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1

DeMonetisation did not promote the uptake of digital transactions

Driving India towards a less-cash, digital payments economy was one of the aims claimed by the Prime Minister when he invalidated 86% of India's circulating currency. The reasoning was that India was a largely cash-based economy; if circulating cash was reduced, people would rapidly move towards electronic, or digital payment systems for their commercial transactions. That at any rate was the hope.

Did it happen?

Rupa Subramanya thinks it did. She claimed as much in a blog in the Hindustan Times. She accepts that the original aim of taking out black money has not been met, given that almost all of the Specified Bank Notes (SBNs) hav now been returned for exchange or deposit. But she goes on to say that her research shows that the secondary aim of pushing the country towards digital payments and away from a cash based economy has been achieved. To quote from her article:

....several key components of digital payments such as Point of Sale Debit and Credit (PoS) purchases, National Electronic Fund Transfer (NEFT), Immediate Payment Systems (IMPS) and mobile banking, are way above their pre-demonetisation trends

.....

The bottom line of the research conclusively demonstrates that there was a structural break after November 2016 with a permanent increase in digital payments and decrease in the relative importance of cash. Whatever you may think of the original goals and whether they succeeded, it’s clear digitisation is one demonstrable success story of demonetisation.

She expresses the use of digital payments not in absolute terms but as a proportion of total M3 Money. However, though she says she has published her findings,  they are not in peer reviewed journals. Rather the findings are published in research papers for the Observer Research Foundation - a think tank. I haven't seen these papers and therefore cannot comment on the methodology of the research. In any case she does not cite a source, nor does her article present the full results of her analysis. Her data source, though is the same that I have used earlier in a series of tweets and in a twitter Moment. This is the Reserve Bank of India's Database on Indian Economy.

I believe her conclusions are premature, they may even be misleading or wrong, based as they are not on absolute value of payments but on payment volumes as a ratio of M3.

I present here my own much simpler and more intuitive analysis of the RBI data set and draw very different conclusions.

Data and Methods: The RBI dataset consists of monthly transaction amounts for each of several different modes of digital transactions. The data goes back to 2004 and the latest available data is for August 2017, 10 months after DeMonetisation. Rather than look at just at the figures a few months either side of D-Day (DeMonetisation-Day if you are a fan or Disaster-day if you are a critic), I suggest it is best to look at the entire period. Since these are time series data (defined as data collected consistently with a defined periodicity - in this case monthly) the most obvious and simple technique would be to chart the data against time, draw a vertical line at D-day and look for a change in the trend . If D-Day did indeed result in qualitative sustained change in aggregate behaviour the change in trend would be obvious. I used the statistical programming language, R and the charting package ggplot2 to draw and annotate the charts. These statistical programmes are widely used in academia and business.

Results: The results of my analysis are best presented as a series of charts. They speak for themselves.

The key point to get is that by looking at the entire time series for each of the main digital payment modalities, two conclusions leap out immediately.

One, that in the first few months after D-Day there was a spurt the volume of payments made by digital means.

Two, for some payment modalities, they have subsequently fallen back to levels that were seen well before D-day. In particular retail electronic clearing, and plastic card volumes are effectively back on the same trend growth they always were since long before D-Day. Mobile banking transactions in particular were going up steeply in the months before D-Day was even a glint in anyone's eye; they went up even more steeply after D-day - and here's the crucial point, they have more latterly dropped right back. If we superimpose what we know about the re-introduction of new currency notes this looks like a perfect fit. As cash was re-introduced into the system, people began giving up on mobile banking transactions.

Another set of charts looks at the volumes (i.e number) of transactions.

Here there appears to be a small shift upward that, despite some month on month fluctuation appears to be settling down at a level clearly higher than anything seen pre D-Day. In the case of mobile transactions it is small-ish numbers and starting from a very low base; in the case of digital transactions its a step change from about 1.4 billion transactions a month to about 2 billion. But the volumes transacted appear not to have shifted much at all - it is in keeping with long-running trend and it is certainly not a step change.

