“There Are No Brick-and-Mortar Banks in a Radius of Even Ten Kilometres”: Renana Jhabvala on Demonetisation and the Rural Economy
On 24 November 2016, a little over two weeks after Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1,000 notes, the finance ministry declared that the exchange of old notes at bank counters would stop as of midnight that night. The revision in the deadline—one of at least 21 fresh notifications by the government since the initial announcement on 8 November—was intended to “encourage and facilitate” people to “to open new bank accounts" and “deposit their old notes in their bank accounts.” Since the initial announcement on 8 November, demonetisation has also come to be seen as a step towards India’s transformation into a cashless economy. But, according to the government’s own estimate, 40 percent of Indians don’t use formal banking services. Some commentators perceive demonetisation to be an alarming step by the government in its push towards disbursing state subsidies and welfare via cash transfers into bank accounts.
Renana Jhabvala is the national coordinator of the Self-Employed Women’s Association (SEWA), a trade union of over 2 million women working in the informal sector in India. Jhabvala has collaborated with the government on several experiments aimed at financial inclusion. She has also been a criticof how women and the poor are often excluded from the formal banking system in India. Jhabvala is one of the few supporters, outside of the government and thinkers on the economic right, of cash transfers as a state-welfare measure. On 19 November, in an interview with Manas Roshan, an independent journalist, Jhabvala discussed how demonetisation has affected the informal economy, why the “last mile” continues to pose a problem for rural banking, and how SEWA’s studies in Delhi and Madhya Pradesh revealed positive responses to cash transfers.
Manas Roshan: Has this demonetisation move affected the people that SEWA works with, many of whom are poor and make their transactions using cash?
Renana Jhabvala: Obviously, this has affected every single person in the country. In a way, it’s all-India mobilisation right down to the grassroots. In the rural areas, where we have finance cooperatives, small agricultural loans are going out right now to buy seeds and fertilisers. I was just talking to some women who came from Bihar and they were saying that agriculture is being disrupted. So the women are quite tense about that. Beyond that, women are standing in lines, working days are disrupted, small trade is disrupted. Our [SEWA’s] street traders are selling hardly 30 percent of what they were [before demonetisation]. Some of them are very upset, especially [those who have] weddings, [or are experiencing] illness.
MR: In some instances, wages, too, have not been paid.
RJ: Wages, business, agriculture, everything [has been affected]. Not exactly a standstill but, if you were doing business, you’re now earning 30 percent [of what you were earning before demonetisation]. Among our members, they’re so used to disruptions in their life that this is one more. Women [in rural areas and in the unorganised economy] don’t tend to save much in banks or in assets—it’s in cash. They save small amounts and then add it up. The amount of money that has come out of people’s homes—twenty thousand, thirty thousand, five thousand—these are the poorest women. They save that for a rainy day. There are a lot of savings pouring out from the cash economy. Our bank and all our cooperatives—every bank in this country—is now flush with funds.
There’s a big difference between black money and cash money. You have a black economy and a cash economy. The country is basically a cash economy— most of that economy is not black, in that it is not evading taxes. [When] you go to the rural areas, people will save in cash, pay in cash—all agriculture is in cash. It’s only when you get to the larger levels—when you’re dealing in tens of thousands—that people start using cheques, if they don’t want to evade taxes. But for most of the economy, who’s dealing in tens of thousands? You’re dealing in hundreds and that’s it. Look at the people standing in line. It’s their money that they have saved. We’ve observed this closely with our bank. Every woman is coming in with notes [constituting an amount] of Rs 10,000–20,000. It’s all their hard-earned money.
MR: The government isn’t contending that the poor are the ones that hoard black money. It’s the 3–4 percent with huge sums—they are the ones who generate black money.
RJ: I realise that. My point is that the money that has come into the system is not black money. You’re saying that what is black money is 3–4 percent. Maybe 5, or 10, or 15 percent. The rest is all our cash economy being converted into non-cash.
MR: Are cooperative banks, such as SEWA’s, the last to receive the new currency notes?
RJ: Yeah, absolutely (laughs). We got the currency notes only on Monday evening. [The announcement was made on the evening of Tuesday, 8 November.] We’re a small, cooperative bank. First, the private banks got the notes, the government banks got less. The big private banks got the most. And then, the cooperative sector.
MR: Is a lot of the black money also generated within the unorganised sector?
RJ: Yes. But when we talk of the unorganised sector, we are basically not talking about the sector as a whole. We deal with the poorer sections—the small producers—not the large factories, not the big traders. And that’s at least 70 percent of the workers or people involved. Those people are generating cash. And it’s very unlikely that they’d be in the tax bracket. The big chaps, they’re part of this chain—you have big vegetable traders, then you the small shops and then you have the street vendors. All of that is cash economy. When you say black money, what you mean is that a big fruit trader should have paid some taxes, which he didn’t. That’s definitely there.
