Much like the Trump election, it was predicted that the sky
would come falling down. But it has come to pass that the sun rose the next day
and people went about their lives. The announcement by Prime Minister Narendra
Modi to ban the 1000 and 500 rupee notes has left his political opponents
frothing at their mouths, caused an exponential increase in the number of
economic experts in the social media universe and has generally shaken up the
system in a way not seen in the past.
Here is my attempt at making sense of the move as a
non-economist and also to try and decode the reactions ranging from the frivolous
to the baseless.
First off, I write this sitting all the way across the globe
having faced very minimal personal or direct impact by the decision. I didn’t
have to stand in queues of any length to withdraw my money. And I have exactly
one each of a thousand rupee note and a 500 rupee note - taxi fare on my next
trip to India from my father – that shall now become nifty souvenirs. But of
course I have been reading up on the announcement, its fall out and yes, my
father has been in queues to withdraw money from the bank in India with the
rest of the population.
One suspects that this announcement is rather the
culmination of a sequence of planned initiatives than a knee jerk decision. The
support to the aadhar card program, the jan dhan accounts and the voluntary
disclosure scheme seem to support this. Yet when the announcement came, it did
catch the nation by surprise. One has to admit that this government means
business: there is not only intent but complementary actions to go along.
This move, bold as it may be, will not be able to bring back
the black money – in other currencies – stashed away in faraway countries. Nor
can it go after ill wealth stored in the form of gold, securities or real
estate. And to state the obvious, this shall not rid the nation of all forms of
corruption. In fact, I would go so far as to say that all the money in the
mattresses may have been “converted” by some means or the other by now for say,
a 20-30% commission. Indians are nothing if we aren’t crafty. Corruption will
continue at the same rate/speed as before in new currency notes. And a
less-cash society remains far away as a reality.
But, all things considered, I don’t think this was ever
touted as a cure-all magic pill nor are we watching a Shankar movie here. When
one sees it for what it is, demonetization is a first step in the right
direction to go after the massive, parallel cash economy. The message is loud
and clear: it will not be business as usual anymore. A system reset is perhaps
not a bad idea and the prime minister has provided just that. The attempt to
bring more sections of the population into the banking fold – an inevitable
outcome - is an ambitious step to bring more accountability and even safety to
the proceedings. E-rural banking could be the next big thing after bijli, sadak
and paani. Improved tax compliance is perhaps another benefit we can expect
once the dust settles. And if there is a certain measure of deterrence
(conspicuously absent thus far) introduced, I would call it a small victory. There
must now be at least a modicum of uncertainty in the minds of the corrupt who will
have to be more cautious henceforth.
I shall readily admit that I’m not an economist and hence I
won’t try to sound intelligent about the short/long term impacts of
demonetization on the economy or its individual segments. Instead, I would like
to put down my thoughts on the reactions to the initiative here in the blog.
Hardship to the common man. This seems to be the most
popular political response with a few leaders (“The usual suspects”) espousing
the cause of the common man with a new zeal rarely seen in the recent past. I
didn’t get to talk to the average person on the street caught in the throes of
the announcement. But catching up on snippets of media reports gives me the
feeling that perhaps there is more acceptance (even if reluctant) than vehement
opposition amongst the people. The netas, without fail, continue to under
estimate the intelligence of the population. After all, old habits die hard.
Narendra Modi tipped off is friends. Though clichéd, any
politician worth his salt will have to indulge in slander. Politics corrupts. The
question is how much rather than if. And Prime Minister Narendra Modi is no
exception. There have been whispers, insinuations and innuendos galore of Modi
tipping off his inner circle. And I’m sure the accusers have evidence strong
enough to stand in a court of law and bring an errant PM to justice. In fact, I
wish someone does a Subramanian Swamy on the present government and brings to
light this alleged tip-off scam. But the gut feeling is that these are mere
desperate accusations aimed at gaining non-existent political mileage. Not only
are any of the accusers clean themselves but neither do they have the stomach
for a legal battle. In the end, a lot of hollow words thrown around.
Organized loot. When the silent one spoke, people would
actually listen. But enough about the nineties. When Dr. Manmohan Singh
denounced the demonetization drive in scathing words, I could only shake my
head in pity. Having already fallen from grace, the noted economist has picked
himself up, dusted and flung himself back down again. While he was the silent
sentinel when the nation was being serial scammed by his cabinet colleagues, he
has suddenly decided to become vocal. A ventriloquist’s puppet can be vocal but
his words are rarely sensible and never his own. Although it is quite alright
for the economist in him to be vocally critical about the move, he has offered
very little constructive feedback or alternatives. It is sad that he chose to
wear the ill-fitting politician’s hat instead of the economist’s. Loyalty to
the Gandhi clan above everything else. And hey, in the long run we’re all dead,
right?
The execution was bad. To quote Manmohan Singh, "monumental mismanagement". One has to agree that the way in
which this was carried out could have been handled better. But demonetization,
much like surgical strikes, can only be effective when carried out swiftly and
silently. Given the nature and scale of this operation, a certain level of
chaos could not have been avoided without compromising the secrecy of the plan
itself. Planning ahead could have been a give away for the people in the know.
Honest folks were troubled and subject to inconveniences and annoyances no
doubt, but on the same token, people are aware that sometimes you cut a finger
to save an arm. Besides gas, hospitals and train travel, the government could
have allowed people to pay their insurance premiums, phone bills and some such
other amenities to ease the situation.
The efficiency of this move to flush out the untaxed cash
from the economy can be debatable and so also the execution. But merely questioning
the intent, citing the flaws and taking refuge in the common man’s sufferings
is predictably banal. The Prime Minister’s chair is full of thorns while the
ex-Prime Minister’s is a bed of roses from which taking potshots is not
terribly difficult. I have yet to see someone with the right credentials take
the demonetization plan apart in a logical manner.
To borrow a popular phrase from the US presidential elections,
“draining the black money swamp” is a process. And by all accounts,
demonetization appears to be a good first move. At the risk of sounding too
optimistic, perhaps there is more coming down the pipeline.
