These notes are worth jackshit now! |
In Chris Nolan's genre-defining film, The Dark Knight, the character of the Joker, immortalized by the late Heath Ledger said, "Introduce a little anarchy, upset the established order and everything becomes chaos!" Little must have Batman's arch nemesis realized how true his words would turn out to be 8 years later in the world's largest democracy!
On the evening of the 8th of November, my phone's pop-up notification told me about a briefing our Prime Minister had with the military chiefs of our armed forces earlier in the day. Nothing much to it, I remember thinking to myself as I put my phone away. A few hours later, my phone beeps again, this time to tell me that the PM shall address the nation at 8 in the evening. Address the nation? Like how the US Presidents do? My mind begins to race and I recall his meeting with the military chiefs. He is not mobilizing our forces on the ground, is he? Declaring war against Pakistan? Hell no, he wouldn't do that! He won't, right?
For over an hour, I vacillated between apprehension and hope until the time arrived when our PM majestically declared his grand kingside attack plan on black money and fake currency - the move to demonetize the 500 and 1000 rupee notes.
My initial reaction to this, like everybody else’s, was awe and respect. I have never showered the man with undue adulation. I am someone who believes that his party came into existence, prominence and then finally to power, all on the basis of their inveterate demagoguery. But being objective as ever, I never questioned Modi's leadership and his will power to see through things that he wanted to get done. And thus, despite the government filing an affidavit with the Supreme Court in August of last year refusing to bring political parties under the ambit of the RTI and despite the government sitting on the names of people with black money stashed in Swiss banks abroad and despite refusing to open the party's funding records to the public, I believed Modi when he told me, in his usual oratorical brilliance about how demonetization will bring in billions of rupees in unaccounted money to the government's disposal, about how banks will be full with defaulters trying to declare their off-the-record income and how this will lead to an increase in their lending capacities thereby reducing the interest rates on loans that they hand out! What a win-win situation for all!
Of course, in the midst of all this theatricality, I forgot that I was nothing but a neophyte when it came to economics. I do have a working knowledge of the country's financial system, but in no way could I picture the fallout that was to come after, and how most of the claims which I believed in with all my naiveté, were just wind and words!
When everybody was jubilant and getting high on the balls that Modi had, I chanced upon a live television debate of Kerala's finance minister, Dr. Thomas Isaac. Unlike me, Dr. Isaac is a badass in economics and is perhaps the best finance minister the state has ever had. When everyone around him was busy showering praises on the PM, Dr. Isaac appeared unimpressed AF, and dare I say, a tad bit condescending. He blithely put the whole thing aside as a sham and went about giving structured arguments to his point. Now, Dr. Isaac is a communist, so naturally, I believed he was just being partisan and doing what politicians ought to do. After all, who doesn't see the good that's coming out of it? Isn't that pretty obvious? You demonetize high-value currencies and hoarders get caught with their pants down. Either declare the money and pay a legal fine or lose the entire money altogether! Wow! Masterstroke! Right? RIGHT? Apparently not!
Now, to begin with, what the government just did isn’t demonetization at all! Demonetization by definition means retiring a currency note of a particular value, once and for all. An example would be the complete demonetization of the 10,000 rupee note in 1978, never to be used or seen afterward. What the government intended to do here is just replace old currency notes with new ones so as to force defaulters to declare their undeclared income and to give a solid Joe Frazier like left hook to the fake currency industry. And to some extent, it may have succeeded at both these endeavors. But is it enough? Is the cost versus benefit ratio favorable?
You see, only a minuscule percentage of the black money economy in India is in the form of hard cash. Indeed, very few people are idiotic enough to store bundles of cash below bathroom tiles and in the false ceilings of their bedrooms. And that's because there is absolutely no guarantee to what can happen to physical cash. They can, for instance, go so out of value, that you may need to carry a sack full of them to buy a ticket for a 2 km bus ride as it happened in Zimbabwe, or they can just be removed out of circulation by the government as it's happening now. The logical thing to do would be to turn the cash into real entities that’ll appreciate in value over time, like gold or land or put it in circulation in the stock market industry buying bonds and shares and hell, earn more money out of it! And if you are still too paranoid, send it off to offshore tax havens like the Panamas, the Swiss banks or the nearby Southeast Asian countries like Thailand and Singapore.
Point being, this demonetization thing literally means diddly-squat to the smarter hoarders. And most often, the smarter ones are the bigger fish. Don't you find it perplexing when known crony capitalists like Adani and Ambani, and film stars blacklisted in the Panama Papers praise the shit out of this move and call it monumental while the common daily wage worker breaks his back cursing the government all day out? Does it not tickle your inquisitiveness when the people that we wanted to see get booked, spend $750 million on their daughter’s wedding or throw a lavish party because their niece just got engaged while the middle-class son can’t convert the 5 lakhs he has accumulated into legal tender for his father’s cancer treatment?
