(On August 31, a Supreme Court Bench headed by Justice Arun Mishra approved the decision by electricity regulators to grant Adani Power “compensatory tariffs” amounting to Rs 8,000 crore for electricity generated at its power plant in Rajasthan. The verdict, just before Justice Mishra’s retirement on September 2, is the seventh judgment since the beginning of 2019 in which benches headed by him have ruled in favour of Adani group of companies.)
Bengaluru/Gurugram: On August 31, a Supreme Court bench headed by Justice Arun Kumar Mishra, that included Justices Vineet Saran and M R Shah, ruled in favour of a company in the Adani group in a dispute with public sector power distribution companies in Rajasthan. The verdict, issued three days before Justice Mishra retired from the court on September 2, has granted Adani Power Rajasthan Limited (APRL) – which owns a 1,320 megawatt capacity thermal power station in Kawai, Baran district – “compensatory tariffs” worth over Rs 5,000 crore and penalties and interest payments of nearly Rs 3,000 crore.
This “price” of Rs 8,000 crore will be borne by electricity consumers in the cities of Jaipur, Jodhpur and Ajmer. This is the seventh verdict in favour of Adani group companies issued by benches headed by Justice Mishra since the beginning of 2019.
The verdict was on petitions by power distribution companies (discoms) of the three cities, and a separate petition by the All India Power Engineers Federation (AIPEF), a representative body of employees of public sector power companies, against a September 2019 verdict of the Appellate Tribunal for Electricity (APTEL). Agreeing with the APTEL’s contention that APRL had suffered on account of a “change in law” for which it was owed compensation, the Supreme Court bench rejected the arguments made in appeal by the discoms and AIPEF.
The court held that a memorandum of understanding (MoU) signed by the government of Rajasthan providing an “assurance” that it would “facilitate” allocation of coal mined domestically as fuel supply for Adani’s power plant in Kawai, constituted the basis for power purchase agreements (PPAs) signed by the Adani group company with the Rajasthan discoms in 2010. This was despite those PPAs having been signed on the basis of APRL bidding successfully in a competitive auction, which it qualified to participate in on the basis of a coal supply agreement (CSA) it signed with its sister company, Adani Enterprises Limited (AEL), for coal imported from Indonesia.
Subsequently, the failure of the power plant to secure a coal allocation from the government constituted a “change in law,” the court held. This, coupled with the fact that in 2011 the price of coal imported from Indonesia had risen significantly above the levels agreed upon in the CSA that qualified APRL to participate in the auction, entitled the company to “compensatory tariffs,” the Supreme Court ruled.
Domestic or Imported Coal?
The case before the apex court depended on answers to two important questions.
In 2009, the Rajasthan discoms conducted an auction in which private power producers were invited to participate and present bids to win the right to sell electricity to the state. In order to qualify to participate in the auction, the private power generation companies needed to have in place CSAs – either a domestic coal linkage that would supply enough coal for the entire lifetime of the PPAs or a CSA for imported coal that would supply at least half of the fuel requirement for the first five years of the PPAs.
At the time the auction was announced, with requests for proposals being circulated, in February 2009, the Adani group company was in the process of setting up its power plant at Kawai, but did not have any CSA. While in a MoU signed by the government of Rajasthan with AEL in March 2008, the government had assured its support to the project in facilitating it to obtain a domestic coal linkage, this did not constitute a concrete agreement that would qualify it to participate in the auction.
While preparing its bid, in June 2009, APRL wrote to the Rajasthan government seeking its support under the terms of the MoU for securing a coal linkage, requesting either the allocation of excess coal from existing coal mines owned by the state government, including the Parsa East Kente Basan mine in Chhattisgarh, which another Adani group company was contracted to mine, or to support its application for allotment of a captive coal block to the Union government.
However, without a CSA guaranteeing its coal supply, APRL would not qualify to bid in the auction. Hence, in June 2009, it executed a CSA with group company, AEL, for supply of coal imported from Indonesia for the Kawai project. In addition, APRL also applied for a long-term coal linkage contract to the Union Ministry of Coal in July 2009. With this CSA for imported coal in place, APRL submitted its bid in the auction, attaching the agreement to its bid.
It was because of this agreement that APRL’s bid was considered in the first place during the auction. Having qualified, the Rajasthan government sought a clarification from APRL regarding the evaluation of its bid. APRL clarified that it intended to “use domestic coal as well as imported coal.” Pointing to the CSA, it said: “A duly executed Fuel Supply Agreement for more than 50% of the coal requirement for a period of 5 years has been submitted along with this bid.”
The company added: “…we have also submitted with the bid a MoU executed between the GoR (government of Rajasthan) and AEL wherein...the state has assured in making its efforts to facilitate in getting coal linkage/block or coal from any other source for the power project.”
Hence, APRL stated that “we (will) meet the fuel requirement on the basis of imported coal tie-up,” adding: “… we are sure to get domestic fuel tie-up with the support of the GoR. In view of this we submit that our bid should be evaluated on the basis of Domestic Coal tie-up. We undertake that payment considering domestic coal escalations will be acceptable to us during the term of the PPA (power purchase agreement).”
However, once its bid qualified and was evaluated by the discoms, APRL cancelled its CSA with AEL on June 10, 2009. The agreement had been used only to qualify for the auction.
APRL’s bid was the lowest and it won a contract to supply electricity to the state discoms from its 1,320 megawatt (MW) capacity Kawai power project. A letter of intent (LoI) was issued to APRL by the discoms on December 17, 2009, which stated the following: “Your offer to provide 1,200 MW power at the rates mentioned at Annexure-1 and escalations thereof on domestic coal is based on your commitment that the above rates would be applicable even in case of coal requirement being met by you by way of back up arrangement with imported coal.”
This meant that even if APRL were to use imported coal under its CSA with AEL, the tariff would be calculated based on the prices of domestic coal. This LoI was “unconditionally accepted” by APRL.
Terms of Power Purchase Agreement
However, the PPA that was signed the following month, on January 28, 2010, did not reflect the same terms. While it noted that the fuel supply arrangement for the PPA was based on the supply of domestic coal with a fallback support arrangement of imported coal for five years, it dropped the language clarifying that the tariff would be calculated against domestic coal prices, irrespective of the source of the coal – imported or domestic.
