Demonetisation: No laughing Matter this
Narendra Modi's move to demonetise the currency in one fell swoop was hasty and abrupt. It has inconvenienced the common man severely
In a decision that perhaps has no parallel anywhere in the history of the world, the Indian government demonetised 1000/500 denomination rupee notes at the stroke of midnight of November 9, ostensibly to fight black money and terror funding. The only instance of this manifest destruction of currency took place in Cambodia when Pol Pot and Khieu Sampan destroyed the currency to pauperise the elite. It’s different here, but both the denominations have a 86 percent penetration in the economy and their sudden withdrawal left the people wondering how they will go about their ordinary day to day business which requires cash. How can 100 rupee notes that account for only nine percent of the total cash in the country fill in for 86 percent of the currency? What's the purpose of doling out 2,000 rupee notes which cannot be transacted in a simple grocery shop? Not unexpectedly, the entire country is standing in long snaking lines in front of ATM and banks and hoping to take out their own money or exchange the old with the new. There is a limit beyond which the money cannot be withdrawn.
More than 31 people have died either standing in these impossibly long queues or decided to end their lives. Horror stories of this botched demonetisation drive are emerging from different corners of the economy. India is a cash-based economy where poor people get daily wages in the form of cash. Many of them do not have bank accounts. A large mass of them are illiterate who live on the wrong side of the digital and literate economy. Their problem is that they have to go through many stages of hassle before they can open a bank account. Similarly, there is a large remittance-based economy that uses internal hawala to send money to their relatives. All of this is seriously doomed. During this author’s recent visit to Dubai that has a large number of Indian migrant workers there was a palpable fear over what demonetisation meant for them. Here too remittances go back to India through the informal route. Why did PM Narendra Modi take this extreme step that has the potential to depress an economy that was displaying recessionary trends? Modi and his spin doctors are claiming that only those who have black money are troubled by this move that would even out as soon as the new currency reaches the banks. Their contention is that about Rs.11 trillion will return to the banks and when it gets replaced by white money then it will lead to a revival of the economy. The total number in circulation is worth Rs. 15 trillion.
While this has the makings of a total transformation of the economy from informal to formal in fell stroke, but the pain that it is causing in different parts of the country is making nonsense of this so called “reform”. Modi had promised to bring back black money stashed in Swiss banks and give Rs.15 lakhs to every Indian. This promise played some role in building support for Modi, but now that false promise is seriously being questioned after one of his aides called it a ploy to win an election. Some economists believe that for the next two quarters there would be little growth and then the growth trajectory would be similar to an upward hockey curve. The harsh reality is that economists have no experience of handling a massive contraction created by such a colossal monetary squeeze and therefore their prediction has to be taken with a pinch of salt. What they are not able to anticipate is how soon the economy will normalise. India is a vast country and extremely uneven in standards of living.
Also, poor infrastructure does not lend to any predictability about when the money will reach the hands of those who need it the most. In India the wheels of change take their own time in moving. So why did PM Modi really take such a decision that has sent the economy into a monetary shock and would leave the economy seriously diminished? Besides fighting the black economy scourge, Modi’s endeavour has been to link much of the country’s problems with Pakistani involvement in pushing fake currency and funding terror. Gladly, it has been acknowledged by ministers that fake currency has been wiped out and therefore domestic terror would suffer a body blow. Quietly it has been reported that even those who were pelting stones in the violence-ridden Kashmir valley have gone quiet since the money was demonetised. Even the areas that face left wing extremism have been hit badly as their cache of money has become useless. Decision to demonetize is also hurting political parties that were engaged in the coming state assembly elections. Modi supporters claim that regional parties that were challenging the ruling Bharatiya Janata Party (BJP) will run short of money and would find it difficult to fire up their campaigns.
What about the BJP, which is the best-funded party in the country? It is not clear how they will fight the regional parties, but there are allegations that their state units were tipped off much before the move was announced so that they could convert their stash of black money into white. In the parliament these allegations are getting support from opposition parties. In Kolkata, the West Bengal unit of the BJP deposited colossal funds just before the currency was demonetised. This allegation is just a dark spot in the overall good impression that Modi has created amongst poor people since he demonetised big notes. In the early days of his decision, most of the people were willing to go through this pain to help Modi’s call to fight black money. They were of the view that the country would be stronger once it managed to rid itself of unaccounted cash. Perhaps they still nursed the fond hope that the return of black money would result in Rs.15 lakhs getting deposited in their accounts.
With every passing day the anger against this decision seems to be rising. Politicians that were reluctant to criticise the demonetization decision lest they be seen as supporters of black money are leading the procession against it. Congress Vice President Rahul Gandhi is standing in ATM lines and trying to show holes in the BJP leadership’s assertion that only black marketeers are standing in the queues in front of the bank. West Bengal CM, Mamta Banerjee plus the Shiv Sena, unnatural allies, are complaining vociferously against the financial emergency that has denied women and men of their earnings. A UP leader hinted at the changed circumstances when he got up in the parliament and said: “ if the FM goes to any UP village, he may be hounded out”. Whatever he may have said, the demonetisation drive has brought a lot of hurt and anguish in the economy and if it is not relieved soon, it will turn into an economic catastrophe.