Undoubtedly, there has been a steep growth in the number of Point of Sale outlets, as shown here:

Starting from a very low base, this is only to be expected given the huge Government push including cash incentives and subsidies for the take up of POS machines. The extend to which these have penetrated much beyond the largest urban centres and the plushest retail outlets is the big question. The last chart above is based on data published by NITIAayog

Conclusions. My analysis leads me to conclude that any effect of DeMonetisation on the use of digital payment systems has been transient, small and short-lived. Some change has occurred (POS terminals for example) but the fact that both retail electronic clearing and card usage is back on what I call 'trend growth' (i.e. on the same trend as obtained before D-day) would suggest that there has not been a structural change that can be confidently ascribed to DeMonetisation.

Post-script discussion. In all the commentary on Digital Payments insufficient attention has been paid to a most fascinating report that was published on Oct 5 by Visa India. Amitabh Kant, CEO of NITIaayog, wrote the foreword to this report. Nobody who read the detailed figures or had taken in the measured  recommendations in this report would have supported a sudden, cataclysmic and disruptive withdrawal of 86% of the currency, certainly not with the intention of promoting a digital payments economy. Among the key findings of the report are:

  • Cash usage costs the economy 1.7% of GDP (Note: borne largely by the State)
  • According to a 2014 World Bank survey, only 0.38 percent of women above 15 years old used the internet to make payments compared with 2.04 percent
    of men; 3.25 percent women had used a debit card versus 5.25 percent of men.
  • The cost of a point-of-sale (POS) terminal in India ranges from INR 8,000 to INR 12,000. The annual operating cost is INR 3,000
    per terminal. Low transaction volumes especially outside of Tier 1 cities, make it unviable for banks to expand their footprint into such segments.
  • RBI and the Govt of India already had a plan to transition to a less-cash economy.
  • If India  invested a total of INR 58,000 crores (USD 8.6 billion) over the next five years through tax
    rebates, it could not only expedite the pace of payment digitisation but also save about INR 70,000 crores (USD 10.4
    billion) in that period through a reduction in the cost of cash with a potential to save 4.7 lakh crores (USD 70 billion)
  • If we invested 60,000 crores and undertook a series of reforms and regulatory changes cash use could come down in 2025 from 1.7% of GDP to 1.3%.
  • In particlar see exhibit 7 of the rport which details the benefits from a sustained programe of policy changes as well as investments to improve the infrastructure for digital transactions. Effectively, a 5 year programme of sustained policy implementation and investment would potentially result in a growth of digital payments for Personal Consumption Expenditure from 4% to a whopping 36%, a drop in cash need from 11% of GDP to 10%.

 

3

Was the demonetisation a success or failure? Various government claims and the subsequent lacklustre results leave no doubt that the demonetisation has resulted in no significant utility to the nation and caused considerable damage.

 

Demonetization
success or failure?

8th November 2016 - 86% of Indian currency was wiped overnight

The Claims

Minor inconvenience

Black money would be destroyed

Initial news of massive raids. Political opponents targeted. News of currency seized from various people. Widespread understanding among critics and supporters alike that the objective was to strangle cash flows (legal or otherwise) of political opponents during the upcoming election campaign in Uttar Pradesh.

ISI fake currency thwarted

Fake currency notes would lose value when the notes it copied were illegitimate

Widely criticized through various versions of "amputating a leg to lose weight" or "bombing a city to kill criminals in it", this was an irrational goal to begin with, to go through an exercise of this magnitude, expense and cost to economy to flush out a relatively minor number of notes that would at best lose value they didn't have to begin with.

Prevent counterfeiting

The new notes would have special security features to prevent counterfeiting

Initial reports in media suggested that the new notes would have special features that prevented counterfeiting them. At the very least, having to imitiate a new design would slow the counterfeiters down and reduce the amount of fake currency in circulation.

Various reports in a pliant news media even took claims of special GPS chips embedded in notes and discussed them seriously, creating a perception among the masses that the new notes would be extraordinarily resistant to misuse or imitation.