Given this sequence of facts, the first question before the Supreme Court was whether the bid was based on domestic coal or imported coal. The APTEL and the Rajasthan Electricity Regulatory Commission (RERC) that had ruled on the dispute before it, had both held that the bid was indeed based on domestic coal.
While the discoms, represented by senior advocate C Aryama Sundaram argued that though the bid was evaluated based on a domestic coal linkage, no such linkage was actually in place, and it was the CSA for imported coal that was a fallback option for supplying 50% of the coal required by the power plant for the first five years that qualified APRL’s bid. In fact, the CSA had been for 61% of the coal requirement. Accordingly, the discoms argued that if any compensation has to be claimed, it could only arise on the remaining 39% of the domestic coal that APRL had said it would use for the project during the first five years, if this was the subject of a change in law.
Senior advocate and Congress party leader Abhishek Manu Singhvi, appearing for the Adani group company, meanwhile, argued that the CSA was only a qualifying document, and had no bearing on the tariff which was determined entirely against domestic coal. The entire bid was premised and accepted on domestic coal, and hence was affected by a “change in law” when the government failed to provide the promised coal linkage, and therefore APRL was entitled to compensation, he argued.
The Arun Mishra-led bench came down on the side of the Adani group company, ruling that the bid was based entirely on domestic coal.
Padamjit Singh, the convenor of the AIPEF, in an interview to Newsclick said this was the result of a “self-goal” by the Rajasthan discoms: “The Rajasthan discoms took the precaution to put a condition in the LoI that regardless of whether Adani Power were to use foreign or domestic coal it will be paid power tariffs determined according to domestic coal prices. This is recorded in the Supreme Court order as well. But the problem arose because this condition was not put in the PPA.”
Singh asked that “if Adani Power was awarded the contract under a certain understanding, why was that condition not put in the PPA, when it was such a critically important condition?” He said this condition was the basis on which the PPA was awarded.
“Adani had accepted the LoI unconditionally, so there would have been no way to challenge it if the discoms had put it in the PPA and the matter would have rested right there,” the AIPEF convenor pointed out, adding: “This was where the Rajasthan discoms lost the game. It was a self-goal. It was a huge blunder, or perhaps the discom officials were arm-twisted. There is no reasonable explanation.”
Libbying by Rajasthan Governement
The second significant issue before the Supreme Court was whether, having assured APRL in its MoU with the Rajasthan government that it would facilitate it to acquire a coal linkage, did APRL face a “change in law” when it failed to do so until 2018? Under the terms of the PPA, “change in law” is one of the conditions that enables either party to seek a tariff revision.
This question too, ultimately was decided by a “self-goal” by the Rajasthan discoms.
In August 2007, a LoI was issued by the Rajasthan Rajya Vidyut Udpadan Nigam Limited (RRVUNL) in favour of AEL to develop the Parsa East and Kente Basan (PEKB) coal block located in northern Chhattisgarh. The LoI stipulated that the coal could be utilised at the discretion of the Rajasthan government for new upcoming thermal power projects.
In March 2008, a MoU was signed between the Rajasthan government and AEL for the latter to set up a coal-based thermal power generation project in Kawai that also stipulated that the state government assured its support to the project in ensuring allotment of a coal linkage. Between May and June 2008, AEL wrote to the Rajasthan government six times, requesting that it consider allotment of coal from the PEKB coal mine, which was already being developed. With no such allotment forthcoming, at the end of August 2008, AEL requested the state government to apply to the Ministry of Coal for a coal block to be allocated to the Kawai project for the development of a captive coal mine.
In July 2009, when it was preparing to file its bid in the auction for the right to sell power to the discoms, AEL applied for a coal linkage to the government. It did so under the terms of the National Coal Distribution Policy of 2007, under which projects approved by a Standing Linkage Committee of the government would receive 100% of its coal from the public sector Coal India Limited (CIL).
By the beginning of 2010, APRL had PPAs in place with the Rajasthan discoms, but no coal linkage yet. At this stage, APRL once again wrote to the Rajasthan government seeking allocation of a captive coal block for its Kawai project. It further requested the state government to execute a fuel supply agreement between RRVUNL (which had discretionary authority over the use of coal from the PEKB coal mine) and itself. Starting in January 2011, the Rajasthan government lobbied the Union government to seek the allocation of a coal block for the Kawai power project.
In a previous article for NewsClick, the authors of this article have described this process in detail:
The Rajasthan government wrote to the Ministry of Coal in January 2011 requesting it to allocate coal blocks identified by the government in Chhattisgarh to meet the coal requirements for various power projects in the state, including the one at Kawai. Receiving no response for over a year, in February 2012, the state government wrote to the Central government again, this time to both the Ministry of Coal and Ministry of Power, requesting that the Kawai project be considered at par with other power projects in the Central government’s 11th Five Year Plan (2007-12), despite the project being part of the 12th Five-Year Plan (2012-17).
In response, the Ministry of Power responded that the project was part of the Twelfth Plan and would be considered for implementation in due course. Meanwhile, the ministry suggested that the government of Rajasthan examine the possibility of increasing the mining capacity in coal blocks already allocated to it in Chhattisgarh and allocate coal for the Kawai project from these blocks.
At the same time, in February 2012, the Standing Linkage Committee decided that no new fuel supply agreements (FSAs) would be signed by CIL owing to a shortage of coal.
The Rajasthan government wrote back in November 2012 that there was not enough surplus coal in its allocated coal blocks allegedly without attempting to revise the quantity of coal it was recovering from those mines. In effect, the Rajasthan government, after having committed itself to securing domestic coal for the Kawai project, and after being asked by both APRL and the Central government to supply coal from its own coal mines in Chhattisgarh, was refusing to do so.
Thereafter, the Rajasthan government escalated its lobbying in New Delhi. On November 26, 2012, a letter was sent by Chief Minister Ashok Gehlot to the Ministries of Coal and Power requesting ad hoc allocations of coal, as the Kawai power plant was due to commence operations. The Rajasthan government wrote another letter to the Planning Commission in January 2013. In December 2012, the Kawai power plant started operating on imported Indonesian coal on a “test” basis, and was synchronised with the state’s power grid in August 2013.
