Demonetisation: Drama & Melodrama

This is not the first demonetisation, and I daresay not the last.  Governor Pitt executed one in 1735 in colonial Madras (read the lovely piece by  historian Sriram); and there were 2 others in 1946 and 1978.

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Courtesy:  CatchNews

 I wasn’t even born during the first 2 and still naive during the third one. Yet I presume there is one environment that sets apart the 2016 demonetisation from its predecessors. During the predecessors, “cash was king”. The banking system was neither deep nor wide. Plastic money (cards) was probably at its infancy (1978) and the term digital banking had not even been invented. So the hardship to honest citizens must have been greater in the past than now? But the cacophony from the media suggests otherwise. Why?

Please for a moment, suspend the question as to whether demonetisation is the right strategy; first, examine only the hardship question. Let me share my first hand experiences. My initial reaction was panic and anger. Events this week proved that I was overreacting.  In one week, my wife and I visited 3 different ATMs in our locality and easily got cash. Yes, there were queues, but the turnaround was fast – never waited more than 25-30 minutes!  Unlike me, none in the queue was anxious. They patiently waited their turn, even helped some guys who did not know the ATM process. I had many, many conversations with those in the line, and there was never even a whimper of discontent!

May be, these were the upper- class bourgeoisie who loved ATMs? May be the Working Class is languishing? In the last one week I have travelled a lot on auto-rickshaws (they collect fares only in cash), and every auto-wallah I travelled with, was pro-demonetisation. My work often puts me in contact with the street vendors in the food market and they too appeared unfazed. I am sure they faced inconvenience, but it was not critical at all. The Iron-wallah accepted an old Rs.500 happily because she was confident she could exchange it legally for a new one. The Nepali who cleans my car daily, said that he would take his salary next month when he could get a newly minted Rs.500: this guy was offering me credit!

Perhaps, the banks are turning people away? I visited the bank where I have an account and so did my wife and son. Everywhere, the bankers are working hard and coping with the new situation. Despite the crowds, they have been pleasantly helpful to customers, even assuaging the odd ruffled customer. One newspaper reported that an old man died while waiting in a bank queue; the next day they had to apologise because it was found that the said bank did not even have a branch in the alleged place! Talk of stereotypes: I usually perceived bankers as insensitive bureaucrats, but this time they are champions.

Every day the situation has been improving. On the third day after demonetisation, the ATMs were dispensing money. I got my share after 25 minutes in queue. Strangely, the newspaper headline on the next day was “Currency crisis deepens”! Yesterday, I travelled on the highway and crossed the Toll-gate. My taxi driver said “no problem sir, the government has suspended highway tolls till the crunch eases”! Yesterday the banks disbursed cash exclusively to senior-citizens. Tomorrow, they are going to use petrol pumps to dispense cash (this may be an overkill?)

May be we city-dwellers are ignorant of sufferings in small towns? A couple of days ago I had a chance meeting with a guy from Nagercoil (small town in the southern tip of India). He said, you Chennai guys have to wait for a long time, but in Nagercoil I got money immediately (better than my 25-minute wait)!

And  the celebrated hardship? I think there are some selfish forces that are at work, and they are invoking Sacred Cows and Shibboleths to make us believe that that the end of the world is near.

Firstly, the corrupt troika of politician-businessman-bureaucrat. These would like to increase the panic to such a level so that the demonetisation is revoked and they get a chance to redeem their notes which are presently value-less. They would even like to guilt-trip you with farmer deaths and suicides. For decades after the Green Revolution, politicians of every shade have done nothing for agriculture, except shed crocodile tears. Now they created this shibboleth, that a farmer’s suicide is more important. Any suicide or death is tragic, why pick only the farmers? Because it is sacred cow that gives you media attention.

An educated guess (since I have no first-hand experience) about the really rural poor: they are not affected by demonetisation, as they were not monetised (in white or black) in the first place. The guys crying hoarse are the rich landowners and hoarding middlemen who hold caches of tainted money.

Meanwhile, the media is in the race for limelight. So they add colour. Like, so-and-so died of heart attack while in the Bank queue, mischievously implying that the bank was causa proxima for the death. “Currency crisis deepens” is clever penmanship, but fuelled by a desire to increase circulation by means foul-but-not-fair.

Vested interests are displaying diversionary tactics. For example, the Opposition says that the ruling BJP converted a significant lot of high value notes just before demonetisation. I am inclined to believe that their allegation is indeed true. Yet, look closely at the allegation. They are not bothered about black money per se — they are angry that they have not been given equal opportunity to stash black money!

A learned judge has reportedly said that demonetisation may spark riots. If true, was it in keeping with his position?  Besides , somebody pointed out, where is the cash to pay rioters to pelt stones?

