ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Demonetisation — Modi Digs a Ditch for the BJP

The demonetisation move has boomeranged on the Bharatiya Janata Party badly. The unprecedented hardship it caused people has surely paved the way to the BJPs Waterloo in the forthcoming assembly elections in some crucial states.

Stories of devastation and deaths, caused by Prime Minister Narendra Modi’s decision to demonetise ₹500 and ₹1,000 currency notes, are pouring in from all over India. In a country where 97% of all transactions (by volume) are done in cash, the summary demonetisation of 86.4% of its currency value was bound to create chaos. As I write, 70 deaths have already been reported. The entire informal economy that accounts for 94% of India’s workforce and 46% of its gross domestic product (GDP) has almost halted. The already distressed rural masses are aghast at their savings being reduced to worthless paper. Many of them have not even seen the inside of a bank. Long queues of people, clutching their hard-earned money, are seen in front of banks all over the country. The initial euphoria of the middle classes and Modi-philes also has melted away in the heat of this harsh reality.

The harshest comment, however, has come from Manmohan Singh, who has perhaps the best possible credentials in the country, as ex-governor of the Reserve Bank of India (RBI), ex-finance minister and ex-Prime Minister for two terms, to assess this Tughlaq-esque action. Describing the implementation of the demonetisation drive as “monumental mismanagement” and a case of “organised loot and legalised plunder,” he said in the Rajya Sabha that it would drag down the country’s GDP by 2 percentage points. He is not alone; a host of economists, experts and think tanks revised their growth outlook for India downwards, some of them lowering it to a mere 0.5% for the six-month period ending 31 March 2017. Modi, however, would not budge and instead called all those who questioned this calamitous move as anti-nationals, reminding us of Samuel Johnson’s famous adage: “Patriotism is the last refuge of a scoundrel.”

No one has any doubt about the real motivation behind such outlandish bravado. It was meant to be a stratagem to bolster his image for the forthcoming elections in Uttar Pradesh, Punjab, Goa, and Manipur. All the pre-election promises remain undelivered, and most of his actions, including the so-called surgical strike, have flopped; people, bored by the empty verbiage and hyperboles, needed some dramatic action. The opposition parties were sure to remind people during the elections about Modi’s 2014 poll promise to get them ₹15 lakh each from the black money stashed in the Swiss Banks within 100 days of his being elected. This demonetisation was certainly meant to show that the government is determined to take courageous action to cleanse the economy. Alas, it has boomeranged on the Bharatiya Janata Party (BJP) badly. The unprecedented hardship it caused people has surely paved the way to the BJP’s Waterloo in the forthcoming assembly elections in some crucial states. This, despite its success in reducing the cash stacks of the opposition parties to trash, and thereby weakening them.

Counterfeit Economics

Modi claimed that demonetisation was done to attack black money and corruption, neutralise fake currency, and curb terror money. By now, many economists have competently exposed the fakery of these claims. As the data on raids reveal, the cash component of the disproportionate assets, inclusive of jewellery (counted as cash), has been just 5%. As such, the demonetisation has had an impact, if at all, on a minuscule percentage of illicit money. This small cash is held by the rich only as lubricant for the big machine that produces and reproduces black money. Black money is generated in overseas operations through under-/over-invoicing (businessmen), rentier operations (politicians, police, bureaucrats), and various means of hiding income (realtors, private hospitals, education emperors). There are many ways to convert black money to white, ranging from small-timers (many charity institutions that are only on paper indulge in these scandals) to the big fish who route black money through tax havens to India as foreign direct investments. These channels of production and reproduction of black money are not affected by the demonetisation of currency.

Fake money, if its incidence is alarming enough, may be curbed by demonetisation. However, as per the report of the Kolkata-based Indian Statistical Institute (ISI), it is only ₹400 crore or just 0.002% of the total currency value in circulation, not enough to threaten the economy. The ISI report never suggested demonetisation as a measure to counter counterfeit notes. If counterfeit currency was the concern of the government, the new currency being printed to substitute the demonetised ones should have had better security features. According to the RBI’s admission, the new ₹2,000 notes are being released without any additional security features.

The “terror money” argument is absolutely untenable. If terrorists have a way of sourcing cash, they will always have ways to deal with new currencies too. Then, there is the additional cost of printing new notes, estimated to be in the range of ₹15,000–₹18,000 crore, as well as the aggregate losses due to disruption to the economy, which are to be borne until the situation stabilises.