In February 2013, APRL wrote to the discoms stating that the Rajasthan government’s persistent attempts to secure a domestic coal linkage had failed and that since the plant was running on Indonesian coal, the prices of which had surged following the implementation of a new law by the Indonesian government, it would require a revision of tariff to compensate the private company for its higher costs due to use of imported coal.
With no domestic coal linkage in place, in April 2013, with the scheduled supply of power due to begin, APRL approached RERC with a petition seeking a hike in electricity tariff over what had been fixed, based on its bid in the competitive auction in 2010.
After this, in May 2013 the government decided to change the National Coal Distribution Policy (NCDP), that was notified in July 2013. In this amended policy, CIL would supply a portion of the fuel requirements of power plants which were yet to secure coal linkages, and supply the remainder by importing coal, which the power generators could also import for themselves.
Change in Lasw?
The question before the court was, whether this inability of APRL to secure a domestic coal linkage constituted a change in law. But reviewing the arguments and counter arguments would be futile because, in an affidavit submitted to the RERC by the discoms, months before the Ashok Gehlot led Congress government in Rajasthan demitted office in December 2013, the discoms admitted that it did agree that a change in law had indeed taken place!
“This was a suicidal admission,” said Singh. “This was quoted everywhere – from the RERC to the APTEL to the Supreme Court as well – and it has been exploited to the hilt.”
He added: “There was a swing of opinion or attitude somewhere mid-way in the case. It was like a friendly match and the government in Rajasthan appeared to be inclined to favour Adani Power and did not take a hard line against giving them any kind of concession. But somehow later on, they seem to have woken up and decided to contest it tooth and nail. But that changeover came too late. And by then they had already scored a number of self-goals.”
(Mis-)Using Energy Watchdog Judgment
With the admission by the discoms, the judgment draws on the so-called “Energy Watchdog” judgment of the Supreme Court of April 2017. In that case, also a demand for compensatory tariffs by an Adani-owned power plant – its Mundra power plant which supplies power to Gujarat, and several other states – the Supreme Court had ruled that it was entitled to limited compensation on account of change in law, because it already had a CSA in place with CIL, which was modified by the amended NCDP of 2013.
However, in the same judgment issued by a bench comprising Justices Rohinton Nariman and Pinaki Chandra Ghosh, the Supreme Court had also elucidated a fundamental principle: “The price payable for the supply of coal is entirely for the person who sets up the power plant to bear...it is clear that an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract for the very good reason that when they submitted their bids, this was a risk they knowingly took...the risk of supplying electricity at the tariff indicated was upon the generating company.”
The present judgment draws from the Energy Watchdog judgment in its understanding of change in law, while appearing to ignore the above principle. Despite not having been a CSA in place, the verdict by the Justice Arun Mishra-led bench held that the MoU between the Government of Rajasthan and APRL was sufficient to fulfil the basis for holding that APRL had suffered a change in law.
Over Invoicing of Coal?
A Third Issue, that had been raised by the AIPEF, was that of allegations of over-invoicing of coal imported from Indonesia, that have been raised against 40 Indian companies including companies in the Adani group by the Directorate of Revenue Intelligence (DRI), the investigation arm of India’s customs authorities under the Ministry of Finance.
The DRI has alleged that companies in the Adani group, among other private and public sector companies, had artificially inflated the prices of imported coal by manipulating invoices and valuations. Additionally, it had alleged, the illicit gains thus made were being parked in offshore tax haven jurisdictions.
Specifically with regard to its investigations into the Adani group, the DRI is in a legal battle at the Supreme Court over Adani’s attempts to block its investigation. In 2018, the DRI had sent Letters Rogatory to Singapore, Hong Kong, Switzerland and the United Arab Emirates seeking the support of the courts in those countries to obtain banking and other documents it required for its investigation into the Adani group’s import of coal from Indonesia. The Adani group sought to quash these letters rogatory, first in the courts in Singapore, and having failed there, at the Bombay High Court. The Bombay High Court had in 2019 ruled in Adani’s favour and quashed the letters rogatory, which the DRI is currently appealing before the Supreme Court. In January of this year, the Supreme Court stayed the High Court’s order as it heard the case.
The Justice Arun Mishra-led bench refused to entertain the issue. Noting that the AIPEF’s counsel, Prashant Bhushan, had sought to bring the matter to the court’s attention, the verdict reads “we are of the opinion that until and unless there is a finding recorded by the competent court as to invoicing, the submission cannot be accepted.”
Impact of Judgement
The one count on which the Supreme Court’s verdict has given a minor relief to the discoms is on the interest rate payable on the compensatory tariffs due, calculated back to the beginning of the supply of electricity from the plant in 2013. While the Adani group company had sought an interest rate of 2% more than the SABR interest rate (Stochastic Alpha Beta Rho, a measure used in banking and finance), the Supreme Court’s verdict has capped it at 9%.
AIPEF’s Singh explained what this meant in quantitative terms: “As a result of this judgment, the discoms will face an immediate financial burden. The original claim which was allowed by the APTEL – 50% of which was paid after an interim order – was around Rs 5,130 crore. On that, Adani Power Rajasthan has claimed interest of around Rs 3,000 crore. The Supreme Court's judgment has not modified the original claim at all, but has said that the interest rate can be slightly reduced. So the interest would be marginally reduced. In the judgment, it has been said it should not exceed 9% while Adani had sought an interest rate 2% higher than the SABR rate. In total, the amount would still approach Rs 8,000 crore.”