Sadly, a new class of players has emerged in the Black Money market. This class has added to the decibels in the demonetisation outcry. During the old demonetisation exercises the only villains were a handful of super-rich; the “common man” was untouched. Today a number of small businessmen, government officials and professionals have joined the gangs: people whom we believed, respected middle class morality.  (See Dhirendra Kumar’s article in Economic Times). Really, the gangrene has set in.

It is not my hypothesis that there have been no problems. But how can anecdotal evidence be so different from  media reports? Perhaps, there is an evil nexus that wants any measure to fail so that they can exploit the economy unfettered. Caution and not panic, is the watchword.

Finally, let us re-visit the question: Is demonetisation the perfect answer to the problem? I think not. Black money has other forms like, Land, Gold, Participatory Notes and Secret Foreign Bank accounts. Even if this demonetisation “succeeds”, there is humongous work to be done; and there is a huge risk that this demonetisation may fail totally. Yet, both could trigger measures to break the parallel economy. Thus, it is better to fail in a sincere operation, than spend a lifetime of mouthing aphorisms. Everybody wants a surgical strike, but there is an expectation that the operation will be done in the out-patient ward! Isn’t that odd?

Disclaimer: I find any political discussion  (this post included) stressful. Yet when a whole lot of criminals and pretentious liberal intellectuals are yelling, I thought it is my democratic right to voice a moderate middle-class view. If you agree with me, great. If you disagree, I am not going to lose sleep over it. I have made my choice, you make yours.

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One thought on “Demonetisation: Drama & Melodrama

  1. Kaushik, at the risk of inviting ire of the nationalists, I have to say I do not agree this was a good thing. I am not sure what was the objective here. Was it to extract all the black money hidden in mattresses? Was it to sow some good old fashioned fear? Was it to win the UP elections as some people say? Was it to make India a PayTm society? Here are some numbers so that we are not confusing the anecdotal with the empirical.

    1) Total value of notes in circulation is Rs 16.84 lakh crores. 85% of this is in 500 and 1000 rupee notes.

    2) Total number of pieces of 500/1000 rupee notes in circulation is about 2300 crores. The total number of fake notes detected in 2015 was 5.94 lac pieces. A very very small fraction that has been coming down.

    3) Barely 6% of our unaccounted money is held in the form of cash. Most of it exists overseas or hidden in assets in India. All of these are facts. This exercise will not do anything to remove black money.

    4) In economics, black money is a “flow” problem and not “stock”. Unaccounted money is a function of a venal regime, high tax rates, a tax regime that ensures 95% of the population do not pay tax (and hence do not have to account for flows), a poor enforcement regime, etc. These have gotten a lot lot better but this is why there is unaccounted money. If you dont address these problems the “destroyed stock” will be rebuilt.

    5) A number of businesses and industries in India are totally cash dependent. The biggest of them all is telecom. Average quarterly sector revenue is 69,000 crores. 90% of this cash-based prepaid recharge. (It used to be 95% but that has come down). All the telcos have reported an immediate hit.

    6) Lets compile the list. Taxis, autoricksaws, trucks, small transport, crops sowing, vegetable trade, grain trade. Any FMCG person knows that 90% of the FMCG trade AT THE RETAILER is cash. Only the movement of money between the stockist and the manufacturer is electronic. I do not have to quote numbers here but I challenge anyone to dispute this.

    7) Durable companies have already reported sales declines of 40% or more. I am in touch with some of the large equity investors and I have seen their reports.

    8) Changing behaviour from cash to non-cash requires a massive massive change in behaviour which will not happen overnight. If this was the intent of the government then they have been drinking the PayTM Koolaid.

    Now – the British came to India to plunder but left some positive side effects. I am not inviting comparisons between Modi and the East India CO – but some good will come of this. Here are some thoughts

    1) There are lots of reports of IAS and other civil service officers accumulating black money in 50-60 crore lots. They will lose to the extent that they were holding cash

    2) Real estate prices in the secondary market in metros and in all markets in the non-metros will crash. This is a good thing since the biggest culprits are the politicians.

    I have long beleived in two things: 1) The road to disaster is often paved with good intentions. Dont do something because you have to do something 2) Patriotism is the last refuge of a scoundrel.

    Your love of your country and therefore its elected leaders should be the kind of critical, parental love you give your children. You do not hesitate to stop your kids before they do something unhinged even though you love them to bits. Why do you deny your country the same privilege. For saying these things I am attacked as antinational, a sickular presstitute etc. That’s ok I have a thick skin but the right to criticize your leader on performance is one of the pillars of the state. Why are we surrendering this so easily?

    Mr Modi needs to be held to account. His actions could at worst cause a 2% blip in GDP which will destroy lives. And for what? The stoicism displayed by banks officers, people waiting in lines, etc is no reason for sheer administrative incompetence at the top to rear its head again and again.

    Apologies again if I have caused any offence.

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