December 2015 - An outstretched hand holds a Rs. 500 note amidst the clamour to buy milk from a local grocer. Suddenly the note is pulled from the hand, and two packets of milk and the remaining change of Rs. 400 are returned, even as a large crowd with notes of various denominations rush in, trying to get hold of a packet of milk. The transaction takes just a few seconds and a bit of luck on the part of the buyer.
Chaotic scenes like this were witnessed across many locations in and around Chennai a couple of days after a torrential downpour on a single day last December that marooned the city, destroyed livelihoods, homes, and took many lives.
Phone networks went down for almost a week. Electricity supply was cut off in many locations for four or five days as power stations went under water, and there was no power to even charge phones. It is in the character of natural disasters to unfold in a way that humans can’t perceive, that even the best laid plans can go awry.
In this context, as Prime Minister Narendra Modi’s narrative has slowly moved from tackling black money to moving to a ‘cashless society’ over the past weeks, questions abound as to how efficient digital payments will be in such circumstances.
The Prime Minister, in his ‘Mann ki Baat’ on Sunday, extensively promoted the use of digital payments and a move to a cashless society where payments are made online or through apps. But traders say that even during normal periods, it is difficult to go digital.
“Cash cannot be done away with in a society. In a country like ours where almost 80 per cent of the economy is based on cash, it’ll take many years to go cashless. During disasters, how can one operate cash machines or transfer money when there are no phone networks?” A.M. Vikrama Raja, State President, Tamil Nadu Vanigar Sangankalin Peramaippu, asks.
People living in hilly terrain often suffer from lack of phone network connectivity even during normal days, let alone try to undertake mobile internet transactions. In 2013, during the Uttarakhand floods, the region was cut off and phone networks were down for 13 to 15 days.
During the Hurricane Sandy that affected as many as 24 states in the United States, many businesses that used to carry out their transactions through debit and credit cards, resorted to using only cash as a means to sell their goods.
“Even after so many years, around 60 per cent of the the United States economy is a cash economy. India is about 80-85 per cent. We have to balance out between using cash and digital payment methods,” says Nagaraj Mylandla, founder and managing director, FSS. FSS manages ATMs, provides payment gateway services and also owns point of sales devices.
Mr. Vikrama Raja said that while the federation welcomed the Prime Minister’s move to implement demonetisation, there was no planning or proper structure to it. “You are asking about disasters. Right now, a small flower vendor or a small shop owner doesn’t have business. How can you, during disasters for example, ask people to use plastic money? Cash is the only way in those times.”
Mr. Mylandla said even in a digital economy, there will be a need for cash. “During disasters, nothing can be done. Things can be done differently, like establishing satellite connections,” he said.
While both agree that going digital will take time, they point out that the size of the cash economy could come down, if people are taught how to use technology. “In another 10 years, the cash-based economy could come down to about 40-50 per cent,” Mr. Vikrama Raja said. “When UPI was launched a few months ago, people said it won’t work, but it has become one more channel for transactions. It could take some time. The advantage with cash is you can give it to someone and still take it back as cash. But cash also has a cost - cost of printing, cost of logistics and security”, Mr. Mylandla said. However, he summed it up – “During natural disasters like the Chennai floods, Cash is King”.