The Notification issued by the Reserve Bank of India (RBI) on October 7, 2019, as per Modi government’s directive with a view to “Deepening Digital Payments” across the country is of far-reaching consequences. The Notification contains the essential guidelines for a “pilot project” to convert one selected district in every state of India into fully digital or “cashless” in all financial payments and transactions by the end of 2020. Obviously, this pilot project is envisaged as a prelude to the eventual transformation of India as a full-fledged cashless society in the near future. Accordingly, the task for achieving this time-bound task is entrusted with the concerned 'Lead Bank' of the respective district in coordination with the administrative head, the District Collector. Instructions from RBI have already gone to the State/UT Level Bankers Committees (SLBCs/UTLBCs) “to identify one district in their respective State/UTs for digital payment ecosystem on a pilot basis in consultation with banks and stakeholders” and the district identified “shall have significant footprint which will attempt to make that district 100 percent digitally enabled within one year.” The RBI Notification has also directed SLBCs/UTLBCs to ensure that such “cashless’” districts identified are converged with the “Aspirational Districts” already identified by NITI Aayog for “good governance” as part of Modi’s “Digital India” Program.
Of course, this strategic decision is not an overnight development. Its roots lay deep in the Demonetization superimposed on India by Modi at the behest of neoliberal-corporate centres. A Committee headed by Nandan Nilekani who spearheaded the Aadhar, world’s biggest biometric exercise (which, contrary to its declared objectives, has no empirical evidence on improving welfare delivery) has been working on this issue since Demonetization. Accordingly, the “High Level Committee on Deepening Digital Payments” led by Nilekani submitted its Report to the RBI in May 2019. In fact, the RBI’s Notification issued on October 7 2019 in essence is a repetition of what elucidated in the Nilekani Report. As pointed out in the Notification, the pilot project that is envisioned on an experimental basis aims at multiplying India’s ‘per capita digital transactions’ by ten times within a year--estimated at 22 as of now to 220-- and increase the number of “cashless” or “digital citizens” from the current 10 crore to 30 crore by the end of 2020!
A glance at both the Nilekani Report and RBI Notification unravels the process or the various steps required for accomplishing this “pilot project” for cashless transactions within the proposed time-frame. Among other things, they comprise a concerted campaign for opening zero-balance accounts for all who are outside the banking system, an increase in the number of smart phones, swiping machines (PoS machines or terminals), linking of bank accounts with Aadhar, popularization of BHIM Aadhar Pay, discouraging cash withdrawals from banks, developing ‘feature phones’ appropriate to cashless payments, and so on. The RBI Notification does not ascribe much importance to ATMs in the transformation process towards digitization or cashless transactions. The idea is to reduce the number of ATMs which are conventionally used for cash withdrawals and to transform them mainly as CDMs (Cash Deposit Machines) so as to suck out the cash in circulation. In a cashless society, the new role of ATMS would be that of ‘digital facilitation points’ which implies a recalibration of them for bill payments, currency transactions, tax payments, mobile recharging, ticket booking, etc. A proposal is also there for the creation of specific ‘digital wallets’ for all payments and receipts pertaining to government transactions. Together with the existing US-based ‘digital tools’ such as Master Card, VISA, Debit and Credit Cards, PayPal, Apple Pay, Google Pay, Paytm (controlled by Chinese giant Alibaba) which are widely used in India, emerging tools like Phonepe (controlled by Walmart, world’s biggest MNC) and initiatives to involve Whats App and Facebook are also in full swing.
Background for Modi Regime’s Cashless Move
The invention of money certainly led to an epoch-making transformation in human history like that of fire and wheel. It enabled human society to transform itself from the ‘primitive’ barter system (exchange of goods for goods) to a higher stage of development where money became a medium of exchange, store of value and standard of deferred payments. And till the end of the 20th century, in political-economic circles, there had been no talk of a cashless society or replacing cash by digital payments. In fact, discussion on cashless transactions has its beginning only in the turn of the 21st century along with the origin and development of cross-border/transnational digital flows. Over a span of two decades, broadband connections have become more important than shipping lanes and, in terms of its economic significance, are now at par with the centuries-old trade in goods. While internet penetration in US is estimated at 80 percent of the population, the same is around two-third in EU and one-third in Asia whereas in India it is only one-fourth. On the other hand, the so called “digital divide” (people having no access to internet) has become a clear manifestation of mounting economic inequality not only between imperialist and oppressed countries but also among people and groups within countries. Today digital flows have become indispensable for the movement of goods, services and above all finance, and every cross-border transaction today has a digital component. Digital business which is already in trillions is still growing in double digits. At the same time, compared with the sphere of production, it has been in the sphere of circulation and finance that digital flows have become truly a catalyst.
It is in this context that digital technology and data flows are becoming the driving force for cashless transactions. And, quite logically, the motive for this cashless initiative everywhere comes from the US- centred global corporate giants who are the custodians (with the exception of China today) of digital tools essential for cashless payments. However, ironically, among the countries which are much advanced in the realm of digital technology, only the Scandinavian countries are apparently moving towards a cashless economy. On the other hand, vast majority of the people in US which is much ahead of others in digital and network infrastructure, leading countries of EU and Japan are deadly against a cashless situation despite concerted efforts on the part of software giants, corporate financiers and monopoly banks in these countries which regularly propping up their respective governments for adopting digital payments.
For instance, with the backing of US Federal administration, various US-based software and digital giants as well as big banks are engaged in a massive and aggressive campaign for adoption of digital payments system. However such a move is vehemently opposed by various state governments in US. This has prompted the digital MNCs to target the so called ‘emerging economies’ in Afro-Asian-Latin American countries by influencing amenable regimes there. As a manifestation, various companies including VISA, Master Card, Citibank, Gates Foundation, Dell Foundation, etc. joining with the USAID (United States Agency for International Development) have already formed the “Better Than Cash Alliance” initiative for seriously taking up the cashless agenda amidst stiff domestic opposition to such a move in the US. The aim of this Alliance was to manipulate policy decisions in backward economies thereby superimpose cashless payments on global people.