Tax Collection would increase

Almost 25% increase in tax collection has been unquestioningly gushed over by a pliant media. This increase in tax collection has been attributed to demonetisation.

The Reality

Massive disruption

Unclear how much black money was recovered

Having cash in itself is not illegal, unless it is established that the cash would not be accounted for while paying taxes. Seizing it without evidence of wrongdoing probably is, but the government legally created impunity for tax officials, who are no longer required to explain their actions to anyone..

Fake currency made legitimate!!!

The reckless demonetisation did not allow for examining notes

The relentless crowds and high stress environment at banks did not allow for adequate examination of notes deposited and the overall understanding is that a large number of fake notes got deposited and converted into real money in accounts or converted to new currency - in effect robbing the country far worse than them being in circulation.

Easier counterfeiting

The new notes had no special features that prevented counterfeiting

The new notes are of poor quality and apparently easier to counterfeit. Various leaders and affiliates of the ruling party have been caught with counterfeited notes and the equipment to make more. The trust in the notes is very low and "even the real notes look fake". Hurried printing has resulted in real notes not having all features they should have.

Among early news of counterfeiting included school children who had photocopied a Rs.2000 note and used it to dupe a sweets shop owner when they purchased treats using it.

There has been no change

Tax collection has been increasing year on year for a long time now, and if you look at the trend over the years, this year's increase in collection fits the curve.


The country would profit

Unreturned money would be money taken away from criminals

82% of the money demonetised was rapidly returned to the banks about a fortnight before the last date to deposit demonetised notes, and the crowds continued unabated way after the RBI stopped updating figures on money returned. It has been over 7 months now and they still have not given out the final figures related with demonetisation, .

RBI would transfer profits to the government

RBI transferred Rs 30,659 crore as surplus to govt. This is lower than the Rs 65,876 crore last year - less than even half the amount. The budget has assumed Rs 75,000 crore would come from RBI and PSBs.

Not just is the windfall absent, the government has not even been able to reach half the amount of the previous year.

The windfall from demonetisation would fund welfare

In addition to the losses made by the government, the citizens have made losses - from disruption and decimation of livelihoods to time taken off daily wage work and expenses.

There will be no benefit/compensation to them. Likely, a reduction of existing benefits will happen due to the lack of funds this "minor inconvenience" will cause.

Yep, demonetisation has been every bit of the clusterfuck it had been predicted to be, and we are not even close to recovering from the damage done.

7

Growing evidence shows that India is serving interests of foreign influencers at the cost of the well being of Indian citizens. Demonetisation is just one in a long list of moves that benefit big money.

Finance Minister, Arun Jaitley, said something interesting when he addressed the Digi-Dhan mela today. He said that Bill Gates told him that more than 100 Cr have mobile phones, 109 Cr have Aadhar cards, digital economy will boom in India.

This had many people puzzled. What does Bill Gates have to do with anything that he's been quoted out of the blue? Why would Bill Gates be the source of information on how many mobile phones or Aadhaar cards are in India for the Finance Minister with access to National statistics? For example the Assocham Deloitte study that says that internet connectivity is still out of reach for 950 million Indians? A few others, who had been paying attention to the news remembered Bill Gates endorsing the demonetisation last month and then denying much knowledge of it and limiting his endorsement to the digitisation of the Indian economy.

But what does Bill Gates have to do with India's demonetisation that he was even asked to comment or endorse it at all or that made headlines on the subject twice and a month later the Finance Minister used data allegedly provided by him to support the viability of this insane venture? 100 crores is 1 billion - in a country of 1.2 billion, with 22% of the population (264 million!) below an absurd poverty line. You'd need to hand phones to babies on birth to get that kind of penetration! That alone should tell you that the number is useless for anything more than propaganda. It is the total number of SIMs sold. Of them "active" - used once a month at a minimum - are 900 million. This number would also include dual SIM phones, SIMs used for non-phone devices (air pollution measuring devices, for example), multiple SIMs used for businesses and so on. This really tells you nothing about the kind of penetration that would allow cashless transactions. Far more accurate statistics with relevance to demonetisation are available for India that make it clear that India has 220 million (100 crore is 1 billion) smart phone users (not all of them have internet enabled).

