Why Paytm’s role in India’s demonetization summed up Silicon Valley’s broken culture

In true Silicon Valley fashion, Paytm’s app was confusingly designed, riddled with bugs, and simply not up to the job of processing every little daily transaction for a customer base of 1 billion people who now relied on it, because paper currency had been effectively declared obsolete.

Image courtesy of Quartz India

The following is an edited excerpt from Live Work Work Work Die: A Journey into the Savage Heart of Silicon Valley by Corey Pein. The excerpt was provided by Metropolitan Books. You can buy a copy here.

I knew the tech companies’ visions could be ugly. I’d seen as much up close. But once again, I failed to imagine the full scale of the miseries and cruelties that this new elite class – disarmingly eccentric and infantile at times, infuriatingly smug at others – was prepared to inflict upon the people of the world for the sake of some faux utopia. Whole countries would be broken in the mad scramble for a profitable Singularitarian future. And not just the little countries.

After leaving the Bay Area, I joined my wife in rural East India, where she’d taken a teaching post at an upstart university bankrolled by Davos types from around Asia. The state of Bihar was about as far as a person could get from Silicon Valley. We lived in an old hotel that had been requisitioned by the university and renovated to serve as housing for students and a few faculty. Just outside the gates, families tended scrawny goats and lived under tarps in the dirt.

They shared a single, hand-pumped well, and oftentimes a cell phone, too. But that’s not to say they weren’t sophisticated users of technology. A short walk up the muddy road, peddlers in tin-roofed huts sold SIM cards with unlimited high-speed data plans at discount rates. And all the kids were on WhatsApp. A credulous tech optimist such as Thomas Friedman would have marveled to see such beacons of modernity. Surely, development and prosperity were just around the corner! Not quite. When the disrupters came for India, they came with all the force of the overflowing Ganges.

Here comes demonetization

In the name of progress and on the advice of some so-called experts and self-interested tech companies, Prime Minister Narendra Modi in 2016 undertook a grand and eminently disruptive economic project called “demonetization.” With no advance warning or public discussion, Modi’s government announced that two denominations of the national currency – the 500 and 1,000 rupee notes – would no longer be considered legal tender. These notes, which comprised nearly 90 percent of all cash in circulation, would need to be deposited and exchanged for new bills in larger denominations. But this hassle was all for the best, the government explained – pulling the cash from circulation would “encourage” the widespread adoption of smartphone apps for digital payments.

In reality, the demonetization announcement created an instant, panicked nationwide bank run, and prompted all manner of hoarding. Commerce slowed almost to a standstill, except for the lines at ATMs, which stretched on forever for months on end. Responding to criticism of the policy, the government offered up various, often contradictory rationales: rebalancing the cash supply, boosting the economy, and fighting corruption (it’s much harder to bribe someone or avoid taxes with an app that records every transaction than it is with cash). But there was one justification the government never backed away from: Demonetization, it said, was modernization. India was leapfrogging toward a “digital and cashless economy,” with a big assist from some well-connected tech startups.

Enter Paytm

The sudden announcement was accompanied by a tremendous marketing campaign for government-approved mobile payment apps. These included full-page ads that took over the front pages of all the major newspapers showing Modi’s smiling face along with his endorsement for a new smartphone payments app called Paytm, which had arrived just in time to capitalize on the government-mandated disruption of the national currency. Modi’s political rivals alleged his party had entanglements with this formerly obscure startup.

Indeed, Paytm seemed to have come out of nowhere, was majority owned by Chinese investors, and was fronted by a fresh-faced, party-hopping Indian techie who might as well have come from Bollywood central casting for a musical remake of The Social Network. (Both Modi’s party and the company denied any such allegations of impropriety.) In true Silicon Valley fashion, Paytm’s app was confusingly designed, riddled with bugs, and simply not up to the job of processing every little daily transaction for a customer base of 1 billion people who now relied on it, because paper currency had been effectively declared obsolete.

The government made no provisions for the hundreds of millions of Indians who could not easily access the app, which, again, was broken anyway. The shopkeepers and vegetable vendors in our small town didn’t have shoes, much less a smartphone. In such places, Paytm was a non-factor, and crops rotted by the ton after the winter harvest because no one had paper currency to buy them.

The result of Modi’s decision to force a proprietary mobile payment system on his country can glibly and accurately be described as chaos. In the cities, many sick and elderly people died in the long ATM lines – in at least one case, a doctor refused treatment after demanding cash, which was, of course, what everyone was waiting in line for. It was easy to spend an entire day traipsing from one machine to another, only to find them all out of cash. But these problems were largely invisible to India’s wealthy and middle class, who hired servants to do their shopping and thus escaped the battle of will and endurance that suddenly characterized routine commerce.

For these people, Modi’s anti-corruption rhetoric resonated deeply, and Paytm, for all its flaws, was a lifestyle enhancement as well as a point of pride – another sign of India’s rise. International journalists also missed the disastrous consequences of demonetization, at least at first. By and large, they dutifully repeated the government line that demonetization and the attendant mobile payments revolution were strong signals to foreign capital that India was “open for business.” Indeed it was.

Modi had turned the country into a laboratory for one of the most ill-considered and damaging experiments ever inflicted by a tech startup upon an unwilling group of people. And Paytm had shown that Peter Thiel’s original dream for PayPal’s “world domination” (his words) – digital, privatized currency – could be made real by fiat, should other methods fail. “India’s Demonetization Could Be the First Cash Domino to Fall,” one Forbes commentator enthused. There is every reason to think that India’s experiment with demonetization could be replicated elsewhere.

Doomed ‘disruptions’