The ascendance of Modi regime in 2014 and the Prime Minister’s proclamation on “Digital India” program in the following year should be seen in this context. And, as an appendage of the Better Than Cash Alliance, an initiative entitled “Catalyst” with the involvement of Indian Ministry of Finance started work in since 2016. Catalyst began its operations based on the guidelines codified by USAID under what is called “Beyond Cash”. Alok Gupta, Director of Washington-based World Resources Institute, who cooperated with Nandan Nilekani in designing Aadhar was appointed as Indian Chief Operating Officer of Catalyst. According to available evidence, US think-tanks including neoliberal-far right economists like Larry Summers and Reghuram Rajan were associated with this project in its beginning stage. In fact, the launching of Unified Payment Interface (UPI) as the brainchild of Rajan is considered as the forerunner of cashless initiative in India. As RBI governor, it was he who imposed restrictions on cash withdrawals from ATMs, even as 37 crore new bank accounts were opened in India under Pradhan Mantri Jan Dhan Yojana during 2014-18 preparing the background for the move towards cashless payments. No doubt, corporate-saffron forces effectively used these Jan Dhan accounts as a convenient tool for whitening huge volumes of unaccounted black money during the opaque days of Demonetization which was a “guinea-pig” experiment superimposed on the Indian people with intellectual inputs from the USAID-led Catalyst-an aspect to be taken up in the ensuing discussion.
Meanwhile, Catalyst had attempted at launching "cashless townships" in six Indian cities- Indore, Visakhapatnam, Kota, Jaipur, Bhopal and Nagpur- on an experimental basis as part of its action plan towards a making India perfectly cashless or digital. These six cities had been selected based certain criteria such as the use and popularity of smart phones, number of digital money transfers, the availability and familiarity with digital tools among vendors and merchants at the local level, various administrative factors essential for such an experimentation and so on. As noted above, and as well-documented by international sources (see Select References attached), it was in this overall background that at the behest of neoliberal-corporate think-tanks, Modi imposed Demonetization in November 2016 that enabled the most corrupt corporate big businesses and crony capitalists hand in glove with the ruling party to have the biggest-ever one-shot wealth accumulation in history by abruptly sucking out the life-blood of more than a billion people and at the same whitening all corporate-black money hoardings through banks.
Totally paralyzing all cash-based economic activities especially in the informal/unorganized sectors that provide sustenance and livelihood to more than 90 percent of the Indian workforce, Demonetization led to an unprecedented squeeze of the entire economy resulting in the biggest unemployment and economic slowdown in five decades coupled with a galloping of all kinds of money-spinning businesses and ballooning speculation at the macro level, thereby transforming India as the most corrupt country in Asia within a year. Of course, while Modi himself was immersed in the post-truth campaign of interpreting Demonetization as “surgical strike” against terror funding, black money and counterfeiting and tried to whip up Islamophobic and Hindutva chauvinist sentiments in the process, in those crucial days, it was left to Gurumurthy, the leading RSS intellectual and member of RBI Director Board to reiterate at the behest of imperialist centres that the true aim of Demonetization was to achieve a state of cashless or digital payments. No doubt, the latest RBI Notification regarding pilot project on “digital districts” is a logical corollary and continuation of both Demonetization and Catalyst-sponsored “cashless townships” already experimented in the country. Revealingly, as the RBI itself acknowledges, a copy of this RBI Notification was forwarded to USAID-led Catalyst too.
General Consequences of Cashless Economy
The immediate outcome of a cashless economy would be total alienation or marginalization of those who (a) have no bank accounts, (b) having no cash in their accounts, (c) having no access to the appropriate ‘digital payment tools’, and/or (d) not having the technical knowhow required for operating them. In spite of the enrolment of millions of “zero-balance accounts” initiated on a war-time footing under Jan Dhan Yojana after Modi’s coming to power, only 60 percent of the 135 crore of Indian population has even namesake bank accounts (many of them are reported to be bogus or benami accounts too). In the event of India moving to a full-fledged cashless or digital payments system, the custodians of the entire cash or currency in the country will be big banks or such other financial entities. This will automatically “disenfranchise” those who have no valid bank accounts or those unable to operate such accounts through proper digital tools. That is, when the Modi regime under the guise of “financial inclusion” is engaged in “digitizing citizens” it needs to be understood in effect as an ingenious corporate-fascist agenda of denying citizenship itself to the marginalized and oppressed. Therefore, at a time when 30 crore Indians (almost equal to the total population of USA) are below the official poverty line and around 50 crore of people having no bank accounts still being outside the banking net, this superimposed cashless project, contrary to the claims of its proponents, is leading to “financial exclusion” and not “financial inclusion”.
Let us see the whole issue of cashless payments from an international perspective too. That the US has already reached saturation regarding the availability of smart phones with iPhone and Android facilities and credit/debit cards is a widely conceived fact today. Moreover, as already noted, the US today still continues (in spite of cut-throat competition from the Chinese digital giant Huawei) to be the biggest source of the digital/software tools such as VISA, Master Card, Apple Pay, Google Pay, Venmo, Square Cash, which have become indispensable for maintaining “digital imperialism”. Again, Walmart, the US-based biggest MNC, for instance, has its majority holding in the software tool such as Phonepe (as is the case with the Chinese giant Alibaba’s involvement in Paytm). As a result, in the World Digital Competitiveness Ranking, the US holds the top-most position today, and that of Sweden, which is moving towards cashless economy has third ranking in this regard, whereas India’s ranking is 44th among 60 countries. Thus, with all the necessary requirements, US is most favourably situated for embracing total digital payments. A study conducted by the Tuft University and published in May 2016 Issue of Harvard Business Review had unequivocally identified US, Japan, Germany, France, Belgium, Spain, Czech Republic, Brazil and China in that order as ideally placed on account of their technological capabilities and social realities to move towards a cashless situation. No doubt, as already mentioned, the formation of corporate-sponsored "Better than Cash Alliance" with its slogan "war against cash" took place in the US precisely in this context.
However, public opinion in the US from the very beginning has been vehemently against this pro-corporate cashless initiative. Upholding people’s sentiments, ten US states-- Massachusetts, Connecticut, New Jersey, New York State, Washington State, Oregon, Rhode Island, Chicago, Philadelphia and California (whose GDP of $ 2.7 trillion with a population of 4 crore is equal to that of India with a population of 135 crore)—under the label "States for Cash" have enacted stringent laws with punitive measures against traders insisting on cashless payments. For example, in New Jersey, for the first violation of the law (i.e., forcing digital transfers), the fine is $ 2500 and for second violation the fine will be doubled to $5,000 (around Rs. 3.5 lac). Other states like California also have passed similar laws with criminal procedures and varying degrees of punishment. According to a New York City Council study, 11 percent of the New York residents does not have bank accounts at all. According to it, the superimposition of a cashless system of payments on the poor, immigrants and elderly who have no bank accounts is outright “disenfranchisement”, especially when the US Constitution does not insist bank account as a criterion for citizenship. In spite of having the highest potential for transforming in to cashless economy, most of the people in US prefer cash payments and more than 55 percent of transactions in the US are still under denominations of $ 10. In fact, this is the context that prompted the well-known online portal USA Today to declare "Cash is still King in USA". The annual per capita digital transactions in the US is 474 compared with just 22 in India where the Modi regime totally cut off from concrete realities is shamelessly pursuing the cashless dream!