Somebody was telling me, in Delhi, “Hamare ilake mein jo namak bechta hai, usne apna namak ka bhav double kar diya. Toh fir police aiyi aur usko mara.” He [the salt trader] is obviously cheating the poor. So the people we work with do see those above them cheating them, having stocks of big money, [moneylenders] charging them between five and ten percent interest per month. So they feel, “At least these people are getting a beating. We have to stand in line, we’re suffering.”
MR: The debate surrounding demonetisation has also touched upon the issue of financial inclusion. A large portion of the population doesn’t have access to banking services. You’ve pointed out that financial-inclusion measures need to take into account concerns of the poor and of women.
RJ: I must really applaud Jan Dhan, which has tried to open accounts. Earlier, if you tried to open an account in a nationalised bank, it was very difficult. I think there’s been a huge push to open accounts in the last three years. But banks are not reaching what we call “the last mile,” either physically or economically. There are no brick-and-mortar banks in a radius of even 10 kilometres in many rural areas. When you go, sometimes you’re not entertained. The procedures of the bank are often difficult. I’ve seen ATMs where people have been standing in lines like you see now [even before demonetisation] because the electricity is off. Of course, no women can go there because it’s all males [in the lines]. So banks actually haven’t reached the last mile. That’s a fact.
MR: But many Jan Dhan accounts are lying dormant.
RJ: Because how do you get to them? It’s that last mile problem. The rural branches of banks are not getting cash right now, like how I said our bank was the last to get [the new notes]. It’s the same for [small branches] in rural areas.
MR: Various banks have begun experimenting with other financial inclusion models, such as employing banking correspondents—people or organisations who act as bank representatives in rural areas, where the banks may not have a branch.
RJ: We [SEWA] have been experimenting with different financial inclusion models: we have our own bank, our own cooperatives, and our own self-help groups. One of the places we started banking correspondents is Uttarakhand, where access is very difficult. We became a banking correspondent for SBI [State Bank of India], which is the largest bank there. We trained women from the village to be correspondents and they became bank saathis or the CSPs [customer service points]. These women would take these POS [point-of-sale] machines [electronic devices that process card payments] and they’d walk from village to village, gather customers, use the machines so well. But we found that there’s very little support from the banks. So this model hasn’t actually worked.
After that model didn’t work, now they [government and the Reserve Bank of India] are talking about payment banks [private non-banking companies licensed to offer some banking services] and mobile banking. Payment banks haven’t taken off [in rural areas] yet. I still believe in the correspondent model—if supported by banks. It is because the energy a bank puts into [maintaining] a small loan or savings account is what it puts in for big ones. But here [in rural areas], you get volumes [of small savings accounts]. It’s a trade-off. But our banks are not thinking that way.
MR: Governments have been trying to move to a cash-transfer system of welfare rather than grain and other subsidies. You’ve been one of the few who have supported it. Why, if as you say, banks haven’t been able to reach out?
RJ: I was one of the very few, yes. I’ll give you a little bit of background on that. SEWA has always tried to promote policies to try and bring social welfare or security to the poor. We’ve actually worked for many, many years with the government for many of these policies. Most of these policies then turn into “schemes.” What we’ve found on the ground is that the scheme is an entitlement, but you either don’t get your entitlement or in order to get it you have to fight. How do you build up the implementation machinery, how do you make people aware? Then, when it doesn’t come, how do people get together and struggle for it, fight for it? So, we keep thinking, what would be a form of social security which would be useful?
The way this whole issue of cash transfers came about is [that] in 2008 or 2009, the government of Delhi—which was still [led by] Sheila Dikshit at the time—said they’d like to do cash transfers instead of PDS [public distribution system]. Then, there was a big uproar against it. We have about 50,000 members in Delhi. We asked some of our members if they’d prefer to have cash in-hand, or grain. We did a small study among them and found it was 50-50. I was surprised. I thought they’d all say grain. I had a meeting with Sheila Dikshit and said, “Why don’t you do a small study and see if people prefer grain or cash?” She agreed and we did a small study [in Raghubir Nagar in West Delhi] supported by the Delhi government and the UNDP [the United Nations Development Programme.] [The findings of the study were published in May 2012]. It was very small. About 100 people got cash and about 150 continued on grain. [These were all] the same type of households [in terms of their economic status]. It was self-selected—those who wanted cash would get cash. To my surprise, the ones who got cash were happier, in the case studies. Also, in the baseline survey, we found that those who got cash were buying more food and better food than those getting grain. Part of it is because the grain they get [through PDS] is not good grain; they don’t get their full entitlement. With cash, you can choose what you want. So, nutrition had changed for the better. Plus, people find ways of doing things—some would pool money, take an auto rickshaw, go to the grain market, buy [the grains] and come and distribute it. Methods to better use the cash [came up]. Also, many were happy with the cash because we had [transferred] it into the womens’ accounts. A small number said that [earlier, with PDS,] the husbands used to stand in line [to receive the ration] and take the grain and sell it. The other thing they were happy about is that they didn’t have to stand in line [for the ration].
