In a move to curb black money, counterfeiting, and fight corruption, India de-monetised two currency notes today – the INR500 and INR1000 ones. I rushed about to find these notes to keep (for memories’ sake, you know), debated the silliness of my friend owing me money for what are essentially pieces of paper as I gave her INR 1000, and contemplated how to live cash free in urban India. At some point I even tried to sell the notes I have at higher values as memorabilia. Droll indeed.
The new changes mandate that anyone with these currency notes seeking to have the equivalent value must exchange this in a bank or a post office. The idea is that this will bring dishonesty surrounding these notes out – counterfeiters will not be able to get notes exchanged, and hoarders will be left with piles of useless paper if they don’t whitewash their holdings. Presently hoarded money will possibly come out as a result of this move, but unfortunately, this is a bit like easing constipation – it is unlikely to prevent being stopped up in the future.
So far, there doesn’t seem to be much that is terribly wrong. Except this – in order to exchange money, you need to show a valid ID to the bank/post office. In the past, I have written about the difficulties the urban poor, particularly migrants, face in getting access to identity documentation. Because so many of them live in shanty towns and slums with no documentation to show for their occupation, they lack ‘address proof’, a crucial step to securing identity documentation. Even Aadhaar, which is reliant on biometric information, requires proof of address.
The absence of ID documentation creates big difficulties for the poorest in accessing the formal banking system for liquidity. This is particularly hard for women, who more often don’t have IDs. Never has the digital divide been so wide. This policy consequently creates the space for intermediaries to emerge. Local leaders who have IDs offer to covert money for the poor in exchange for a fee, which I see already happening in some of the communities I worked in. Brokerage and intermediation are not always bad, but when brokers are able to position themselves in an all or nothing scenario (no cash without ID), they are able to extract greater value for themselves, at the expense of the poor.
A spot of sunshine in this bleak story for poor migrants – many migrant workers in the construction industry, do not receive salaries, but are paid lump sums. This means that the employer (usually the broker/maistry) keeps monthly payments, giving workers a weekly “stipend”, and pays over the balance every few months or so, usually prior to a trip home. In these cases, the money held by migrants is notional, and they can withdraw from their mastery when they desire, hopefully with new INR2000 notes.
Overall, however, the numbers of poor affected by this policy is high as many industries in urban areas are reliant on cheap, undocumented migrant labour from the same or neighbouring states. For a poor migrant, whose savings are usually in the form of high-denomination banknotes stuffed with immense care into a wallet, this move will thus be adverse. Migrants are just one category of individuals who transact (and often save up) in cash – there are plenty of others.
The wide reach of the Aadhaar and the Jan Dhan programmes may minimise some of the difficulties with this move, and people may move to a cashless economy. Until that is established, offer change to your fellow citizens.