Specific Issues Concerning India’s Cyber Security
Issues connected with cyber security are of particular relevance when it comes to the case of India. According to cyber experts, digital flows/transfers with barely two decades of history are still like an unchartered territory. A recent BBC Report (bbc.com/worklife-101), has also pointed out the risks involved in the “payment over the cloud” and highlighted the need for proper studies on this emerging field. Serious attention is required regarding the issue of privacy. Of all digital dealings, financial transactions are subjected to highest level of surveillance and information manipulation not only by governments but also by private operators. While the rich and the powerful can ensure their privacy through extra payments, political activists and common people are always vulnerable and at the receiving end.
Cybercrimes and hacking connected with financial transactions are notorious. In this realm, India’s position is the worst. A 2015 Interpol Report situates India as having the lowest cyber security in the world. In that year, the Interpol noted around 111000 “violations” or "transgressions" in Indian cyber space. Assocham has endorsed these findings in a recent study and warned about more worries for India’s digital transactions in the near future. According to Chipset manufacturer Qualcomm, India's hardware security is not at all compatible with digitization. It also points out how hackers can easily steal users’ passwords from existing Android models. On November 15, 2019, the BBC News has released the revealing news of RBI seeking the help of “Group-IB” a Singapore-based cyber security agency to investigate the “status” of over 13 lakh Indian debit cards whose data base might have been stolen. Ironically, this RBI decision to investigate into India’s digital payments came in October 2019 when its Notification on cashless project was also released.
Still more shocking is a recent revelation made by “Group-IB” itself (The Hindu, February 8, 2020, Kochi Edition, p. 12) regarding the display of 461976 Indian card information for sale in a notorious “dark net” called "Joker's Stash"! This hacking was possible solely because of the fragile nature of India's cyberspace. The information leaked includes card numbers, their expiry dates, CVV / CVC codes, cardholder names, emails, phone numbers and addresses. As estimated by “Group-IB”, these data base stolen probably from PoS terminals is worth over Rs 30 crore in the cyber market. Yet another case is regarding the recent leakage through social media of passwords and e-mail ID of around 30000 customers from Flipkart’s e-wallet. Personal details hacked thus were later put on the website ‘Throbin’. Another instance pertains to a recent hacking of e-mail accounts of almost 3000 government officials at ISRO, IGCAR (Indira Gandhi Center for Atomic Research), BARC and SEBI. According to analysts, these are only tip of the iceberg. Cyber violations in India where majority of victims are common people are less reported. For instance, millions and millions of informal and unorganized workers who migrate across different states within India and who are forced to use debit cards are often victims of cyber-security breaches. According to a BBC Report, it is the first-time users of net transfer in India who are facing major financial frauds. Amidst such reports which have become frequent, the obscurantist saffron regime’s rhetoric on digitization without even having minimum cyber security arrangement has already exposed it before all the well-meaning people the world over.
The Sorry State of India’s Digital Infrastructure
As already mentioned, compared with other Asian countries, India is far behind in terms of digital infrastructure. It was fully exposed during the critical days of Demonetization when many people all over the country were died standing on the queue before ATMs and banks. Of course, in a cashless situation, the existing ATMs will have to be recalibrated as ‘digital facilitation points’, an aspect noted earlier. In spite of that, even in the case of per capita availability of ATMs, India’s position is among the lowest, even below that of the so called “least developed countries” as defined by World Bank. For instance, in the case of BRICS countries, Russia with 184 per capita ATMs ranks one, Brazil second (107), China third (81) and South Africa fourth (68), while India has only 17 ATMs per capita. And over the past three years, on account of bank-mergers and consequent closure of branches mainly in rural areas, the number of ATMS in India has declined further.
However, coming to the case of swiping or PoS machines (terminals) which are indispensable for cashless purchases and transactions, Indian situation is too pathetic. Though the availability of PoS machines in India has increased from around 14 lac during December 2016 to 35 lac as of now, a country with 135 crore of people, this is meagre compared to international standards. Regarding PoS machines, from the very beginning, India has been abjectly depending on China. Two Chinese companies, Veriphone and Ingenica are the sole suppliers of PoS machines for India. During the years following Demonetization, and in view of Modi’s ‘cashless dream’, China is reported to have increased the production of PoS machines by around 600 percent, even as there is no dearth of rhetoric associated with ‘Make in India’. A Chinese PoS machine that simultaneously performs various functions such as billing, accounting, data storage, and money transfer on an average costs Rs. 5 lac. Though a cashless economy inevitably eliminates vast-majority of petti and small retail traders as it would be impossible for them to bear the cost of installing PoS machines, even the financial burden (which will be put on the backs of consumers in the form service charges) on the average merchant would be unbearable. Though there are reports on some Indian companies in Bangalore (e.g., Zk Teco) producing PoS machines, their efficiency and capability compared with Chinese machines are reported to below standard. Thus, the much trumpeted 'Make in India' itself has now transformed into 'Made in China'. It is often said that Modi has to fulfill his cashless dream by totally depending on the mutually contending two biggest imperialist powers in the world; on the US for all the software components and on China for the hardware.
Along with cyber security, in the concrete case of uninterrupted and efficient power supply, download speed, bandwidth availability and server capacity, India lags much behind even the neighboring countries like Nepal, Bangladesh and Sri Lanka. In terms of the Digital Networking Index based on a recent survey of 139 countries, India’s rank is 91 whereas, the same is still lower at 114 when it comes to the case of Basic Infrastructure Digital Transactions Index, as measured by international agencies. As reported by speedtest.net in December 2019, regarding mobile internet speeds of countries, India ranks 128th in the list of 140 countries. Further, the download speed of India is the lowest among BRICS countries at 11.46 Mbps (Megabits per second), while the world average is 32.01 (the highest speed is 103.18 which is in South Korea).