‘Swachh Bharat’

Modi rhetorically associated the demonetisation decision with his Swachh Bharat campaign, knowing full well that little has come out of that very campaign. If he had given half the amount of money spent on just advertising the campaign to the Dalits who actually do the sanitation work needed to keep the country clean, much could have been accomplished. He claims to be freeing India of corruption and dirty money. One of the reasons for his being voted to power was the spate of corruption scandals that took place when the United Progressive Alliance (UPA) II was in power, which he had effectively exploited promising the country transparent and “minimal government with maximum governance.” Halfway through his tenure, the sources of big-ticket corruption appear to be thriving more than ever. The political parties, the fountainheads of corruption, still stay opaque and out of the purview of the right to information (RTI) net. The names of 648 traitors given in the “Panama list” are yet to be divulged. His government has written off ₹1.14 lakh crore in corporate loans owed to banks in the name of non-performing assets (NPAs). The NPAs of the public sector banks have crossed ₹11 lakh crore, but there is no action whatsoever against the corporate thugs. The direct tax arrears of corporate billionaires hover over ₹5 lakh crore, but Modi never spoke against this. The tax exemptions to them during the last decade exceed ₹40 lakh crore, the annual rate of which during Modi’s regime has crossed ₹6 lakh crore, as against ₹5 lakh crore during the UPA rule. Modi as such has been hugely supportive of corporate corruption, the real generator of black money.

Even the implementation of the demonetisation is suspected to be engulfed in corruption. The dramatised secrecy of the decision is for public consumption; it was known to the inner circle of the BJP, comprising politicians, bureaucrats and businessmen. It could be clearly seen from the spurt in bank deposits during the quarter ending 30 September 2016. The West Bengal unit of the BJP is reported to have deposited a total of ₹3 crore in its bank accounts in the hours before the announcement. A BJP leader posted pictures of wads of ₹2,000 notes much in advance of the demonetisation, and a digital payments company printed a full-page advertisement lauding the demonetisation move in a newspaper on the morning following the announcement at 8 pm on 8 November 2016. Actually, the demonetisation gave impetus to an entirely new business of converting demonetised currency notes for a commission. No wonder that there has not been a change in India’s rank by Transparency International, at 76 out of 168 countries, during Modi’s regime.

Professional Incompetence

The demonetisation move has showed up India’s institutional character, which is ready to buckle before the powers that be. Leave aside Modi, it speaks badly of the calibre of the finance ministry mandarins, particularly RBI Governor Urjit Patel, who has not only failed to preserve the prestige of his office, but also earned the ignominy of having his professional incompetence exposed. It is unlikely that the monetary experts in the RBI could not have seen the flawed economics of the decision, but they obviously fell before the emperor’s will. Demonetisation is no cure for corruption. However, it was tried out by rulers at various times in history, but never with the currency of the common people. The last time that it had taken place was when Morarji Desai had demonetised the ₹1,000 note in 1978, which was hardly seen or used by the common people. It constituted just 0.6% of the money in circulation then, as against the 86.4% of that today.

Modi, during his foreign visits, always brags about his achievement of the Jan-Dhan Yojana (JDY), which is just an extension of what the UPA called financial inclusion. He forced the banks to open accounts, just to score a Guinness world record. According to a survey conducted in July 2015, 33% of the customers indicated that their JDY account was not their first account, and, according to the World Bank report, 72% of them have zero balance in their accounts. Another survey by the World Bank–Gallup Global Findex Survey showed that about 43% of the total bank accounts in India are dormant. Even the RBI says that only 53% of Indians have bank accounts, and many do not operate these. Most bank branches are moreover bunched in tier 1 and tier 2 cities and vast rural areas are scantily served. It is a delusion to dream of a cashless economy in India in such a situation. It would be utterly ignorant to think that such a decision could endear the BJP to the people.

Needless to say, that the lower strata, like the Dalits and Adivasis, are the worst hit and they will never forgive the BJP for it. The BJP has variously tried to project through its hanumans (Dalit leaders in their fold) that the demonetisation decision was as per the advice of B R Ambedkar. It is a white lie. But, even if Ambedkar had said such a thing in some context, can it override the actual sufferings of the masses or alter the nature of reality? It would have been better if the BJP had heeded Ambedkar’s more pertinent advice that the bigger-than-life leaders in politics are the biggest danger to democracy.

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