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Resource centre on India's rural distress
 
 

The mother of all disruptions -Jean Dreze
-The Hindu

The tremendous power of the software industry in India may help explain why the disruptive effects of demonetisation are being taken lightly

Evidence is mounting of the disruptive effects of the recent move to renew currency notes, known as “demonetisation”. Disruption is actually a mild expression. What is happening is a catastrophe for large sections of the population. Farmers have dumped vegetables by the roadside for want of a remunerative price. Migrant workers have returned home after losing their jobs. Street vendors are struggling with a slump in demand. And, of course, many people have died while waiting in queues outside banks or committed suicide after unsuccessful attempts to get cash from the banks.

The disruptive effects of demonetisation also have other dimensions. The banking system, for instance, has been severely disrupted. For one thing, the constant flip-flop on rules and stringent restrictions on people’s access to their own accounts have undermined the confidence of the public in the banking system. For another, it would be surprising if the considerable powers that were given to bank managers in recent weeks had not led to a spread of corruption in the banking system.

What is astonishing is how little concern this catastrophe is causing in the corridors of power. Smug reference is made from time to time to the “inconvenience” faced by the public, and people are asked to grin and bear it for the sake of the nation. Little is being done to alleviate their pains.
 
The disruption lingo

To understand this inertia, it helps to remember that the word “disruption” has a positive connotation in some circles, particularly that of technological innovation and especially software innovation. For instance, when Nandan Nilekani stated in an interview with Business Standard last August that “disruption is waiting to happen” in the banking system, he saw that as a very positive prospect — an opportunity for new financial technologies to step in.

One possible reason why disruption is so popular among software developers is the role of “network effects” in this field. New software typically becomes viable only if a sufficiently large number of people use it. This may require displacing the dominant product, and that, in turn, often involves a disruption of some sort. Displacing Google, for instance, would definitely require some kind of tectonic shift in the world of search engines. Similarly, cashless payment systems like Paytm and Mobikwik work best when large numbers of people adopt these new products at the same time.

Seen in this light, there is something miraculously providential in the demonetisation move as far as the cashless payments industry and its offshoots (including on-line security services) are concerned. This must have been beyond the wildest dreams of the wizards of cashless payments. Just a year ago, the idea of a cashless economy sounded like utopian waffle. Today, it is the buzzword. Not only are cashless payment systems riding on the wave of demonetisation, the government is also throwing its weight behind the technology, mobilising numerous departments for this purpose and lending its advertisement powers to the industry.
 
Disruption and opportunities

The problem with the disruption lingo is that it easily becomes a licence for inflicting hardship on ordinary people and making a virtue of it. Bank premises are overcrowded? Wonderful, that’s disruption at its best. ATM queues are getting longer? Nothing like it. People are losing jobs? Well, disruption can afford some short-term collateral damage. In fact, objectively speaking, the more the disruption, the better for those who are trying to use this situation as an opportunity to promote their new products. I am not saying that they are responsible for creating the disruption, or applauding it, but it is a fact that they benefit from it. Considering the tremendous power of the software industry in India, this may help to explain why the disruptive effects of demonetisation are taken lightly.

Among the leading lights of this lobby is the Indian Software Product Industry Round Table (iSPIRT) mentored by Mr. Nilekani, an association of black-belt innovators and entrepreneurs. Take a look at their website (and also at indiastack.org) if you have time — it is an eye-opening exercise. These guys (and they are mainly guys) are smart, they think big, and they have ideas. The question remains — ideas for whom? The website makes no secret of the fact that the ultimate purpose of iSPIRT’s work is to create business opportunities for the Indian software industry, not just at home but in the entire world. Under the title “Our Game Plan”, for instance, the site explains that “our ambitious goal is to create an adoption wave for software products within the Indian SMB sector”. And guess what, the way to do this is to “create a new generation of software product companies” and “disrupt global markets”, no less.

The first step, still according to the iSPIRT website, is “smart demand side evangelization” (sic). Presumably, this involves things like selling Aadhaar to the public as a “voluntary facility”, or claiming that the purpose of Aadhaar is is to improve welfare programmes. In fact, as Reetika Khera has lucidly explained in a series of articles, it is Aadhaar that has benefited from welfare programmes (by using them to push people to Aadhaar enrolment centres), not the other way round. Quite often, the impact of Aadhaar on welfare programmes has actually been disruptive, in the literal sense of the term. For instance, the recent imposition of Aadhaar-based biometric authentication on the Public Distribution System has caused havoc in several States, notably Jharkhand and Rajasthan.
 
Converging interests

What is disturbing is how government policy is now aligned with the interests of these business lobbies. The government’s advertisements for cashless payment systems read like a rehash of the private companies’ own rhetoric (as a private consultant recently confided, “our marketing costs have gone down” because the government is doing the advertising). The revolving door between government and corporations is getting wider every day. And as mentioned earlier, the entire demonetisation drive is an uncanny miracle for the software industry, as if the industry itself had written the script.

None of this is to deny that cashless payments may have some merits. But there is no reason for state power to promote them single-mindedly, that too by crashing the economy.

Jean Drèze is Visiting Professor at the Department of Economics, Ranchi University.