Given this extreme backwardness of India’s digital infrastructure and technology, the neoliberal advisers of Modi including Nilekani have suggested a “leap-frog” to overcome such hurdles for achieving the cashless dream. For instance, though the number of mobile phones in India comes to around 100 crore, according estimates, only 25 percent of the population has smartphones useful for digital payments. Hence the alternative suggested is to link Aadhar with BHIM and thereby develop BHIM Aadhar Pay as the main digital tool in the move towards digitization. Another suggestion is to make use of the new developments in digital technology such as “block chain” (capability of storing data as separate blocks as if in a chain) in accomplishing the declared objective.
But these claims have no basis and are only wishful thinking in view of India’s dismal experience with similar experiments in recent times. A best example is that of GST (Goods and Services Tax), which in many respects is a “digital tax”, that makes use of digital technology. Like the Catalyst-sponsored cashless project being super-imposed on India, the entire blueprint of GST that totally undermined the federal character of Indian Constitution itself was also designed by imperialist think-tanks. GST being the biggest postwar neoliberal tax reform, various institutions and agencies such as OECD, UNDP, IMF, World Bank, WTO, PricewaterhouseCoopers (PwC), KPMG, Deloitte, Tax Inspectors Without Borders (TIWB), Forum for Tax Administration (FTA), etc. have actively coordinated their work with India’s National Institute of Public Finance and Policy to design it. All stakeholders including traders can become part of the GST regime only by registering themselves with the GSTN and can pay taxes only through its software. However here too, on account of the extreme inefficiency and backwardness of India’s digital/software technology the GST experiment is in severe crisis today. Due to software malfunctioning, according to reports, more than 38 lac merchants across India are yet to submit their GST returns for the preceding year. In the specific case of the tiny state of Kerala, as of January31, 2020, only 25 percent of the registered traders has submitted their returns even for the fiscal year 2017-18--an issue directly linked with the non-viability and incompatibility of India’s basic digital technology with the avowed claims of its ruling classes.
Democracy and Freedom in a Cashless Society
Denial of the right to hold cash or currency, the universally accepted and time-tested tool or means for payments is inseparably linked with broader questions of freedom and democracy. Those who have no bank accounts and/or no cash in their accounts and have no access to the essential digital tools and/or not capable of to use them properly are the first to be deprived of their right to life, remain alienated and excluded in a cashless society. As mentioned earlier, digitization, like any other phenomenon is subsumed under class relations and concrete social divisions and the so called “digital divide” or “digital gaps” or “digital relations” arising from superimposition of digital payments will certainly reinforce existing socio-economic inequalities between and within countries and will “disenfranchise” the already deprived “other”. In a cashless economy, those who are not “digital citizens”, or those who are not “digitized” will be deprived of livelihood and basic sustenance and all those fundamental rights associated with ‘citizenship’ in spite of their being formal citizens.
Concrete details coming out from Scandinavian countries like Sweden which are moving towards the goal of cashless society pinpoint to many grass-root level difficulties including the problems faced by rural and elderly people on account of digitization. At a time when people are forced to be alert with many vexed issues of life, keeping the username and password, the ‘life-saving medicine’ in a cashless society always in one’s memory is an added liability. Loss or denial of one’s digital tool (e.g. smartphone) results in loss of one’s many rights associated with citizenship altogether. Why freedom-loving people should shoulder such unnecessary burdens? Digital payments will deprive people not only of their privacy, but even freedom associated with keeping cash with them. These are questions raised by well-meaning people even in countries like US which have the potential in terms digital technology for embracing cashless transactions.
Democracy giving way for Corporatocracy?
Obviously, cashless society is one where banks (and other financial entities) are the custodian of the entire currency stock in the country. This takes place under neoliberal corporatization, when banks are becoming the supreme arbiter or the decisive force in the economy. Today all socio-economic sectors are apparently becoming sub-structures of the bank-led financial superstructure that encompasses more than 90 percent of the entire economic activities. In this epoch, therefore, the ongoing close integration between corporate-led banks and the state regimes is the material basis of emerging neo-fascism everywhere. In a digitized and cashless economic system, real economic power will be in the hands of a few banking monopolies who control the entire monetary stock, the software giants and internet providers who provide the digital tools together with the neoliberal state. No wonder, ever since the advent of digitization, the biggest MNCs and billionaires have been digital-software giants or companies close to them. As is obvious, this directly results from the galloping profits especially from the digital-financial sphere. While there is no specific cost for physical cash/currency transfer/transaction among people, in a cashless economy, every swiping or digital transfer leads to a corresponding deduction in the form of service charge / fee/commission from the bank account of those involved. For instance, when any number of physical exchange of a hundred rupee note among persons can be done cost-free, the same through digital transaction will involve substantial deduction at every stage that directly goes into corporate coffers.
Very revealingly, Thomas Jefferson who drafted the US Constitution was reported to have warned in 1802 that banks controlling currency on account of their power to deprive people of their wealth would be more dangerous than standing armies. Later, in the “financial crash” of 1929 that led to the Great depression, this terribly destructive power of banks came to the fore such that, as part of New Deal, the Roosevelt government was forced to enact the Glass-Steagall Act for controlling bank-led speculation. Though controls were imposed on banks during the Keynesian welfare period that lasted till the early 1970s, with the collapse of Keynesianism and onset of neoliberalism, all controls on banks have been taken away. In the global financial crisis (“sub-prime crisis”) of 2008, the dangerous role of banks was once again exposed more than ever. But unlike the 1930s, in the absence of countervailing forces capable of resisting the most reactionary offensive from monopoly banks and finance capitalists, merging with the corporate interests of neo-fascist regimes, banking monopolies and financial corporations notorious for financial frauds and swindles are coming to the centre-stage of economic policy-making today. In this context, digitization and cashless transactions have imparted a new dimension to the unhindered power of banks. As people are becoming captives of bank-controlled digital finance having transnational dimensions, democracy is giving way to corporatocray.
