FIX ACCOUNTABILITY
They say the road to hell is paved with good intentions. Well, demonetisation is turning out to be very, very costly. Despite daily promises of relief, and vital changes on the go, the end to the brutal disruption and dislocation in the nation’s everyday life seems nowhere in sight. The wages of hubris and arrogance are inflicted on ordinary people, while those who with one fell blow extinguished nearly 90% of money in circulation plead for time for the return of normalcy. Such man-made paralysis of the economic system is unparalleled in the world.
More than three weeks after the stunning blow to the collective solar plexus of India, if the daily wagers suffer the pangs of hunger for want of work, if the rural economy is distressed due to shortage of minimal cash absolutely necessary for vital inputs, if the salaried class fails to access its own monthly pay, the blame lies squarely on the shoulders of those who rushed headlong to execute the life-changing plan without doing the basic minimum homework. Of course, no one is more guilty than the RBI Governor Urjit Patel. If there is a countrywide famine of valid currency notes, the blame lies with the Central bank. It would be interesting to know why the RBI was not ready with new notes in adequate numbers before demonetisation. It was not rocket science to fathom the fundamental truth that sucking out the old notes from the system without replacing them with the new ones would leave a painfully big vacuum.
If Patel failed to caution the Prime Minister against hasty demonetisation, he must pay for the lapse. Accountability for such a Himalayan blunder must be fixed. The answer why the security presses at home and abroad were not commissioned in advance to print new notes in adequate numbers must be furnished. Shorn of all other controversies, that is the solitary cause of the widespread disruption of the national economy.
SOLITARY GAIN: DIGITISATION OF ECONOMY?
The hope that demonetisation might result in cancelling out over Rs 3 lakh crore of illicit currency is also vanishing fast. Already, over Rs 11 lakh crore in voided notes has been accounted for. By the end of December when the deposit of old notes will no longer be possible, nearly all junked notes in circulation might have been validated. This is especially so because of the latest facility for turning black into white at the payment of 50% tax and interest-free deposit of another 25%. In short, demonetisation might not yield the gains as first believed.
Yes, the lasting gain could be in terms of faster digitisation of the economy, which is now taking place at gunpoint following demonetisation. This is no small gain to be sniffed at. But this could have been achieved without widespread dislocation of the entire economic system.
As the latest numbers suggest, the disruption might slow down growth. Growth in the second quarter at 7.3% was below expectation. Neither the good kharif crop nor the Seventh Pay Commission payout seemed to have bolstered growth in the second quarter. The Centre for Monitoring Indian Economy has pegged the transactional costs of demonetisation at nearly Rs.1.30 lakh crore—yes, it costs money to suck out old notes and replace them with new ones. Besides, tens of millions of man-hours lost in the unusually prolonged exercise are to be accounted for.
Therefore, there is a genuine fear that growth in the current and the fourth quarters of 2016-17 might constrict further.
MESSIAH OF THE POOR A LA INDIRA
Of course, Modi should count himself fortunate if the demonetisation exercise helps him furbish his pro-poor image a la Indira Gandhi, following bank nationalisation. Then, as now, the economic gains were illusory, though she emerged a messiah of the poor, a card she exploited to trounce opposition in the Lok Sabha election in 1971. Likewise, Modi might win a second term in 2019, or even earlier. The Opposition then, as now, lacked unity, united only on opposing the incumbent Prime Minister without any agreement on its own alternative leader.
RAJA AND RANK IN THE SAME BOAT
Every Indian, rich or poor, you know has a cash problem. Some got so panicky on the first few days after the Modi bombshell that they rushed to get illicit cash converted at a huge discount, in some cases 50%. Stories of people buying dollars at double the official rate on the 8 and 9 November abound. Some forex dealers did business throughout the 8th-9th night. Since then the shock was absorbed and the typical Indian jugaad had come into play.
Yet, how short the new currency is can be gauged from the long queues at the ATM in Parliament House. On most days cash dried up long before the queue ended. Ditto for the huge rush at the hitherto sleepy SBI branch in the Parliament Annexe. Indeed, MPs, present and former, find it difficult to pay in the Parliament canteen. Either the waiters lack change for the new Rs 2,000 notes or the MPs have but old notes.
In some ways, Modi is an egalitarian, treating netas and the aam aadmi on the same footing.