Case Analysis: Create The ‘Aah!’ Experience

The general response to demonetisation, which is almost always an elitist one, is that we should look at the move as being ‘transformational’. Almost everybody has access to a Jan Dhan account and the proliferation of e-wallets on mobile phones actually addresses the question of whether at all we need to hold cash. But life at the base camp, which is very large, is different; and the story of around 640,000 villages is reflective of how almost 2/3 of our people live.

Let us look at some salient aspects of KD and its travails. First the inhabitants do not understand what demonetisation is and assume that as it pertains to those with ‘black money’ they should be put off the circumference. Second, the process of depositing old notes involves travel for a long distance to a bank branch, which serves 14 villages. Third, they get a chance for withdrawal once in 15 days. Fourth, when their turn comes, they don’t get the full amount as there is no cash with the bank. Fifth, an ATM is an option, but there is no cash here too. Further, most have a RuPay card but do not know what it means. Sixth, the Rs 2,000 note is of little use. Even the doctor who charges Rs 200 for a consultation cannot give change for this amount. And last, they see an influential person walk out with new notes for a larger sum.

This could be the story of any village in India. Now, with poor physical infrastructure in the country, especially in rural India, when you ask them to deposit the old notes and withdraw new ones, there is a cost involved — a whole day or their daily earnings besides the Rs 30 cost of transportation. As the money lost for a day not worked can never be recouped, any such scheme should focus on addressing the liquidity problem in rural India with some priority. This reality has to be at the core of any financial transformation campaign that can be undertaken in rural India.

The advocates of the present demonetisation scheme say all people have a Jan Dhan account and should use it. True there are around 260 million such accounts but when there is little money, it cannot become a habit. Cards are a good idea but these people do not know what it means or even how to insert it in a machine. While it seems simple to ask them to move over to e-wallets as the metropolitan vegetable vendor is comfortable with it, is it really conceivable that they can take to it easily?

The issue of access is critical. We have around 135,000 bank branches (of which 35 per cent is rural), which average to 24 km for a single branch. There are around 2.15 lakh ATMs with an average cover of 16 km. Interestingly less than 20 per cent of them are in rural India and the density is hence low. Banks do not want to be there because these branches are not viable. They were forced to open such branches when we went in for nationalisation and have closed some on grounds of non-viability. The fault really is that our approach to inclusive banking has been all about meeting targets of branches or accounts.

While demonetisation can stifle black money, the transformational objective will never get fulfilled until we seriously educate people to move to an electronic form. Our socio economic census reveals that 73 per cent of our households are rural of which 88 per cent would come under the category of being deprived. Cash is the main mode of transactions and given the subsistence level of existence, the amounts are very small. Further, as a necessary condition banking and technology should be made more accessible to them.

Hence, three prerequisites have to be met before embarking on such a campaign. First, there needs to be access (A) for everybody to the financial system.

Travelling across distances which involves time and money makes the experience abhorrent. Second, there have to be awareness (A) campaigns that explain the concept of banking and encourage people to use the facilities of deposits to earn interest or take loan at affordable rates. One needs to talk to the rural folk and explain and convince them that moving out of cash to banks and other digital modes would benefit them in the long run. Last, banking should become a habit (H) for any transformation to take place. Otherwise, such ideas will be confined more to the discussion tables and remain a mirage.

The writer is Chief Economist at CARE Ratings