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How Modi’s bank note ban has inflicted pointless suffering on India’s poorest.

Data from the last census show that in 2011, only 67% of urban households and 54% rural households had access to mainstream financial services.

Getting the remaining households access to banking services is a process known as financial inclusion.

In the context of banning bank notes, financial inclusion is crucial. People who have access to credit cards and operational bank accounts are much better prepared for a demonetisation crisis than those marginalised people whose money is all in cash, primarily in the form of these decommissioned notes.

The intent of the policy is partially to stop poor people living cash-only lives. So India needs to give people the ability to borrow money from banks when required rather than from money-lenders, a common practice among the nation’s poor.

But smartphone and internet access is yet to reach the majority of Indian households. This is not the time to talk about how online payment services can replace cash. A similar argument can be made about the proportion of people holding identity documents, a prerequisite for opening a bank account.

Social and economic divides are complex areas of study, be they investigations of extreme inequality, the education gap, the digital divide, or financial inclusion.

In general, such divides are narrowed by improving three things: affordability, accessibility and skills. Developing skills by influencing user behaviour in many cases proves to be the most difficult and time consuming.

To understand whether it’s possible to change user behaviour in India right now, we need to look at the household-level financial inclusion data. The best possible source is the Reserve Bank of India.

In this analysis, data on use of bank and credit cards comes from three moments in time. The first is the latest available data, from August 2016.

The second is from January 2014, when milder demonetisation was introduced and BJP condemned any move towards demonetisation as being “anti-poor”. The third reflects the same amount of time between the first and the second points, and comes from June 2011.

My analysis of the data from these time points shows that growth in the number of valid credit and debit cards from January 2014 to August 2016 was 85%; much higher than the 55% growth rate in the previous corresponding period.

But when it comes to transaction value, there’s a slowdown in the growth of the cashless economy.

Between January 2014 and August 2016 it was 35%, down from 61% in the previous period.

All this means that PMJDY did not prepare the ground for demonetisation adequately.

Indeed, many PMJDY accounts, had been left unused for years. Until now, that is, when it’s being suggested that some of these PMJDY bank accounts are being misused to launder money rendered invalid by demonetisation.

This is not an unlikely scenario given how market forces operate. And surely, this is not the kind of user behaviour the government wanted to encourage.

What is the right name for what has happened in India in recent weeks? Is it demonetisation, half-a-demonetisation, a surgical strike or carpet bombing? Some in leading think-tanks would identify it as poverty tax.

This is a debate for economists, academics and policy-makers like me. But the poorest of the poor feel the pain firsthand; they do not need to debate what to call this crisis.

There is no doubt that, wherever you live in the world, it’s expensive being poor. Nowhere more so than in India today.

Let’s stop the spin: demonetisation was the wrong policy at the wrong time. The economy was not ready to turn cashless, and millions of people have been left behind.

As usual, it’s the poor who suffer most. Let’s hope the promised better days come sooner rather than later.

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