Demonetisation—How much cash is enough cash, Pradhan Mantri ji?

The finance ministry’s daily assurances that there is sufficient cash available with the government are cryptic at best. Just how much cash is enough cash after 14.2 lakh crore currency notes in the denomination of Rs 500 and Rs 1,000 circulation has been withdrawn? The answer to this question which evidently is known only to the finance ministry is key to understanding the character of the Indian economy and politics from hereon.

At the stroke of midnight hour, on 8 November, the world was not sleeping—America was awakening to the fact that it has just defeated the first ever woman candidate for presidency and India was awakening to the fact that 86.4% of the total value of currency in circulation in the country was withdrawn and would be exchanged subject to stringent rules over the next 50 days. The implications of both events are still unravelling, but as news trickles in, it clear that much of language as we have known it, conventions of argument and logic are rendered useless.

‘Surgical strike against black money’

The withdrawal of the two currency denominations is repeatedly described as a surgical strike against black money. Rhetorical invocation of terrorism and Congress legacy combined with an element of surprise in execution is enough to make the demonetisation qualify to be described as a surgical attack. Since the diagnosis that led to the surgery is itself rhetorical, its effectiveness cannot be measured objectively.

Yet, Indian economy, the patient, thankfully appears to be alive. To make an assessment of the medium to long term effects, we need to pay close attention to the details. First, as on date, it appears that in the medium run, several thousands of families who are precariously perched just above the poverty line in urban and rural economies are at risk of sinking back into poverty. Reports from different markets indicate that many of these families may have seen a halving of their daily incomes for the past 10 days. The longer this slump continues, the greater the risk faced by them. Second, in the long run, the disruption to supply chains of various kinds based on systems of exchange, mutuality and trust could limp back into place or perhaps not.

Hence the question: “just how much cash does the finance ministry reckon is enough cash?”

As things stand, it is up to the finance ministry to decide how much of the withdrawn cash is to replaced. We can profitably turn to reading the tea leaves. For quite some time now, we have been hearing phrases like cashless economy, smart cities, startup ecosystems etc. The central theme running through many of the initiatives in this new universe is an attempt to use information and communications technology to provide connectivity and aggregation of services to amplify opportunities for small producers and traders. The core of this theme is built on a model of using technology to aggregate millions of micro transactions in what is conventionally designated as the informal economy.

That these online transactions and their aggregations are no guarantee against black money is a given. They are no more visible to the government than cash transactions. On the contrary, they will anyway crucially depend on cash transactions at one end. In comparison, cash economies have historically proven impervious to new technologies precisely because, they are systems based on local conventions of trust. Against the fluidity and uncertainty of larger economies and geopolitics, they provide local systems of support (albeit with their own micro injustices). The withdrawal of cash as of November 8 suddenly depleted cash—the lifeblood of micro enterprises—from local economies bringing millions of people to a standstill—scrap dealers, street vendors, small manufacturers, paratransit operators and artisans. Their recovery from this shock will of course depend on how much of the money will be replaced, in what forms and at what times. At the stroke of midnight, India awoke to the urgent need to reinvent systems of local exchange—whether it is through tokens, or barter or through cooperativisation. This resilience is the other factor that the recovery will depend on. Understanding it, reinventing it and supporting it is the need of the hour.

Anant Mariganti is the Executive Director of the Hyderabad Urban Lab and a geographer with a PhD from the University of Minnesota.