For that, we must rewind a bit, to something I've mentioned briefly in previous articles and explore it in more details.

Worldwide, as banks fail to manage their money responsibly, we are seeing them flounder. Powerful companies and people writing and influencing monetary policies are encouraging cashless transactions - supposedly to improve the government's coverage for taxation, but in reality, in a country with 70% of its population only owning 10% of its wealth while the top 1% own almost 60%, the cost of digitizing the vast majority of citizens is not even going to be covered by anything that can possibly be recovered from their meagre income that is way below taxable limits. It doesn't take a hotshot economist to know that in a country where 1% of the population pays taxes, the "tax net" is unlikely to get any substantial benefits from being thrown over 100% to see who gets caught. The costs of such an exercise would outstrip any benefits.

What going cashless actually achieves is providing a lifeline to banks by:

  1. Getting most of the nation's money into them and shoring up their failing liquidity
  2. By generating an income for them from the routine transactions of every citizen's day to day living.
  3. Preventing withdrawal of cash from banks by people who want to make more economical choices instead of paying commissions for every use of money.

This happening in India is of a great deal of profit to the global banking elite as well, as credit card services, banks invested in India and other financial service providers generate an income for banks based outside India with their shares of the seemingly small transaction charges on day to day use of money in a country of 1.2 billion people.

There is a great deal of effort put into "encouraging" countries worldwide into adopting cashless transactions by the global financial elite and governments stumped by failing banks and the lure of improved tax collection are capitulating, though none fell as hard and recklessly as the Indian government.

The Quint had correctly reported that the USAID had launched the “Catalyst: Inclusive Cashless Payment Partnership”, designed to scale digital payments systems in India in partnership with India's Ministry of Finance on the 14th of October. This is the press release on the official USAID website. So it is unclear why The Quint updated its article to remove this information and instead add an update that it was initiated jointly by USAID and GOI, but commissioned on the 15th of November as though it didn't happen till it was commissioned. Regardless, this explains what Bill Gates was doing there at all to be commenting on the demonetisation - that should have been a domestic issue. Among the organizations partnering in the Catalyst is the Bill & Melinda Gates Foundation.

Also included in the list is the UN fronted Better Than Cash Alliance that India joined on the 1st of September 2015. To quote their website, "The Alliance is funded by the Bill & Melinda Gates Foundation, Citi Foundation, Ford Foundation, MasterCard, Omidyar Network, United States Agency for International Development, and Visa Inc. The United Nations Capital Development Fund serves as the secretariat."

So, Bill & Melinda Gates, Omidyar Network, Mastercard and Visa participate as themselves as well as as part of the Better than Cash Alliance. USAID participates through the BCA. World Economic Forum participates directly. Many Indian banks, and surprisingly PayTM as well as phone networks are included.

Way before anyone in India articulated a need for cashless payments beyond the normal use for convenience - and there was an existing natural rate of adoption, USAID and its allies seem to have got the bright idea that India needed to go cashless and moved to get India to participate. Not one, but two organizations created in their need to "save" India from itself. One wonders why. The economy was doing well, the government was already undertaking means to improve access and inclusion of more citizens in the banking system - for example, the Jan Dhan Yojana, the expansion of the DBTL scheme (both of which put citizen's money into banks, the second mandatorily) had both been launched before the government joining these groups for promoting a digital economy in India.

Given the catastrophic results of the demonetisation, and the complete absence of consulting with anyone in the country - the government's own economists, RBI directors or security agencies included, it becomes important to ask just who was consulted and the quality of information that was provided and whether it influenced decisions adversely for the country.

