Opinion

Understanding demonetisation: Why there’s a war on cash (and you are in the middle of it)

We can’t understand demonetisation and its aftermath if we don’t locate it within the global offensive against cash.

This is the first part of a three-part essay

Part II: Understanding demonetisation: Who is behind the war on cash (and why)

Part III: Understanding demonetisation: The problem with the war on cash

There is a global war on cash.

What we have seen in India in the last couple of months is part of that war. This is a difficult point for many opponents of the demonetisation exercise to accept because it interferes with the narrative that demonetisation is a story of political malice marrying incompetence. Suggesting that there were other motives too, whether good or bad, is seen as diluting the charge of incompetence. But we have to take facts as they come. If we do not do that, we will not be able to grapple with the real issues or understand what is going on.

The timing and reasoning for demonetisation may have been shaped by political opportunity and the schedule of the Assembly elections, but the move towards cashless economy was happening anyway. And demonetisation did give it a big push. At a very high human cost, of course. (Please click here for an explanation of how different threads/initiatives came together to cause an explosion on November 8.)

Who is waging the war?

But who is waging the war, and why? And thereby hangs a long tale. For ease of articulation, first the summary, and then the substantiation.

The war on cash is being waged by four major groups. One, existing financial services providers such as banks and credit card companies. Two, technology companies, including start-ups, with financial services ambitions (known as Fintechs in current terminology). Three, governments. And four, Central banks. It is difficult to imagine a more powerful combination of forces.

It is not that they have the same objectives. In fact, they have different objectives that sometimes conflict. But their interests are complementary when it comes to driving cash out of existence. For example, new start-ups like PayTM may take away business from existing financial service companies and ruin some of their business models, but for both groups, physical currency is either a mortal enemy or is of little use. There is little profit to be made from it and, for banks, it costs money to count, manage, store and move cash. But the moment currency turns into digital bits, two opportunities present themselves – one, to charge tiny little fees on every single transaction and two, to create a data trail of income and expenditure of customers that would come in handy to sustain new services and business models. So it makes sense for banks and fintechs to join hands to chase cash away.

India is right in the middle of this battleground, for two main reasons. One, India is seen as having the basic infrastructure in place – in terms of bank accounts and mobile penetration – to be able to take the jump to a cashless economy. Two, it has also been identified as a country with very large potential gains from the war.

But as in all wars, the question arises: how will the booty from this war be distributed? The summary answer is that while the gains for the initiators of the war on cash are tangible and immediate (think of the video of the PayTM chief executive officer’s celebratory dancing), for others caught in it, the gains are amorphous. So how do we weigh the overall costs and benefits, and equally importantly, how do we know how the pain and the gain are going to be distributed?

The best way to understand the war and to find answers to the questions raised above is to see how the idea of a cashless economy developed. Such a chronology will allow us to grasp how the war was conceived and who joined the battle when and why.

We know that plastic has been replacing cash worldwide in a slow and steady manner for decades, causing many to predict the death of cash prematurely. Cash today forms only 22% to 68% of transactions by volume in advanced economies. Norway, Australia and Denmark lead the digital pack while Japan, Germany and South Korea are among those who still prefer cash to cashless, with the United States falling somewhere in between, with a figure of 49%. But the theoretical scaffolding and reasoning for eliminating cash altogether began being put together only after the financial crisis of 2008.

The Great Recession

As we know, the Great Recession that began in 2008 pushed advanced economies into a long-term situation of low growth, low investment and low inflation, and central banks in these countries began to cut interest rates down to zero to stimulate investment and spending. But they found to their horror that zero or near-zero interest rates were not enough to get their economies humming again. In fact, some countries went even marginally lower than Zero, with Denmark being the first in 2012, followed by several of Europe’s central banks in 2014 and Japan in 2016.