India, a Guinea Pig for Cashless Experiment?
In this context, why the Modi government is so adamant in imposing the cashless project which is totally inappropriate and incompatible with the India’s digital capabilities and social realities is the pertinent question now. As the aforesaid analysis underscores, despite having all the required technological infrastructure and tools necessary for digital transactions, with the exception of a few Scandinavian countries, the reluctance to embrace cashless payments is very strong in most countries of EU, crucial US, and Japan. Not only regarding digital payments, but in the case of other political-economic issues too, these countries are quite unwilling to cast their lot with digitization. Their conspicuous opposition towards EVM-based voting and strong affinity to ballots are noteworthy. This is mainly due to the possibility of manipulating people’s voting preferences through the insertion of malicious software in to EVMs. Another example is that of GST. As mentioned earlier, it is an acknowledged fact that various US-based institutions and agencies were in the forefront of superimposing the neoliberal tax regime of GST over world people. But these agencies have not yet succeeded to convince the federal states in US who are vehemently opposed to a GST regime.
The fact that Modi regime under the cover of its nationalist pretensions has been opening up India for the digital experiments especially of US corporate interests assumes particular significance here. Reports from western sources amply show the manner in which “Better Than Cash Alliance”, Gates Foundation, USAID-led Catalyst and so on have manipulated the Modi regime for superimposing a cashless system in India. For instance, referring to the Demonetization exercise in India, Bill Gates, Head of world’s richest Foundation declared: “It is certainly our goal to make full digitalization happen in the next three years in the large developing countries. We have worked directly with the central bank there (India) over the last three years” (Norberthaering.de/en/war-on-cash/2-years-demonetisation). For carrying out this task, Nachiket Mor, Head of Gates Foundation in India actively worked as a member of the Central Board of the RBI. More information on how under the pliable Modi government India has been made a “guinea pig” by US agencies for cashless experiments is already there in the public domain. A Report published by the Federal Reserve Bank of San Francisco in the aftermath of Demonetization also confirmed how it was a catalyst for transforming India in to a cashless society. Modi’s Digital India program, Report of the High Level Committee led by Nandan Nilekani, RBI Notification on Deepening Digital Payments and the ongoing pilot project in selected Indian districts, etc. should be analyzed in this broader context.
There is a tendency even among well-meaning people to summarily dismiss these ongoing Indian initiatives for a cashless society as an impractical daydream. However, fascism is a specific situation where many an agenda which were considered impossible and impractical in yesteryears become concrete realities today. For instance, a few years back, nobody in India would have thought of religion becoming a criterion for Indian citizenship. Or nobody ever had thought of a ‘’surgical attack” on the Indian people like Demonetization. In fact, an objective reading of contemporary Indian history shall make it amply clear that corporate-saffron fascists in India will go to any extent to appease neoliberal corporate interests, especially those emanating from the US. This calls for a serious evaluation of the pilot project for transforming selected Indian districts into cashless ones and a pan-Indian extension of it thereafter.
Meanwhile, Lead Banks in charge of the districts selected for the cashless experiment are reported to have started their work in close coordination with the district administration of the respective districts. Initiatives for enrolling all those who are outside the banking net are also in full swing. Efforts to install the necessary digital tools like PoS machines in government offices are also going on. Work for involving NGOs, self-help groups, micro-finance institutions, trade organisations and other peoples movements in the cashless project has been started. And an all-out offensive for creating people’s awareness on digital payments is in the offing. Of course, more information on this experiment having far-reaching consequences is still to come. Meanwhile, it is high time on the part of all well-meaning people to have an analysis and understanding on the cashless project in the proper perspective, and thereby enabling all democratic forces to approach this corporate (fascist) agenda in its multi-dimensional manifestations from a people’s perspective.
- Report of the High Level Committee on Deepening of Digital Payments, May 2019 (rbidocs.rbi.org.in)
- Expanding and Deepening of Digital Payments Ecosystem, Reserve Bank of India (rbi.org.in/Scripts/Notification)
- Norbert Haering, “A welt-kept open Secret: Washington is behind India’s brutal experiment of abolishing cash” January 1, 2017 (norberthaering.de)
- Norbert Haering , “More evidence of early US involvement in Indian de-monetisation”, January 7, 2017 (norberthaering.de)
- Norbert Haering, “Demonetisation in India was a great success—for the Better Than Cash Alliance” (norberthaering.de/en/war-on-cash/2-years-demonetisation)
- “Demonetisation is Catalysing Digital Payments Growth in India”, Federal Reserve Bank of San Francisco, April 12, 2017
- National Bureau of Economic Research, Working paper on Aadhar, https://bit.ly/2T2wSe8
- Global Round-up of the World of Work-worklife101 (bbc.com/worklife-101)
- “The US will not be cashless any time soon”, February 2019, Forbes (www.forbes.com)
- “America has technology to go cashless, but too paranoid to do...", Nov.17, 2016 (www.businessinsider.com)
- IMD World Digital Competitiveness Ranking 2018 (www.imd.org)
- P J James, “Demonetisation as a weapon for Biggest Corporate Assault on People”, Red Star, December 2016 (www.cpiml.in)
- P J James, “Modi Shifts Goalpost as Demonetisation becomes a Fiasco”, Red Star, January 2017 (www.cpiml.in)
- Interpol-Cyber Security (cybersecurityintelligence.com)
- Bhumika Khatri, “India's Internet Speeds Growing Much Slower Than Other Countries and That's a Problem'' (inc42.com/features/)
- Internet Bandwidth- Country Rankings (the global economy.com); also see, speedtest.net
- "11 Reasons Why Cash is Still King", USA Today, June 14, 2017 (www.usatoday.com)
- "Cash is Still King in the Digital Era" (money.cnn.com)
- "Better Than Cash Alliance Lauds India's Push for Digital Payments, Aadhar", Nov.29, 2019 (livemint.com)
- Harvard Business Review, “60 Countries' Digital Competitiveness Indexed” (sites.tufts.edu/digitalplanet/hbr)
- "Transforming the digital payments infrastructure" (www.livemint.com)
- “Thomas Jefferson on Banks” (www.snopes.com)