There are reasons to believe that there may have been influence against National interest:

  1. Jaitley's direct quote of incorrect statistics allegedly provided to him by Bill Gates, that he used in order to justify the demonetisation at the Digi Dhan mela, even as all statistics of any reputable source point to the opposite. The RBI's data even shows that while the number of card transactions at PoS has increased (out of necessity), the value of transactions has actually gone down, clearly indicating a reluctance to adopt cashless transactions more widely than what was going on naturally.
  2. While in opposition, the BJP itself has pointed out that the CIA works through the USAID programme acting through philanthropic foundations to destabilize countries. There is considerable evidence to support this that BJP were already aware of. USAID has been implicated in covert operations to support subversive activities in countries from Cuba to Pakistan and notably the backing of Al Qaeda affliated rebels in Syria recently.
  3. Ford Foundation grants have in the past preceded at least two major political upheavals in the country - the Janlokpal Andolan and the creation of the Vivekananda International Foundation (which backed it and later ran subversive slander campaigns undermining the newly emerging AAP) were both preceded by grants by the Ford Foundation to their founding members or organizations. The Jan Lokpal Andolan discredited the government then in power. The Vivekananda International Foundation masterminded the rise of the current government, discredited the Aam Aadmi Party that was on the rise and now has an extraordinary number of members appointed to government positions, including the National Security Advisor Ajit Doval, under whose "able guidance", India's regional foreign policy has collapsed. There are allegations that he influenced a controversial supercession in the appointment of the next Army Chief.
  4. Contributed by reader Prem A (in comments below): The conflict of interest doesn’t stop there, Dr Nachiket M. Mor is the country directory of Bill & Melinda Gates Foundation and he is also one of the directors of RBI.
  5. Usual sources of reliable advice and information to the government appear to have been bypassed in this apparently "well planned" demonetisation, indicating that other sources of information were likely used - the government may potentially have been misled to use information that was not in national interest. This needs investigation given the mounting damage being inflicted on the country.
  6. Strangely, neither the government's joining the Better than Cash Alliance, nor the Catalyst were reported in India at all. For a government that proudly publicizes its every sneeze and hiccup that is dutifully given maximum publicity by a subservient media, if this were indeed a move that would benefit India, it is unclear why the Prime Minister would not proudly declare it.

25

It isn't just in India, that people are being forced to put money into banks. Banks worldwide are in trouble. Banks worldwide are needing bailouts. Demonetisation of notes is being considered as well as put into action in country after country - Europe (plan to not make 500 Euros post 2018), Venezuela (got reversed after protests from people) and now Pakistan (plan to demonetise Rs.5000 notes) and Australia (may abolish $100 note), though none of them have been as extreme as the abrupt discontinuation of 86% of the cash in the country, as India did. Governments are in difficult positions. If banks collapse, chaos will result. If they bail out banks, it is not sustainable. And worldwide, government and banks seem to have hit on the bright idea of using the people to get money into banks. Or rather, use the money of customers to continue with their mismanaged methods that have got them to this point. It wouldn't work, normally. One whiff of banks using the customer's money would have people withdrawing their money from banks. Unless - they couldn't withdraw, because there was no real way to do it.

The idea is simple. Go cashless - or as close to cashless as possible. With people unable to withdraw money, their money will remain in the banking system, even while they transact and it moves from account to account. Banks would have most of the money of the whole country to tap into. And no matter what happened, no matter how mismanaged, no matter how close to collapse, there would be no way for people in the country to prevent banks from looting them. Eventually you progress to what is called negative interest rates, where you pay banks for keeping money in them.

What could possibly go wrong?

Please note, I am not an economist. But it doesn't take rocket science to figure out that mishandled anything can only be fixed by handling it right. If banks are in a crisis, demonetisation may fill them flush with cash, but it cannot fix the problem. It will only give banks the freedom to make even bigger, catastrophic mistakes with money that isn't even theirs. Of course the government gets the side effect of unprecedented surveillance and control over lives of citizens. Soon, being harrassed by tax officials or being framed in cases would be the least of worries for dissenters. With very little effort, the government would have the power to cut off your access to all life essentials - or at least make access very difficult as yourself - your own money in your banks, access to cooking gas, your phone numbers... and it goes downhill from there. Whatever you have attached to this monolith.

