Who did it or rather who advised it? These conspiracy theories continue to abound given the benefit of the cash exercise have mainly occurred to digital payment services.
Norbert Häring of Real-World Economics Review Blog has a post tracking the 8 Nov 2016 to a very prescient report coauthored by BCG and Google:
Boston Consulting Group (BCG), the omnipresent US-consulting company, and Google, the global data miner, issued a joint report in July 2016 on the “$500 bn Pot of Gold”, which is the Indian digital payment market. Even though the authors deny it, the report gives much reason to suspect that the authors knew that something radical was imminent from the Indian government. The report is remarkably honest about the aims of the whole exercise.
There is no statement in the BCG-Google-report “Digital Payments 2020” to the effect that it is related to the joint initiative of USAID and the Indian ministry of finance, formally established in 2015, to push back the use of cash and promote digital payments. Rather it is presented as a freestanding initiative of BCG and Google. I reached out to one of the authors, BCG’s senior partner Alpesh Shah, to ask about this and he insisted: “This was a joint BCG-Google report, with no connection / relation to USAID/Indian Ministry of Finance.” However, there is much to suggest that there was a connection. First of all, the subject so perfectly fits with the program of that partnership. The subtitle of the report is “The Making of a $500 bn ecosystem in India”. The steering committee for the report included a representative of Visa, member of the Better Than Cash Alliance together with USAID and affiliate of the partnership of USAID and Indian finance ministry to advance digital payments. It also included PayTM and Vodafone, which are also part of the CATALYST coalition, a project, which according to USAID, is a “next step” in said partnership of USAID and the Indian finance ministry.
The report is a call to arms for all payment service providers. They are alerted that things are going to be shaken up in India. On page three it says:
“We expect the digital payments space to witness significant disruption in the days ahead.”
The disruption came on November 8, when Prime Minister Modi decreed that most of the cash notes by value were no longer legal means of payment. By itself, the remark about the “disruption in the days ahead” might be considered suggestive but weak evidence that BCG and Google new something of those plans. However, combine this with the fact that they forecast a tenfold increase of digital payments and of the merchant acceptance network by 2020 without giving any real compelling reason why such an unlikely development should come to pass. In fact, the report is pretty heavy on reasons why it will be difficult to get many more merchants on board and says that the acceptance network has more or less stagnated in recent years. From stagnant, the growth rate has to jump to at least 60 percent per year (if you want to start 2015, more if the baseline is 2016) to make the forecast of a tenfold increase by 2020 come true. The only real reason given in the report for the expected stellar increase is mobile payment apps becoming available. This is not a very convincing reason for a large jump in the growth rate, as these apps have been around for a number of years already.
It is interesting how these stories build up typically in areas of banking and finance.
How certain ideas in the field are eventually brought to the doors of a few financiers/bankers. History of central banking is full of such stories. The usual story behind central bank is that some monetary or financial crisis led to emergence of central bank to regulate the erring players. But there are others who say it is just the opposite. The same erring players created the central bank to help them grow even further! The history of Federal Reserve keeps seesawing between these two alternatives.
This is perhaps because gains are so immediate in finance compared to say other areas. So let’s say there are two kinds of crony capitalists. One from mining and other from banking/finance. Both get certain policy decisions in their favor. The payments to the financier start much before the miner. Even worse is that it is much easier to figure the miner than the financier.