I am in no way alleging that these people had prescient knowledge about the shit that was about to go down. All I am saying is that this move is so ineffective in catching the people that actually matter, that the very same people go ahead and praise it openly! And even among those who had their blacks stored as cash, there were some who could get it converted into white overnight. How? A branch outlet in Mumbai of a famous jewelry chain in Kerala did business worth $450 million on the night Modi announced this plan. The salesman, a friend of mine remembered how people came in frantically and bought off gold and diamond chains without so much as looking at them. The store was open till 6am the next morning and then remained shut for the next three days because they literally had nothing to sell! If this was the case with one small branch of one jewelry chain in one city, imagine the situation and the business done across thousands of jewelry stores across the nation? Seems like this whole black to white transformation isn’t that tough after all!
The next biggest bullshit being peddled around is how the investments in banks have surged to a record high of 1.7 million crores and how this will force the RBI to further reduce the repo rates. Our former Finance Minister, P. Chidambaram deftly exposed all the holes in this line of argument. The RBI just reduced the repo rate a month back and that reduction itself happened after a period of 6 years. So expecting another rate cut is expecting too much. Secondly, the record money that’s coming into banks isn’t windfall by any means. People are depositing money into their accounts not because they have a lot of extra cash or because they just don’t need their money right now. They are doing it because they are being forced to. All they want is to exchange their old notes with new ones and the only way to do that is via bank deposits. Most of the money deposited today will be withdrawn tomorrow. This isn’t any windfall. This is just a temporary influx of money that’ll disappear as fast as it comes, and the banks, in the end, will have no perceptible increase in deposits for the RBI to even consider another repo rate cut. So hold your horses!
On the other side of the spectrum, what followed was total bedlam for the common, middle-class man and woman. ATMs weren’t functioning the first few days, while banks received an in-flow of the new 2000 rupee notes in small chunks each day. Although, why the RBI would introduce notes of higher denomination before notes of lower denomination still beats me. The official explanation is that the government wanted to give people their money back as fast as possible and that meant printing fewer notes but with more value. But how the government and the RBI, with their team full of world class economists, failed to understand the basic fundamental that the 2000 rupee note will remain virtually useless till the 500 rupee note comes into the picture, is something none of the experts out there could figure out yet! And how replacing lower value notes with ones having a higher value will aid in the fight against black money is a question for which I still have to find a solid answer! All it’ll do is make it easier for people to stash their money back into those false ceilings.
It has been more than a week and a half and what was promised to be a minor inconvenience of 2 days in the beginning, is now standing at a death toll of 50 plus with people sacrificing their jobs and their family to spend a quarter of a day in queues outside banks and ATMs. As if the torture wasn’t gory enough, the government has placed strict caps on the amount of money each person can withdraw and exchange! Can you see what an infringement that is on the economic freedom of the people? The government holding out hard-earned money of the masses is some serious crime but since it’s not purposeful and is being done more out of necessity than out of a ruthless need to implement a fascist policy, the public in general, are willing to forgive. But for how long do you think? For how long can parents watch their children go to bed starving or the son see his mother suffering because he can’t withdraw the required amount from the bank or the mother keep quiet about the death of her poor baby because the hospital won’t accept demonetized notes or the father run around trying to convert the money he accumulated over years for his daughter’s wedding? For how long?
Also, the government’s errant behavior of increasing and rolling back the limits looks like a two year old kid fidgeting with a Rubik’s cube – it literally has no clue! It’s way in over its head now. All observations after 10 days point to a gross underestimation and mismanagement of resources on the government’s part. Surely, how did the government not see that removing 21 billion notes out of circulation overnight and replacing it with 21 billion new notes is not something that you could accomplish in a matter of days? How did it go ahead with the plan when it knew that our country with 1.25 billion people has only 0.2 million ATMs and just over 3000 technicians to calibrate them? Why where the ATMs shut down for two days after the 8th of November only for the Finance Minister to tell us afterwards that recalibration will take another 3 weeks? If the numbers above are to believed, complete normalcy can return only after a minimum of four to five months. I for one happen to believe that that amount of time will only test the patience of people a bit too much. All it takes is a spark to ignite a bottle of Molotov cocktail. A little riot here, a little vandalism there and before you know, people will follow suit. And if there is anything history has taught us, it is that this can come true without any iota of doubt.
So, let’s shed this false façade of the greater good and let’s not rope in the army every time to cover for government inadequacies. I didn’t see anyone getting worked up when our great soldiers were made to work like laborers to build pontoon bridges for Sri Sri Ravi Shankar’s Art of Living program in Delhi. Let’s just cut to the crap. The government needs to first acknowledge that it is in fact in deep shit and that’s getting part of the problem solved.
I of course, am not the person to say anything about further measures that need to be undertaken, because if I could have, I would have been on the board of the RBI or assisting the Finance Ministry. What I said, was entirely based on common sense. There was no statistical drivel in there and no lofty concepts of economic parity. Just as I saw through the bullshit, millions of Indians also have. Like me, they too are angry because the government couldn’t wait to take credit for a relatively good idea and ended up rushing it without proper planning which resulted in the total mess the country’s economy is in currently. As each day passes, the situation moves from bad to worse.
And the government, now too egotistic to even admit that they messed up, has started to shift blames already. The beginning was yesterday when Piyush Goyal declared in the Rajya Sabha that the whole demonetization thing was the RBI’s idea! Is that why Mr. Modi addressed the nation beating his chest out and took all the credit for this when things were all sunshine? I don’t know. Nothing looks like anything to me anymore!