Will Aadhaar help the poor become cashless?
In the aftermath of demonetisation, digital infrastructure is being hailed by multiple parties for its ability to mitigate the effects of the government’s drastic measure, especially for the unbanked poor who conduct most of their transactions in cash. The Aadhaar system, centred on biometric data captured to improve access to social services, is at the heart of this infrastructure.
At present the multiple, resource-constraining effects of demonetisation on the unbanked poor are sadly visible. But so far, there has been limited data-based discussion of the potential of digital technologies to reduce the backlash of demonetisation for the poor and marginalized.
In this article, I examine the potential of an Aadhaar-centred inclusion system to help unbanked communities deal with demonetisation, and ease their transition to a “cashless” economy. As a result of three constraints of technology ownership, access to informational networks, and infrastructural readiness, such apparatus seems unsuitable to include the poor in the digital economy prospected by demonetisation.
Aadhaar offers a digitally verifiable identity, which made it possible for those enrolled to change cash at an enabled banking facility. But the same does not hold for entering a cashless economy, which is a system of actors connected by one or more digital platforms. Aadhaar provides users with a digital identity, so they can exist in a cashless ecosystem: but to transact in it, two more items are needed, namely, a space to deposit digital money and a means to exchange it. Due to technology ownership constraints, neither of the two is easy to obtain.
If someone’s savings are stored in cash, to operate in a cashless world they first need to be deposited in a bank or post office account. To the unbanked poor this means long queues at banking facilities. Opening a bank account is no simple operation, and requires paperwork that many vulnerable citizens do not know how to get. Exposed to conflicting and incomplete information, many of the poor are unable to deposit their money.
Besides, a cashless economy involves exchanges of digital money. This is not only transacted through bank cards, but also and increasingly through so-called digital wallets, which require a smartphone device to work. Smartphones, however, are owned by only 17% of the Indian population: To clarify, Paytm and Mobikwik are not similar to M-Pesa, the Safaricom mobile money service that runs on basic mobile phones. In the absence of bank accounts and digital means to transact, chances for the unbanked poor to join a cashless economy are limited.
Access to informational networks
Access to the digital space is another requirement to enter the new system. However, this is dependent on access to the Internet, which in India is geographically limited.
The International Telecommunications Unit (ITU) calculates an ICT (information and communications technology) Development Index (IDI) for 175 countries. Based on India’s IDI data, it is ranked 138 worldwide, behind nations such as Gabon, Nigeria and Zimbabwe, which rank significantly lower on economic and human development.
The problem lies in high inequality between computerised megacities and large unconnected peripheries: This relegates many rural and tribal communities to isolation, making it hard to enter the digital space.
Access to operational information on how to handle the current cash crisis is also limited for the poor. Recent ethnographies reveal widespread confusion among the marginalized, especially on how to first approach a bank and handle the practicalities of opening a new account.
As things stand, poor and vulnerable groups are forced to change their saving and purchasing habits, but are surrounded by confused and distorted guidance on how to handle the transition.
Also read: Andhra Pradesh and data-based governance
An Aadhaar-based identity, operating as a substitute for physical documents, would allow the many undocumented poor to become visible to the State. But for a digital inclusion apparatus to inscribe them into a prospective cashless economy, the right infrastructure should be in place. Current infrastructural readiness, however, seems suboptimal for such a purpose.
First, technology-enabling digital transactions should be in place nationally. But 24% of the Indian population lives without electricity (compared, for example, to 0.2% in China), and gaps in electrical and mobile coverage are concentrated in rural and tribal areas. Hence construction of a cashless economy cannot be based on an existing backbone, but would need to take place largely from scratch, in a short time, given the suddenness of the government’s move.
Second, once established, digital infrastructure needs to be reliable. But recent precedents, particularly the use of Aadhaar for the identification of social scheme beneficiaries, cast doubt on this. Recent studies show beneficiaries being turned down due to technology failure, and hence being denied the food rations they are entitled to. If this is a serious concern for a food security programme, it would be even worse for a cashless economy, as technology failure would then prevent users from even carrying out basic day-to-day transactions.
The constraints illustrated here reveal that the current Aadhaar-based system does not protect the poor from the backlash of demonetisation. While such a system provides enrolled users with a digital identity, operating in a cashless economy requires devices, access to networks, and a support infrastructure that the system does not provide. As a result, the poor are still unshielded from the consequences of cashlessness, which is now causing denial of primary and life-saving facilities. Digitality is hence to be combined with other means to help those who bear the most severe burden of demonetisation.
Published with permission from Ideas for India (www.ideasforindia.in), an economics and policy portal.
Silvia Masiero is lecturer in international development at the School of Business and Economics, Loughborough University.