Interest rates are the single most powerful tool that Central banks have, to control inflation or stagnation. If the economy is heating up and inflation is going beyond the targeted rate, central banks raise interest rates thus cooling down investment and consumer spending. People save more and spend less, bringing down inflation and along with it, growth. But if the economy is stagnant and inflation is lower than targeted, with not enough investment or consumer demand, central banks reduce interest rates to stimulate demand. Economic theory suggests that pushing interest rates significantly below zero might have been necessary to pull many advanced economies out of the funk they have been in since 2008.

A negative interest rate means that if you keep Rs 100 with your bank for a year, instead of getting back, say Rs 105 including a 5% interest, you may get back only Rs 99.90 – the rest being taken as, say, 0.1% negative interest rate. The expectation is that negative interest rates will force banks, businesses and individuals to lend, invest or spend their money rather than keep it idle, because there’s a cost to keeping it idle.

The lower a negative interest rate is, the higher the stimulus to spending and growth, just as the higher a positive interest rate is, the greater the restraint on spending. Now this is great in theory, but there is a practical problem. Central banks can take interest rate as high as they want without limit, but they cannot take it into seriously negative territory for a simple reason: if it goes there, everyone would just take their cash out of the banks and keep it in safe deposit boxes. No spending happens, and the central bank objectives are not met. In other words, economists argue that there is an asymmetry in the way central banks can use interest rates. They have immense power to cool down an overheating economy, but only limited power to stimulate a stagnant economy by bringing down interest rates sufficiently.

The technical term economists use to describe this situation is Effective Lower Bound, or ELB – the negative interest rate below which people will just withdraw their money from banks. Since there is a convenience to keeping money in the bank, the ELB is usually not exactly zero, but a little below zero – say, - 0.5% or -1%. People don’t mind keeping their money in the bank if the negative interest rate is a minor annoyance, because there is a convenience to operating with a bank account and say, a debit card.

After the Great Recession, this is the situation that central banks found themselves in: operating close to ELB. And it is in this situation that some economists started pushing a new idea that sounded horrendous to many: eliminating cash altogether. If there is no cash, people cannot take their money out of banks, and central banks can take interest rates as much below zero as needed. In other words, eliminating cash will improve the ability of central banks to fight stagnation and improve growth. Of course, this is like a forced appropriation of people’s savings and many would find it outrageous. But the economists would counter: so what’s new? People today hold cash even when there is inflation, knowing that the value of their holding is decreasing every day, and this is merely the opposite situation: there is no inflation or very low inflation, and instead there is a negative interest rate on your savings that you can’t escape.

This is the first part of a three-part essay

Part II: Understanding demonetisation: Who is behind the war on cash (and why)

Part III: Understanding demonetisation: The problem with the war on cash

Tony Joseph is a former Editor of BusinessWorld and can be reached at tjoseph0010@twitter.com.

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Removing the layers of complexity that weigh down mental health in rural India

Patients in rural areas of the country face several obstacles to get to treatment.

Two individuals, with sombre faces, are immersed in conversation in a sunlit classroom. This image is the theme across WHO’s 2017 campaign ‘Depression: let’s talk’ that aims to encourage people suffering from depression or anxiety to seek help and get assistance. The fact that depression is the theme of World Health Day 2017 indicates the growing global awareness of mental health. This intensification of the discourse on mental health unfortunately coincides with the global rise in mental illness. According to the latest estimates from WHO, more than 300 million people across the globe are suffering from depression, an increase of 18% between 2005 and 2015.

In India, the National Mental Health Survey of India, 2015-16, conducted by the National Institute of Mental Health and Neurosciences (NIMHANS) revealed the prevalence of mental disorders in 13.7% of the surveyed population. The survey also highlighted that common mental disorders including depression, anxiety disorders and substance use disorders affect nearly 10% of the population, with 1 in 20 people in India suffering from depression. Perhaps the most crucial finding from this survey is the disclosure of a huge treatment gap that remains very high in our country and even worse in rural areas.