Here are some very possible scenarios the current debate on demonetisation does not cover adequately:

Shrinking of the economy

Economic migrants are returning to their places of origin by the hordes. Jobs are being lost in entire sectors. Tourism has as good as crashed without money to spend freely. Most tourism in India happens away from the city in small towns and remote places where internet connectivity can be iffy. No matter the propaganda on TV, very few will (or indeed are) risking travel without actual hard cash to back up any cashless plans. A friend in the adventure tourism industry reports of hotels running empty with Christmas coming up, even when they are giving rooms at off season rates. They actually made a tidy profit, because a large chunk of a trip's expense is hotel rooms, which they got for way less than what they budgeted for. So he should be thrilled, right? um... Nope. That one trip is the only business he has in sight at the moment. Usually, they don't have time to breathe in this season. Automobile manufacturers have stopped or cut down production drastically. Local markets everywhere are shrinking. Reduced number of sellers seeing some sales in essential goods creates an illusion of normalcy, but it is an illusion, because the number of sellers have reduced to the point where the few left can try to survive on half of what they used to earn.

Agriculture has been hit unevenly. Those who got their produce sold and new crops planted before demonetisation are relatively unaffected, but most farmers are facing severe crisis with an entire year's worth of profits wrecked. The season that was just over was good. Good rain leading to good harvests. Except demonetisation resulted in their crops selling at the rates of the dirt they grew in. Devastated farmers have dumped tomatoes on roads because the prices they get wouldn't even cover taking them anywhere to sell. As reports of farmers unable to buy seed created outrage, an oblivious government did the one thing it was doing rapidly - poked a few more holes in their grand demonetisation to temporarily allow farmers to buy seeds from government outlets using the old demonetised notes. The government still appears to be oblivious, because the biggest cost of sowing crops is not the seed, but the labour and related expenses that go into it. To add insult to injury, in several places (notably in Uttar Pradesh), the government shops didn't accept the old notes anyway, because the banks wouldn't accept the notes from them - under the directions of the government.

Small industries - garment manufacturers, beedi manufacturers, etc - are rapidly shutting down or drastically cutting down workers, leaving thousands out of work. The pundits of the "market" appear to think that once cash is back (and note, they aren't even talking cashless at this point), things will get to normal. I admit I don't have their knowledge of economics. But I have the experience of living in countless small towns, villages and remote places on shoestring budgets (or credit) and I can assure you, there is no such thing as a jobs bonanza. The jobs being lost as a tsunami had trickled into existence over decades. Banks may be ready and willing, indeed eager to give cheap loans, but other than big companies and their audacious attitudes, I cannot imagine people coming out of a money crisis even thinking of risking loans before their depleted savings are shored again and loans taken to survive are repaid. Because for these people, the consequences of not repaying loans are not write-offs.

To be blunt, even before demonetisation, we weren't really adding much jobs. If the loss of jobs can be reversed, it still isn't an impressive pace. And I don't think it will reverse with the ease it was broken. It will have to recover from this trauma. Less jobs and less incomes mean less taxes after this one time bonanza and more NPAs. So the government and banks may end up losing income while they gain access to use a lot more money of depositors. That way lies bad news, in my view.

Security risks

The overall situation of desperation puts India at risk of unrest and lawlessness. We already see increased violence at banks. That is the most obvious. People want money, banks don't have money, anger happens, bankers are overtired, something blows on occasion, more frequently as time passes and the pressure does not relent. The government appears to be oblivious to this, as the usual propaganda channels are recklessly blaming banks for black market trading of cash, telling people via television that there is plenty of money and so on. Bankers have died of stress at work. There has been a suicide as well. This is bad news waiting to happen unless the government wakes up fast. Which it does not seem inclined to do, given that it is still trying to prevent a "cut" of demonetised money from being deposited at all and their absurd rules and roll backs and new rules to try and make it happen are further stressing banks and depositors. But still, this is the most obvious.

Situations of mass desperation are ripe for creating hostility and generating violence with rumors and incitement. With elections coming up in several states, this is a very real risk. Given that the ruling party seems to consistently profit from elections held after riots, I don't know whether they see this as a bug or a feature.

