Cash less Indians, the new normal, and survival
On April 15, when the lockdown ends, it is very likely that the bottom 47 percentile of India’s population will run out of cash. It is also likely that the population between the 47th percentile and up to 87th percentile will have only half the cash they had before the lockdown began. What this means, in real terms, is that the poorest 500 million Indians would be out of cash reserves completely by April 15 and another 500 million will be left with just half their reserves.
Cash inequality –
- The top 1% in India held 62% of all the currency in circulation, whereas the top 0.1% held 33%, a third of ₹17-lakh crore in circulation at the time of demonetisation.
- The Gini coefficient, a common measure of inequality, of cash holding in India is as high as 0.71, where 0 indicates perfect equality and 1 indicates perfect inequality. Other measurements of inequality such as the Atkinson Index [A(1)=0.624] and the Generalised Entropy Index [GE(1)=3.108] also show a very high inequality of cash holding. This means that in India, cash is heavily concentrated at the top.
- Even inter-district and intra-district cash inequality is very high. The top 10% districts held 764 times more currency than the bottom 10% districts. It is unsurprising then that the districts at the top are situated in Tier I and II cities. In fact, the bottom 60 districts, mostly comprising hill and tribal districts, held only 0.2% of all the cash.
What should be done?
- Given the dire economic situation, it is important, a social and economic argument calls to remonetise India. This would mean a direct cash transfer of ₹2.5-lakh crore just to replenish people’s exhausted cash coffers.
- Inequality reproduces more inequality. If a majority of Indians lose their cash reserves, they will fall into income traps where real wages will diminish and lost wages can only be recovered by longer working hours.
- A targeted ₹2.5-lakh crore cash transfer will put money directly in the pockets and purses of the population up to the 87th percentile; ₹1.34 lakh crore will be for the poorest 500 million Indians, whereas ₹1.2-lakh crore will replenish the reduced cash reserves of the rest of the population up till the 87th percentile.
Source – The Hindu
QUESTION – The COVID-19 pandemic has deepened the inequality of access to cash to lower strata of our population. Discuss what must be done to ease this stress.