According to the National Mental Health Programme, basic psychiatric care is mandated to be provided in every primary health centre – the state run rural healthcare clinics that are the most basic units of India’s public health system. The government provides basic training for all primary health centre doctors, and pays for psychiatric medication to be stocked and available to patients. Despite this mandate, the implementation of mental health services in rural parts of the country continues to be riddled with difficulties:

Attitudinal barriers

In some rural parts of the country, a heavy social stigma exists against mental illness – this has been documented in many studies including the NIMHANS study mentioned earlier. Mental illness is considered to be the “possession of an evil spirit in an individual”. To rid the individual of this evil spirit, patients or family members rely on traditional healers or religious practitioners. Lack of awareness on mental disorders has led to further strengthening of this stigma. Most families refuse to acknowledge the presence of a mental disorder to save themselves from the discrimination in the community.

Lack of healthcare services

The average national deficit of trained psychiatrists in India is estimated to be 77% (0.2 psychiatrists per 1,00,000 population) – this shows the scale of the problem across rural and urban India. The absence of mental healthcare infrastructure compounds the public health problem as many individuals living with mental disorders remain untreated.

Economic burden

The scarcity of healthcare services also means that poor families have to travel great distances to get good mental healthcare. They are often unable to afford the cost of transportation to medical centres that provide treatment.

After focussed efforts towards awareness building on mental health in India, The Live Love Laugh Foundation (TLLLF), founded by Deepika Padukone, is steering its cause towards understanding mental health of rural India. TLLLF has joined forces with The Association of People with Disability (APD), a non-governmental organisation working in the field of disability for the last 57 years to work towards ensuring quality treatment for the rural population living with mental disorders.

APD’s intervention strategy starts with surveys to identify individuals suffering from mental illnesses. The identified individuals and families are then directed to the local Primary Healthcare Centres. In the background, APD capacity building programs work simultaneously to create awareness about mental illnesses amongst community workers (ASHA workers, Village Rehabilitation Workers and General Physicians) in the area. The whole complex process involves creating the social acceptance of mental health conditions and motivating them to approach healthcare specialists.

Participants of the program.
Participants of the program.

When mental health patients are finally free of social barriers and seeking help, APD also mobilises its network to make treatments accessible and affordable. The organisation coordinates psychiatrists’ visits to camps and local healthcare centres and ensures that the necessary medicines are well stocked and free medicines are available to the patients.

We spent a lot of money for treatment and travel. We visited Shivamogha Manasa and Dharwad Hospital for getting treatment. We were not able to continue the treatment for long as we are poor. We suffered economic burden because of the long- distance travel required for the treatment. Now we are getting quality psychiatric service near our village. We are getting free medication in taluk and Primary Healthcare Centres resulting in less economic stress.

— A parent's experience at an APD treatment camp.

In the two years TLLLF has partnered with APD, 892 and individuals with mental health concerns have been treated in the districts of Kolar, Davangere, Chikkaballapur and Bijapur in Karnataka. Over 4620 students participated in awareness building sessions. TLLLF and APD have also secured the participation of 810 community health workers including ASHA workers in the mental health awareness projects - a crucial victory as these workers play an important role in spreading awareness about health. Post treatment, 155 patients have resumed their previous occupations.

To mark World Mental Health Day, 2017, a team from TLLLF lead by Deepika Padukone visited program participants in the Davengere district.

Sessions on World Mental Health Day, 2017.
Sessions on World Mental Health Day, 2017.

In the face of a mental health crisis, it is essential to overcome the treatment gap present across the country, rural and urban. While awareness campaigns attempt to destigmatise mental disorders, policymakers need to make treatment accessible and cost effective. Until then, organisations like TLLLF and APD are doing what they can to create an environment that acknowledges and supports people who live with mental disorders. To know more, see here.

This article was produced by the Scroll marketing team on behalf of The Live Love Laugh Foundation and not by the Scroll editorial team.