D for Demonetisation. W for Why?
The political consequences of the Prime Minister’s decision are as yet unknown. Cleverly positioned as a moment of rare enforced quality when the rich had to line up with the poor, demonetisation initially appeared to draw widespread approval. But the entrenched inequities were never going to be impacted by notebandi.columns Updated: Dec 17, 2016 11:55 IST
D-for Donald Trump; D-for Demonetisation and D for Disruption. The Alphabet of the year 2016 self-selected itself; as did the word. Disruptive ideas defined the year gone by, throwing up an unexpected American President and back home a decision that one politician (who wants to remain unnamed) calls the “single most dramatic change in our part of the world since Partition.”
As hyperbolic as that claim may be, the truth is that very few of us can predict the scale and depth of change -- and havoc -- ‘Notebandi’ may bring. For the past month, like millions of Indians who have no special expertise in economics, I have tried to wrap my head around the currency purge. These are the commonsensical questions I have -- yes, you may even say D -- for Dumb -- that I have still found no good or convincing answers to.
• Was chocking black money the main goal of this demonetisation? While the government has continuously shifted goal posts on the actual aim of wiping out 86% of India’s currency -- and is now emphasizing digital payments more than netting the big sharks -- at least initially the decision was pitched as a “surgical strike on corruption.” However, given that only an estimated 6% of India’s black money -- certainly less than 10% is the consensus -- is in cash, why is this pain worth the gain? If most tainted or hoarded money has already been channeled into gold, real estate, swiss banks and other tax havens, isn’t the primary hardship to those who in fact do pay their taxes or don’t even earn enough to qualify as the real targets of an anti-corruption program?
• If there is greater chance of black money being hoarded in higher currency notes -- the logic for targeting the 500 and 1000 notes -- then why print the 2000 rupee note? By your own stated logic, wouldn’t the higher denomination notes restart the same cycle all over again -- as is already evident in the series of cash seizures where much of the money hoarded has been found in new notes? RSS ideologue S. Gurumurthy, believed to be in the inside loop on all demonetisation decisions, has already said his personal view is that even 2000 rupee notes should be phased out, arguing that they are an interim arrangement to meet the demand-supply mismatch.
• Hasn’t Demonetization created an elaborate opportunity for money laundering -- and enabled more corruption instead of less? Either that or the government grossly miscalculated the black money in circulation in 500 and 1000 rupee notes. Take a look at the latest numbers. The RBI confirms that 12. 44 lakh crores (of nearly 15 lakh crores which is the monetary value of the now-banned notes) is already back in bank deposits since the November 8th announcement. In other words, the government’s hope of a black money windfall that could have been transferred to welfare schemes has been belied. And if all of this money is not ‘white’ and depositers have conned the system, is the taxman now going to scrutinize every single transaction to scan for discrepancies? Similarly, a gigantic 37,000 crores surge in Jan Dhan accounts since the notes ban declaration underlines how many of India’s poor are probably being used as vehicles by their employers or by other touts -- to take a commission -- and whitewash the rest of the money with colours of legitimacy. Economists like Jagdish Bhagwati have contentiously argued that this should be seen as a “redistribution” of wealth which will have an “expansionary” impact; the Prime Minister himself has in a RobinHood-esque manner urged the poor to keep the money that is being funneled through them. But this militates against the bombastic claim of ending corruption; in fact it’s just another de-facto amnesty for those who have evaded taxes while leaving law abiding citizens standing in serpentine ATM queues.
• Finally, what happened to the Modi motto of ‘Minimum Government; Maximum Governance’? Those who argued that the 2014 victory would usher in a modern right of center economics must concede they were wrong. Not just is the Prime Minister not a privatizer (focusing instead on increasing efficiency of public sector units), his demonetisation decision has given the State overweening powers of the kind not seen in years. In some ways, this phase could well be the return of ‘Raid Raj’; where an Income Tax officer will now prowl about in your bedroom and bank locker to determine whether you -- as an unmarried, single woman -- have more gold than you should! Philosophically what disturbs me about demonetisation is the State having so much say in how tax-paying citizens access their own money. Yes, our strata of upper-middle class Indians can survive on plastic and are not suffering like those who earn (legitimately by the way) in cash -- the flower seller, the daily wage labourer, the railway coolie; the farm tiller; the bindi-maker; the neighbourhood plumber; the golgappa man down the road -- but even we have the right to worry about what sweeping powers to the tax authorities may mean for an India that was meant to minimise the intrusion of the State in our daily lives.
Another D often used to prefix the political style of Narendra Modi is Dynamism. His supporters point to Demonetisation as another instance of his audacious capacity for risk-taking. The political consequences of his decision are as yet unknown. Cleverly positioned as a moment of rare enforced quality when the rich had to line up with the poor, the move initially appeared to draw widespread approval. But the entrenched inequities were never really going to be impacted by Notebandi. When a mining baron spends 100 crores on a wedding and a driver’s suicide note claims the money was laundered and you contrast that with a municipal corporation worker who queues up for his rationed quota of 2.5 lakh to marry his daughter -- you wonder -- Demonetisation - To what end? And at what cost?
Barkha Dutt is consulting editor, NDTV, and founding member, Ideas Collective.
The views expressed are personal.