As I begin writing this, it has been nearly one & a half month since; PM Modi in a ‘historic’ address to the nation obliterated nearly 86% of the currency in circulation. The move is certainly historic & at the expense of sounding a bit dramatic; unprecedented. Certainly, there is no known historical parallel that can match up to PM Modi’s ‘currency culling’.
From an exorbitantly expensive monogrammed suit to addressing frenzied NRIs in lavish ceremonies, PM Modi loves pomp & show. The unexpected address to the nation just hours before Rs 500 & 1000 notes were rendered obsolete only adds to his narcissistic affection for limelight. As the PM announced higher denomination notes to be invalid he invited both the glare of publicity that he loves & at the same time he unwittingly ended up owning this ‘historic’ move & its consequences as they unleash upon the poor.
As the news of the impending demonetization spread, the middle-class; urban, tech-savvy & nearly 300 million strong rallied behind the PM. He was & still is hailed as a decisive leader capable of taking risks for the ‘greater good’ of the nation in sharp contrast to his presumably inept & risk-averse predecessor Dr. Manmohan Singh. Whatever the argument or its counter; risk is a double edged sword & nothing better underscores it more than the demonetization fiasco. From triumphant proclamations to contradictory notifications of RBI & the finance ministry & finally the current state of abject cluelessness; the government simply doesn’t realize the gravity of the situation. The mainstream media shameless as it is, has tried hard to sell the government’s narrative that demonetization is a short- term sacrifice for the ultimate fruits of the long eluding Achhe Din. The discourse in the mainstream media has kept on changing, initially we were told, how cross border terrorism & corruption would end once & for all. Neither has abated; men in uniform continue to lose their precious lives at the frontline as the uber nationalists gloat over the dead as sacrifices for the ‘greater good’ of the nation. I can only wonder if these ultra- nationalists would exult if one of the dead were their own relatives. On one hand the common masses are having a tough time dealing with the cash- crunch & government’s ever changing rationing scheme of currency notes, the corrupt continue to hoard wealth that too in new currency notes circumventing all the restrictions & strictures in effect. This tells you one thing; the rich & powerful always find ways around the rules of the land & the hapless common people turn collateral in any war against the corrupt & the powerful.
The Modi- apologists (if I may have the liberty to invent this term) have argued that the PM’s demonetization is actually a good move implemented badly; that the banking system & inept officials have failed him. However, in the following parts I’d show how this demonetization scheme is actually a callous move implemented exactly the way it was supposed to be.
1. The Intention
Make no mistake; the intention was never to flush out black money because if this was the case, the government would be actively pursuing unaccounted wealth stashed abroad in tax havens, seeking criminal cases against the big names that surfaced in the infamous Panama leaks & making public the names of account holders that it received from the Swiss government. I guess everyone one of us has come across public notices (in newspapers) served to loan defaulters. It is routinely some poor chap from a small town failing to return the loan he took to build his home or set up a small business. The tone & language of these notices make these poor fellows appear as some dreaded criminals on run. Most importantly these people are never willful defaulters as is the liquor baron Mr Mallya. Compare this with the fate of Vijay Mallaya; who according to the apex court is a ‘willful’ defaulter of over 9,000 crores of ‘soft loans’. Mr. Mallya, a former Parliamentarian had a free pass as he flew out of the nation to Great Britain even as the government wanted us to believe that the sleuths were actively hunting for him. So, Mr Mallya must be the Indian version of James Bond? This just doesn’t end here, Mr. Mallya, by all definitions; a criminal ‘gate crashed’ Suhel Seth’s book launch at the famed LSE where the Indian High Commissioner too was present. Could this get anymore shameful? This is India sirs, you can always expect the unexpected; just days after demonetization, a part of Mr. Mallya’s loan (nearly 1,200 crores out of the total 9,000 crores) was ‘pardoned’. Instead of questioning what the government has done to bring Vijay Mallaya back, the spineless mainstream media kept on praising the government’s ‘greatest war against corruption’. Really; a great war? Let’s see this:
The I-T department data reveals that only 6% of the unaccounted assets are in the form of cash. The sheer logistics of storing unaccounted wealth in cash with Rs 1,000 as the highest denomination meant that black money hoarders preferred other form; gold or real- estate. Thus, the black money actually ended up entering the mainstream economic system & became too tough to locate.
The shoddily manufactured Rs 2,000 note has not only made life easier for those printing counterfeit currencies but, has also given a lifeline to hoarders of unaccounted wealth. Now, twice the amount can be stored in same space as was done in the past. Let that sink in. This would mean the government deliberately wanted to bail out hoarders & why not, the bulk of our politicians would be put out of business if they parted ways with their ill- gotten wealth, after all what’s social service without some benefits?
