a shared resource and that damages the shared resource in the long run cannot really be seen as a long term solution. Yet, more and more areas are buying bottled water for drinking. Sarvajal is planning an expansion, as are other "brands" of water, but there is little news on rainwater harvesting, sustainability, pollution control or equitable distribution of water that puts life over industry.

Faced with droughts every year, we continue with our reckless worship of development that boils down to  commodification of public resources in an extremely short sighted manner. The government simply does not care to monitor hens that lay golden eggs - be it taxes, or providing the people an alternative to revolting against their theft of natural resources.