Prime Minister Narendra Modi is willing to take significant risks to achieve his objective of ensuring that India becomes a middle income economy through double-digit growth. The way he has chosen in order to achieve this highly desirable objective is through making illegal even the possession of the Rs 500 and Rs 1,000 notes guaranteed by the predecessors of Reserve Bank of India Governor Urjit Patel. Instead, the RBI is turning out new Rs 500 as well as Rs 2,000 notes. Certainly there is inconvenience in having currency notes that are so divergent in value and without anything in between. The gap between a Rs 100 note (which has thus far not been declared illegal) and the Rs 500 note is 500%, while that between the bigger note and Rs 2,000 is 400%. Both the RBI as well as the Ministry of Finance must have realised the obvious, which is that such a wide band between the denominations of two currency notes would make transactions difficult and in many cases impossible, because of the absence of any denomination in between. Both the dollar and the euro have a stepladder system of denominations, making dealings in cash simple and convenient. Unless vast amounts of Rs 10, Rs 20, Rs 50 and Rs 100 notes are produced, everyday cash transactions will be as much affected in a relatively cash-filled future as in the cash-starved present. The intent clearly is to ensure that as many transactions as possible get done through the digital medium, so that the share of cash in the total of commercial exchanges falls. The PM himself comes from an economically stressed background, and to his credit, he has not been chary of pointing out that his own mother used to work in multiple households during his childhood to enable her children (including a future PM of India) to survive. Modi must, therefore, be fully aware of the pain and dislocation that would get caused were the present abysmal level of internet connectivity and the sky high commissions for digital transactions continue. It is nothing short of antisocial for a company (including multinational entities) to gouge the poor of a country where 300 million people live lives even more horribly wanting in essentials than is the case in Sub-Saharan Africa. PM Modi needs to ensure that only a total commission of Re 1 gets charged on any electronic transaction below Rs 2,000, and 5% on any which is unto Rs 5,000. Thereafter, the cap should be fixed at a peak of 15%, including all taxes and other imposts, for transactions in excess of a Rs 1 lakh. Companies should not be permitted to enjoy windfall gains because of the 8 November measure, for that was meant not for a few companies to make billions in unearned profits, but for the poor and the lower middle classes to have a better life.
The Prime Minister is a master at statecraft and must be fully cognisant of the fact that his credibility is at stake come the New Year. Both on 10 November and on subsequent occasions, PM Modi has made it explicit that the undoubted pangs and pains caused by the lightning withdrawal of 86% of the country’s currency will ease significantly by the close of 50 days i. e. by 31 December 2016. After that period, citizens will surely feel the benefits of the post-8 November situation. Finance Minister Arun Jaitley has declared that low tax rates lead to high collections, something this newspaper has been arguing for years. Maintaining high rates will slow down an economy already in some disarray, because of the shock treatment meted out to it through the decision of the Board of Directors of the Reserve Bank of India to withdraw with immediate effect so much of the country’s currency. Urjit Patel must be aware that the very credibility of the institution he was chosen by PM Modi himself to head is at stake. That trust in the RBI will drop to never before seen levels if the travails of the present continue into the future. The calm and fortitude with which citizens have so far taken the currency de-legitisation is because of their faith in Modi’s vow that the pain would substantially end within 50 days. It is hoped that all branches of the government have worked night and day to ensure that PM Modi keeps his solemn and welcome word to the people of India by ensuring that the year that has dawned will be a much bigger improvement in economic terms than the 70 years that have gone by since India met its tryst with destiny.