As I begin writing this, it has been nearly one and a half months since Prime Minister Modi, following 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 PM Modi's "currency culling."
Demonetisation is a callous move that has been implemented exactly the way it was meant to be.
From wearing exorbitantly expensive monogrammed suits to addressing frenzied NRIs in lavish ceremonies, PM Modi loves pomp and show. The unexpected address to the nation just hours before the ₹500 and ₹1000 notes were rendered obsolete further highlighted his narcissistic affection for the limelight. But even as he preened in the media glare, Indians across the country—especially the poor— found themselves plunged in darkness.
As the news of the impending demonetisation spread, the middle-class, urban and tech-savvy people among us rallied behind the PM. They praised his decisiveness and foresight in acting for the "greater good"; what a refreshing change from the risk-averse Manmohan Singh, they said. However, risk is a double-edge sword and nothing underlines this fact better than demonetisation. The government's triumphant proclamations belie the gravity of the situation on the ground and are not enough to gloss over the sheer cluelessness on display in the form of ever-changing RBI notifications and inability to get the cash crunch under control.
The mainstream media, shameless as it is, has tried hard to sell the government's narrative that demonetisation is a short-term "sacrifice" for the ultimate fruits of the elusive acchhe din. The discourse in the mainstream media has kept on changing—initially we were told how cross-border terrorism and corruption would end once and 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 was their own loved one. While the poor have to go even without basics, the rich are untouched, with some managing to hoard large amounts of wealth in the new currency. This tells you one thing—the rich and powerful always find ways around the rules of the land while the hapless common citizen becomes collateral damage.
The Modi apologists have argued that demonetisation is actually a good move that has been implemented badly; that the banking system and inept officials have failed him. However, what I'd like to explain is how demonetisation is a callous move that has been implemented exactly the way it was meant to be.
1. The intention
Make no mistake—the intention was never to flush out black money. If that really was the case, the government would be actively pursuing unaccounted wealth stashed abroad in tax havens and seeking criminal cases against the big names that surfaced in the infamous Panama papers. It would be taking concrete steps to fulfill its poll promise of bringing back "black money" from Switzerland.
Make no mistake—the intention was never to flush out black money.
Most of us have seen 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 and language of these notices make these poor fellows appear seem like dreaded criminals on the run. Most importantly, these people are never wilful defaulters—not like liquor baron Mr. Mallya, who according to the apex court is a "wilful defaulter of over ₹ 9000 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 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 event where the Indian High Commissioner too was present. Could this get anymore shameful? Just days after demonetisation, a part of Mr. Mallya's loan (nearly ₹1200 crores out of the total ₹9000 crores) was "pardoned". Instead of questioning what the government has done to bring Vijay Mallya back, the spineless mainstream media kept on praising the government's "greatest war against corruption." Really? A great war? Keep reading!
2. The conundrum
Income Tax 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 ₹1000 as the highest denomination, meant that black money hoarders preferred other forms—gold or real-estate. Thus, the black money actually ended up entering the mainstream economic system and became too tough to locate.
They could have easily printed notes of the exact same dimensions as before and with added security features instead of printing sub-standard notes of an all-new dimension...
The shoddily manufactured ₹2000 note has not only made life easier for those printing counterfeit money 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 and 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?
3. The haste in implementation
To top this, the all new ₹2000 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 and they couldn't do it prior to announcing the imminent demonetisation lest the top-secret be out for all to see. So brainy of them! They could have easily printed notes of the exact same dimensions as before and with added security features instead of printing sub-standard notes of an all-new dimension and freezing the entire economy for days. If they had even an iota of shame for the insufferable pain they've caused to the masses, the PM would have himself acknowledged that in the haste to score brownie points before the UP elections, they botched up badly. But, instead of an apology the PM and his cohort simply doubled down. PM Sir, you've often said you spent years wandering in the Himalayas seeking truth and refinement. It pains me to point out that you, Sir, have failed to learn what humility is.
3. Digitising the economy
That there's an inherent inertia in society can never be gainsaid. People despise change and like to do what it takes to maintain the status quo. The very idea of digitisation of the economy was always going to become hard to sell to reluctant citizens. The government needed a well-thought-out strategy to lure people towards digitisation. They needed to sell the idea of a hassle-free exchange which is both secure and is capable of checking graft and bribery. At the same time, they needed to make the existing infrastructure robust. How on earth can a nation with such a low internet penetration—27% overall and only 14% in rural areas—support an e-economy? (Just the other day, Food Minister Ram Vilas Paswan had a tough time paying ₹50 to a street vendor as he promoted digital payment!) Such a draconian and forceful exercise only finds parallel in Mao's Cultural Revolution—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 have a rich history of investing in e-infrastructure. Do we have any such parallel here? Not even remotely close.
Nations that have successfully transitioned to an e-economy like the US, Canada and South Korea have a rich history of investing in e-infrastructure. Do we have any such parallel here? Not even remotely close. With only half of the population connected to the banking system and 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 and instead of fulfilling his poll promise of creating jobs, the PM will essentially kill existing jobs. The unorganised sector that amounts for a whooping 80-90% of all businesses in India and 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 into a lake to make him learn swimming; you prepare him and train him before pushing him into unchartered waters. Those in power, however, have chosen to throw us into the deep end without any preparation and hence can only pray that things don't go awry. But, possibly, it is too late to even pray.