I thought one of the better effects of this [as found in the study] was that in the area where we did it, the [corrupt] ration shops became better behaved. We did this one study and saw that people who got cash were better off.
When we did this study, we faced tremendous opposition—some of it was ideological [from economists and activists] and some of it was from the ration shops [who form part of the PDS delivery system]. I was surprised. We also realised how strong the opposition to it.
Then we did a bigger study but it wasn’t a substitute study [comparing] grain versus cash. This was in MP [Madhya Pradesh’s] villages. If you give people a certain amount of cash—as a basic income—how do they use it? Especially for the poorest families, [the study found that] it sort of has a transformative effect. For the better-off families, it doesn’t have much effect. And the transformative effect, we realised, isn’t just social—better health, food or education—but in economic growth: buying of seeds, fertilisers, pumps, and animals—they bought a lot of animals. With the poorer families, there wasn’t much change in education, but there was change in health and food.
MR: Did each family receive a sizeable amount?
RJ: Not a big amount, about Rs 300 a month per adult, and Rs 150 per child. It came to a maximum of Rs 1000 a month [for a family]. For the animals and all, they’d pool for two-three months and then they’d buy. For seeds and all, Rs 1000 is okay. For the middle [income] families, they were spending on education. Girls’ education went up, which was very interesting. It went up in the middle school. I said transformative for the poorest families because they are cash-starved—they don’t have cash in their hands and we are a cash economy. A lot of their life is spent in borrowing cash, for basic needs, for economic needs. So they’re always in this debt cycle. If you can free them from being starved of cash, from cash deprivation, they might still borrow, but the terms of borrowing changes. The need for borrowing [changes]. They wouldn’t borrow for food. They just borrow for economic or health needs.
MR: Would you say that the cash transfer system is more efficient than other forms of welfare delivery such as the PDS?
RJ: I think everything on cash transfers has been turned to PDS versus cash, which need not be the case. Our experiment definitely showed [that people find small sums of cash useful] and we need to conduct more honest experiments like that to see whether people would prefer it. Secondly, I don’t think you can suddenly do it on a large scale. Thirdly, there is a very strong political will to continue PDS, because it’s the biggest system which is working, even if there is 30–40 percent leakage. It’s what people depend on, what they know about. And then there is a very strong vested interest [in the PDS delivery system]. You want to look for black money, that’s a place to start.
MR: But cash transfers have been known to present issues as well, such as in the case of the National Rural Employment Guarantee Act, 2005, where delay in cash transfers for wage payment is a common grouse. Another criticism of the system is that cash transfers do not account for inflation in the price of goods in the market.
RJ: In an ideal world—where everybody has bank accounts, which they don’t; where it’s easy to withdraw cash, which it isn’t—I do think it’d be more useful for people to get lumps of cash. Not everywhere, because there are places where grain is not easily available; not every time, but on the whole. However, in the real system, it’s not easy for people to withdraw cash, the government doesn’t transfer anything on time. [But with] this grain transfer [for PDS] also, don’t think that everything is on time—it doesn’t happen. The similar thing would definitely happen with cash. Look at pension; pensions don’t come every month. Though they do come in lumps, which people also don’t mind.
[A] cash transfer model would also have to be based on bank accounts. What we found with bank accounts is that the NEFT [the National Electronic Funds Transfer system, started in 2005, which allows banks and customers to electronically move sums of money between branches or accounts] is very efficient. If any problems arise, it is from the government actually transferring the money. But once that system is worked out, then the NEFT system is very efficient. A lot of it depends on which government you’re looking at.
What I’m saying is that the [change from] PDS to cash is not an easy discussion. It’s also not a theoretical discussion only.
MR: You’re saying it cannot be scaled up yet.
RJ: It certainly cannot be scaled up. It has to be experimented with. [It] has to be tried out to see what the glitches are. But there is no real sincerity to do that.
MR: One of the concerns against cash transfers is that the government would wash its hands off its responsibilities, that we cannot depend on the market to provide services that are the responsibility of the government.
RJ: We’re talking about PDS. I don’t think anybody is saying health and education, roads, sanitation, [are services for which] you should give people money and they’ll make their own. Those are public goods. Grain is different. Is it the government’s responsibility to provide every basic necessity? I think giving cash is not moving away from responsibility. If you say you will cut the budgets for the poor—that would be moving back from responsibility. But where does the government’s implementation responsibility lie?
This interview has been edited and condensed.