A top Washington DC-based institute in its new report on financial and digital inclusion has sharply criticized the Government of India (GoI) for its demonetization move of November 8, 2016, underlining that the “abrupt announcement led to economic disruption and other significant harms.”
Among the “other significant harms” the report – titled “The 2017 Brookings Financial and Digital Inclusion Project Report: Building a secure and inclusive global financial ecosystem”, and authored by Robin J Lewis, Jogh D Villasenor, and Darrell M West – notes include “incidences of suicide, trampling, heart attacks, and denial of health care due to inability to pay with the demonetized currency.”
Giving short detail of how the demonetization was announced by declaring notes of Rs 500 and Rs 1,000 void at midnight, the report contests the GoI claim that “the aims of the drive included curbing corruption and advancing digital financial services.”
The harmful effects of demonetization happened, the report says, even though “the drive did appear to lead to a significant increase in deposits in individuals’ accounts within the month of the announcement.”
Pointing out that “experts hold diverging views on whether the drive will have long-term benefits, including in terms of leading to greater engagement with digital financial services and in curbing corruption”, the report insists, “More time is needed to determine the full consequences of the initiative.”
Against huge claims following demonetization that India has moved forward towards universal banking and a sharp upward swing in mobile transactions, the report states, in India, “unique mobile subscribership” is 53%, “financial account ownership among adults” is 53%, and “financial account ownership among women” is 43%.
Assessing the financial inclusion moves of the GoI, the report says, its “formal commitment milestones” include the launching of the Pradhan Mantri Jan Dhan Yojana programme in 2014, joining the Better than Cash Alliance in September 2015, issuing provisional payments bank licenses to diverse entities, including nonbank institutions such as India Post, in August 2015, and so on.
Scoring India 72% on a scale of 100, among the 26 developing nations assessed, the country ranks worse than 12 other countries. Kenya ranks the best with 86% and Brazil comes next with 79%. Other countries which score better than India include South Africa (78%), Uganda (78%), Colombia 78%, Rwanda (76%), Philippines (76%), Chile (74%), Nigeria (74%), and Turkey (73%).
The only consolation for India is, it’s the two neighbours which are part of the assessment, Pakistan and Bangladesh, rank worse, with a score of 69% and 66%.
Among the steps the report recommends to improve its financial inclusion rate include implementing and scaling “financial capability initiatives to reduce account dormancy rates”, incentivizing “adoption of digital payments at merchant locations to enhance the digital financial services ecosystem”, and “monitoring the effects of the demonetization initiative, particularly with respect to underserved groups.”
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