To top this, the all new Rs 2,000 note couldn’t fit into existing ATMs thus, rendering over 200,000 ATMs across the nation useless for days. The government said the ATMs would need re-calibration & they couldn’t do it prior to announcing the imminent demonetization lest the top-secret would be out for all to see. So brainy of them; they could easily print notes of the exact same dimensions as before & with added security features instead of printing sub- standard notes of an all new dimension & freezing the entire economy for days. But, that’s too much to demand from these proto- fascist imbeciles in power. If they did have even an iota of shame for the insufferable pain they’ve caused to the masses; the PM would have himself acknowledged that in a haste of scoring brownie points before UP elections, they did botch up badly. But, instead of an apology the PM & his cohort simply have double down. PM Sir, you’ve often said you spent years wandering in the Himalayas seeking truth & refinement. It pains me to point that you Sir have failed to learn what humility is. Kindly acknowledge your policy lapse & you’d see that the people of Hindustan are indeed magnanimous.
2. Digitizing the economy
That there’s an inherent inertia in the society can never be gainsaid. People despise change & would do what it takes to maintain the status quo. The very idea of digitization of economy was always going to become hard to sell to reluctant citizens. The government needed a well- thought out strategy to lure people towards digitization. They needed to sell the idea of a hassle free exchange which is both secure & is capable of checking graft & bribery. In the same line, they needed to make the existing infrastructure robust. How on earth can a nation with such a low internet penetration (27% overall & only 14% in rural areas) & painfully low speed support an e- economy? (Just the other day, Food Minister Ram Vilas Paswan had a tough time paying Rs 50 to a street vendor as he promoted digital payment.) The answer in an emphatic ‘no, it simply can’t’. Such a draconian & forceful exercise only finds parallel in Mao’s Cultural Revolution that is again a historic failure. Mr. PM we know that your knowledge of history is limited so, kindly note that not everything historic is successful.
Nations that have successfully transitioned to an e- economy like the US, Canada & South Korea have a rich history of investing in the e- infrastructure. Do we have any such parallel here? Not even remotely close. With only half of the population connected to banking system & far fewer ATMs per 100,000; the government has forced people towards a dead end. Even the most liberal estimates show that economy would slow by at least 0.5% in the following quarters. This would dampen economic activities for many quarters to come & instead of fulfilling his poll promise of creating jobs; the PM would essentially kill existing jobs. The unorganized sector that amounts for a whooping 80-90% of all businesses in India & comprises nearly half of the GDP is in free fall. The daily wage earners who essentially rely on cash based income had their occupations rendered a relic of the past in a single stroke. If this isn’t callous then what is?
You never throw a child down a lake to make him learn the ropes of swimming; you prepare him, train him before pushing him into unchartered waters. Those in power have chosen the former & hence, can only pray that things don’t go awry. But, possibly it is too late to even pray.
Many would ask, why this gambit? Why would PM Modi arguably one of the most popular leader of the post- liberalization era risk his image & the immense goodwill he commands?
To answer this we’d need to delve in the recent past. Remember the halcyon days just before the onset of the Great Recession of 2008. Indian multinationals were on a buying spree, purchasing big companies of the West. The Tatas bought Jaguar, Land Rover & Corus others too were buying recklessly. It was hailed as India’s answer to the East India Company. Most of these fancy buy-outs were financed by soft loans of public banks who hoped for greater returns when these businesses prospered. However, the economic meltdown of 2008 vaporized innumerable ventures those who survived were permanently crippled. With this the very hope of even recovering the loans were extinguished permanently. The defaulters were those who make & break destinies in the power corridors of India. There was little chance of government forcing them to pay up. But, the public sector banks urgently required cash injection to make up for the bad loans. The impotent Manmohan Singh government mired in corruption charges barely had any political capital to take any bold steps to recover these bad loans. The onus fell on Modi government. But, instead of punishing big businesses the corporate friendly PM chose to rob the masses of their savings; the bed rock of Indian family system. The strictures on withdrawal were imposed not only because there wasn’t enough cash but, more so because of the sinister intention of the government to allow banks to make up for the bad loans given to Mallya & his ilk.
3. The Organized Racket
Remember those old Bollywood films of 80’s where the goon would demand ‘hafta’ (protection money) from street vendors & shop owners? He would go around extracting protection money from businessmen & those who bucked were instantly killed. The valiant cop would risk his life to neutralize this thug & the audience would go home merrily.
A little twist here; what if the cop who saves people starts demanding ‘hafta’ the next day? Where would the poor fellows seek help?
The situation is starkly similar here; the government that promised protection from the corrupt in the first place has colluded with the big businesses. Online payment wallets to banks granting credit cards; all of them charge steeply on every transaction to maintain their profits. To it is included the cost of maintaining the infrastructure for cashless transaction i.e., a working internet connection & numerous other variables. Hence, the cashless transactions would continue to be costlier for many years to come. The charges, sub charges & their innumerable rubrics are nothing less than the digital hafta to dupe customers of their hard- earned cash. One only wonders if this government sponsored racket is the digital version of bribes of pre- demonetization era.
(This post also appeared on Huffpost India)