Another kind of security risk that would be very high right now is internet banking crimes. With most of the country's money in banks, bankers overworked, and a lot of new people beginning to use cashless transactions, India right now is ripe for internet banking crimes. Furthermore, the government's reckless promotion of services like Paytm, with no liability to protect users from fraud and unknown security measures and unaccountable management, the risk is magnified drastically. Several serious issues leading to loss of money crop up daily on social media, including organized fraud and tax evasion. Our own Godavar found that Paytm has an absurd process for responding to the loss of a phone with a Paytm app on it. The Cyber Appellate Tribunal being non-functional for the last five years is the icing on this cake.

The banks are also vulnerable to threats from terrorists or other enemies of the country. Attacks on the banking system at this point have the potential of bringing the entire country to a complete standstill. And they don't even have to involve theft of funds. Even simple DoS attacks preventing cashless transactions from succeeding would create considerable disruption. It is unclear whether the government has even prepared for such an eventuality.

Money being funnelled out of citizens and into banks and foreign services

When you spend Rs.100 as cash, and the next person spends Rs. 100 as cash and so on, the Rs. 100 remains Rs. 100. If you swipe a card and incur a 2% charge, With every transaction, the Rs.100 bleeds money to service providers and there is a continuous loss of value that can be recovered from it. Rs. 100 becomes Rs. 98, which becomes Rs. 96 and so on (yes, I know I should be getting into decimals and more accurate percentages. Too lazy). This is a tremendous bonanza for banks and other service providers. It doesn't get any more free money than this. For them, not you. Keep servers running, completely automated transactions keep dumping money at you. Is it any surprise that there is a rash of providers applying to become payment banks? It is likely that rates would be lowered. And why not, if they are able to get a cut on literally every single time anyone transacts for any reason - doesn't even have to be business - say someone giving their child pocket money? But the money with people will keep shrinking like this.

Worse, we will be bleeding money out of the country with every use of payment systems owned fully or partially by foreign companies. The government may well promote fully Indian solutions (not in a hurry, Paytm is 40% Chinese and the government is promoting it the most right now). But even with Indian solutions promoted, there will be considerable use of companies like Visa and Mastercard by those who need compatibility outside India - online purchases, travel... I am no economic expert, but I cannot imagine this to be a good thing - for foreign companies to profit from massive amounts of routine transactions in India. Would probably have serious implications for the trade deficit or something.

Collapse of banks

Here I say with even more stress that I am not an economist. But I don't see how this would not happen. Even with withdrawal of cash prevented, the flow of funds from one bank to another cannot be prevented without completely ending all pretense at an economy. Sooner or later, banks with accounts of mostly spenders and small businesses will start collapsing, because money from those accounts will be used to pay those with accounts in bigger banks. Smaller businesses would be more vulnerable for collapse and NPAs given to them will disrupt matters further. Now here is the irony in this. The banking crisis is largely of banks lending to big corporations. They are the ones most likely to cannibalize smaller banks with far less NPAs. Saraswat Bank for example apparently has a pretty healthy 2.6% of NPAs. If this happens (and I hope it doesn't - as a result of failure to go cashless), it would be like punishing banks for not serving problem customers.

Where does this end?

What this whole circus achieves is cosmetic covering up of the problem. Preventing the money of citizens from being withdrawn to prevent collapse of banks cannot be a functional solution to anything. It is a violation of citizen rights. It is an exploitation of their money. It does nothing to prevent banks from taking their mismanagement further into a loss making zone, confident that the customers money cannot escape. What would a point be where anyone says "enough"? What comes next? Any other asset citizens can use to escape the banks? Gold? Silver? Diamonds? Real Estate? How many of our rightful and honestly earned possessions will be regimented for this forced rescue of banks? What point is enough? And why is it not "enough" right now instead of pulling this horrendous attack by a government on the country at the behest of businesses?

It is alarming that when some global opportunistic plan says "jump", our government doesn't even ask how high, it throws the country off the cliff.