Haroon Bijli

Counter-intuitive, right?

Irrespective of your political standpoint – you may believe that the 8/11 demonetization is the best thing to happen in India after independence, or you may believe that the government considers the unbanked as collateral damage and expendable – the fact is we are in a soup not of our making.

Sucking out 86% of cash in the economy isn’t an insignificant move. The impracticality of such a decision was evident from day one. But like it or not, we’re in a situation, and unless you’re in severe denial, liquidity has been hurt, and has hurt low income categories the worst.

The most intuitive thing we do in these circumstances is to save whatever cash we have and switch to digitized payments. If you are reading this on LinkedIn, it is quite likely that you’re fairly well off, you receive your salary or income directly to your bank, and most of your spend is via card, wallet, apps or Netbanking. Whatever remaining cash transactions you had, you are likely to have minimized them since 8/11, mostly because you didn’t have the loose change to spend, or because you’d like to save it for emergency.

It isn’t the same for those in the cash and informal economies.

However, for, many of us, the cash situation has eased out considerably, and will ease out even more. We are among the top 5% of the economy, and have comfortable access to banks and cash distribution points. I’m not an economist, but whichever scenario I read, the liquidity crunch is escalating into an abrupt demand contraction and is hurting daily wage labourers, farmers, small restaurants/ roadside vendors, rickshaw drivers and pullers, truck drivers and their staff – basically, everyone who lives day-to-day, with bare minimum working capital and that too, mostly in cash.

What can we do to help? Here’s what I suggest:

Got access to cash? Switch to cash.

After day nine, it’s very likely that you will be able to comfortably withdraw cash using cheques from your bank accounts. I could, and quite comfortably at that. The instinct was to use the cash minimally, but I changed my mind after having several conversations with people I met in the queue.

Here is why I think we should spend in cash:

1)     Over 80% of the cash is being sucked out of the system – it is easy for us to shift, and gain access to cash. Not so for those who aren’t familiar with the digital and banking system.

2)     The digital payments industry has had a windfall. They are already well-capitalized and are likely get even more investment. Similarly, with organized retail. Both have better access to banking and debt markets. Not so with the informal and cash-based economies

3)     The future is uncertain. Markets hate uncertainty – be they stock markets or the village market. And if you had an uncertain cash flow pre 8/11, it’s likely to get worse. We don’t exactly how this is going to play out, because we don’t have a modern precedent. The last time this was attempted, it didn’t work out too well. For Tughlaq.

4)     A large portion of the population aren’t financially literate, and see banks as an apparatus of state control. Many would rather borrow from their local shark than wait to be served in a bank.

5)     Cooperative banks have less supply of cash than the large private ones. This causes a domino effect, because most cooperative banks serve the lower end of the market.

6)     The unscrupulous among us are still paying our staff with old notes, and forcing them to exchange. Also, thanks to the indelible ink process which discourages repeat, they’re going to have to make do with less cash.

Let’s alleviate some of the pain by withdrawing cash using your chequebook, and spending it as close to the lower end of the market as possible, even though you may find smaller denominations and loose change a challenge thanks to R2K.

Avoid the supermarket.

Visiting the supermarket so that you can make a card payment for your fruits, vegetables and daily-use groceries? Instead, take the cash and buy your fruit and vegetable supply from the handcart pusher, and the smallest kirana you can find. Their business is down nearly 60%, and their debts are already high. The kirana store I’ve started buying from gives credit to most of his customers, and can’t handle much more than what he already has. Cash is helping him pay his suppliers, helping him with his own small expenses, including food for his family. He can also save on trips to the bank, and reduce his informal debt exposure.

Give Uber a break, take the rickshaw.

The rickshaw driver’s daily earning is down by around 50%. Anecdotal, but think about it – you’ve always taken Uber, and you’ve paid via wallet and your card. While this is great (you are providing the driver an income), you can inject more liquidity at a lower end of the economy by taking a rickshaw, at least for the next two weeks. Similarly, with kali-peeli taxis and cycle-rickshaws.

Visit the cash-only restaurant or roadside stall.

For the last week, I had my lunch almost exclusively at Starbucks because I can pay by card. I have nothing against Starbucks, but I prefer Parsi, Kerala and Udupi restaurants, which unfortunately, are cash only. Most of these have staff who earn around Rs 100-200 a day, in cash. What happens if their business falls by 50-60% as has been reported? Once working capital is exhausted, they go into informal debt, but what is easier to them is to withhold some cash payment to their staff. See what it leads to? Leave the card aside, go to these small places. Have the tapri chai and the vada pav. Tip the staff.

Mind the hygiene, though.

Pay your maid and staff in cash. The milkman and newspaperwala too.

Let’s not be in denial. It may be fancy to proclaim on Facebook and Twitter how patriotic your maid is because she lets you pay via the internet, but face it, she needs hard cash. The sooner she gets it, the better. It goes some way in alleviating a bit of the cash crunch at that level of the economy.

Do the home repair work.

Did you put off that bit of work around the house because you couldn’t pay in cash? Restart it. Pay the electrician and plumber in cash. Save him the trip to the bank.

Take a holiday.

Life is tough in the villages. There isn’t a bank every kilometre, unlike most urban centers. It’s difficult to get to a working ATM at the best of times. Most of the economy runs on cash, informal financiers (read sharks) and informal trust. If you have a day or two to spare, take a trip into the countryside, have a nice time, and spend the cash. I am from Kerala and I’m told it’s tough there. Money supply has dried up, at least in the villages where I’m getting the news from.

***

You may or may not follow any of the above, and there will be much more you could do. My friend Satyarth Priyedarshi says that by visiting the bank branch and withdrawing my cash, I’ve only reduced the cash available for the less-privileged ones who are exchanging their old notes. He may be right.

But what I am saying is essentially these two things – 1) don’t hoard cash, spend it 2) help reduce the liquidity crunch in the lower end of the market – where it matters most.

Caveat – I’m not an economist. Looking forward to your comments.