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Impact of COVID-19: Cash less Indians -the new normal, and survival

  • IASbaba
  • April 7, 2020
  • 0
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ECONOMY

Topic: General Studies 3:

  • Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

Impact of COVID-19: Cash less Indians -the new normal, and survival

At the end of 21-day lockdown imposed in India in the wake of COVID-19 pandemic, it is likely that the bottom 47 percentile of India’s population (nearly 500 million) will run out of cash.

Also, the population between the 47th percentile and up to 87th percentile will have only half the cash they had before the lockdown began.

Do You know?

  • World Bank’s poverty line is $3.2/day for a lower middle-income country like India
  • Up to the 77th percentile population, Indians just consume what they earn.
  • The top 1% in India held 62%, whereas the top 0.1% held 33%, of the total currency of ₹17-lakh crore in circulation at the time of demonetisation (Nov 2016).

Inequality of cash in India

  • Various indexes indicate high measures of inequality of cash holding in India: 
    • Gini coefficient of cash holding in India is 0.71
    • Atkinson Index [A(1)=0.624] 
    • Generalised Entropy Index [GE(1)=3.108]
  • Regional Inequality of Cash holding
    • The top 10% districts held 764 times more currency than the bottom 10% districts. 
    • The bottom 60 districts, mostly comprising hill and tribal districts, held only 0.2% of all the cash.
    • Intra-district inequality: 359 out of 607 districts in India, has a Gini ≥ 0.7, which means that even within districts, cash is concentrated very unequally

What are the possible impacts of pandemic vis-à-vis Cash economy?

  • Further entrenchment of the cash inequality due to depletion of cash reserves of poor people.
  • Loss of Freedom: No money to payback to lenders meaning high chances of poor people falling into trap of slavery or forced labour
  • Loss of agency: People engaged in the informal economy (dependent on cash) will also lose their agency to negotiate for fair wages, decent working conditions etc.
  • Forces migration back to Urban areas: 
    • Poor migrants who returned to hometowns in the wake of lockdown will be left with no cash by the end of it, forcing them to migrate back to cash-rich centres again
  • Weakened demand: Nearly one billion Indians will be starting with zero or near zero cash post the end of crisis that is going to impact the corporate sector

Way Forward

  • The ₹1.7-lakh crore stimulus package announced by government is insufficient
  • Remonetise India: A targeted ₹2.5-lakh crore cash transfer that will put money directly in the pockets and purses of the population up to the 87th percentile
  • Government should make cash available through banks, automated teller machines and treasuries.

Connecting the dots:

  • Impact of the crisis on the cashless payments – is remonetising impacting the governments vision of creating a less-cash economy?

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