Demonetisation and After

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The instantaneous fall- out of the official decision to demonetise Rs 500 and Rs 1000 notes has been a scarcity of cash notes in the Indian economy as a whole, because considering the total value of the currency in circulation, such notes, not hundred or ten rupee notes, clearly dominate. Salaries and pensions are often given in 500 rupee notes. Now everywhere individuals are standing in long queues to get Rs 100 or Rs 2000 from their respective banks, although they have deposited much more than that. Some are falling ill and there are reports of death. Affluent non-resident Indians, who have accepted the USA or Japan or some European country as their homeland, will however rejoice at Narendra Modi's drive against black money , because they are inspired by Modi's 'patriotism'. The government has introduced 2000 rupee notes as a partial remedy. But such notes are not in general acceptable to those dealing in daily necessities, nor to the day labourers and their employers. It is absurd to offer such notes to fish vendors, greengrocers, auto-drivers, rickshaw pullers or farmworkers although such classes are indispensable to the society, as they perform vital social functions. Modi's boastful assertion that hoarders of black money are now standing in queues and spending sleepless nights is as empty as his pre-poll promise of bringing back the black money deposited in foreign banks. Just visit a mofussil bank branch of West Bengal or anywhre in India and one will see that the overwhelming majority of such people are just common men. For the banks located in large towns and cities, the situation is not different either. The common men need money for their daily needs but banks are unable to supply them. For those who do not have bank accounts, the situation is even more pathetic. They are now forced to take loans at exorbitantly high rates of interest from local moneylenders in order to sustain their hand-to-mouth existence. All these people are paying the costs of Narendra Modi's 'War against Corruption'.

One already visible outcome of the official decision is the drastic slowing down of small and medium-scale business transactions. Another likely outcome is a rise in the market rate of interest. This should hurt the interests of the corporate lobby, but it is intriguingly silent on this issue that has already generated a nationwide commotion. One probable reason is that members of corporate lobby know that whatever the rate of interest, they are free to borrow from banks with no compulsion of repayment, thanks to the generosity of the government . Much of the loans have been in the process of being written off as non-performing assets. If the government's munificence allows them to loot public money on such a colossal scale, why should they bother about the possibility of a rise in the interest rate? For those who do not hope to benefit from the government's generosity, the situation is, however, tight. They must, until normalcy is restored, reduce the demand for loans and that is certain to lead to fall in industrial output and to affect the transport services adversely. Again, the announced objective of curbing the operation of black money is unlikely to be realised, except that some professionals and middle-ranking businessmen holding black money in the form of cash notes may get into trouble for the time being. Once the situation is restored to normalcy, black money in the form of the new cash notes is bound to be generated. In this event, it will be a case of new black money driving out old black money. Will Modi then resort to another round of demonetisation, in consequence of which the people who do not hold black money suffer? Such random shocks are bound to produce a destabilising effect and result in undesired economic cycles.

It is not easy to ferret out the motives behind this sudden decision of demonetisation. For a government committed to the promotion of the interests of domestic corporate lobby and foreign multinationals, and bent on saving the depositors in Swiss Banks and other foreign banks, such a decision can hardly be an innocent one. It may be a political gimmick, aimed at the coming UP polls. But why such a gimmick? Perhaps the evil trick of fomenting communal tensions has not paid the expected dividends.

Narendra Modi is now referring to the period of the Emergency of 1975-76, asking the people to maintain patience for a few weeks only. Thus he has unwittingly admitted that his decision is like the imposition of another emergency. Meanwhile, nearly 40 deaths—including suicides, cardiac arrests in long queues, hospital casualties and a murder in a fit of rage—in the past eight days have been attributed to demonetisation, thanks to Modi’s surgical operation.        

16-11-2016

Frontier
Vol. 49, No.21, Nov 27 - Dec 3, 2016