Black & White

Four weeks have elapsed since Narendra Modi's demonetisation mandate. On each of the intervening days, people are witnessing the familiar spectacle, of persons standing in long queues before a bank branch or a post office for, say, one thousand or two thousand rupees. The monetary authorities are unable to supply them. Customers–Pensioners as well as non-pension account holders—are allowed to withdraw some twenty thousand rupees, and about 50 percent of it has been paid in the newly introduced 2000 rupee notes, which they find it difficult to exchange in market. In each case they had to wait for about two or three hours or so. People living at some distance have to spend another hour in order to come to their respective banks. The official explanation was at first the unearthing of black money, and now a second explanation is offered, that of creating a cashless India, where the money-using public will use only cheques and credit and debit cards. A few dozens of persons have already sacrificed their lives at the altar of Modi’s digital drive. With the withdrawal of more than 80 percent of the rupee notes in circulation, the economy has been trembling, but the Prime Minister and his acolytes have been repeating nauseatingly that it is his crusade against the rich and the black moneybags. But unfortunately for him, his tub-thumping has been overshadowed by the sight of distressed millions.

No doubt Narendra Modi's decision has come in for a lot of criticism not only from political opponents, but from economists, including Professor Amartya Sen, also. Yet he has his own apologists. One mainstream economist, for example, has argued that this decision will act as an incentive to the people to resort to banking practices and use credit and debit cards. He has also contended that 20 percent of black income lies in hard cash. (The Telegraph, 1 December) The second argument is nonsense, because even the estimate of the ministry of finance puts the figure at about 5 to 6 percent. Critics have cited the figure, but according to this apologist-economist, he has got the figure of 20 percent from the critics of official policy. He has not however mentioned which critic he has got the information from. The economist has further argued that since the workers in the informal sector of the economy are normally paid less than Rs 500 per day, the demonetisation should not trouble this sector at all. He probably does not know that a large section of workers in the informal sector is paid on weekly or monthly basis. This does not exhaust the whole story. Employers of even day labourers often keep their money in banks, and withdraw money for labour payment, and they generally prefer rupee notes of lower denominations. With severe restrictions imposed on withdrawal, they cannot get the requisite amount of money for making payments. This is true for small manufacturers also, in a greater measure. The shortage of money has obviously generated a serious crisis in the informal sector, which only a fool or a political swindler can try to dismiss as inconsequential.

The argument that an advancement towards a cashless economy has been made by such measures is as baseless as it is absurd. Even in the home of capitalism, the USA, about as much as 46 percent of transactions are still conducted in cash.

In India, the percentage is almost twice as high. In this situation, if any precipitous step is taken towards a transition as desired by Modi's men, the strains in the economy, along with the concurrent material and human costs, must be immense. Modi's step has already caused considerable costs and there is no knowing how long the economy and the people will go on paying them. On the other hand, introduction of 2000 rupee notes is in all probability likely to increase the propensity to hoard black money in cash.

There is no reason to believe that Indian billionaires do not have any undisclosed income. In fact, the total quantum of black income held by them is probably larger than other sections of the people. They have not said anything against this demonetisation, simply because it is not going to hurt them an inch for the simple reason that they do not keep their undisclosed income in rupee notes. Why then has this drama been enacted with the common money-using public as the scapegoat? What is the hidden agenda? Public sector banks are now starved of deposits, because more than five trillions of rupees of credit remain unrealised, thanks to the policy of wooing the corporate lobby. Hence the demonetisation of 500 and 1000 rupee notes is a handy instrument to inject some liquidity into the banking system. It is very much intriguing that the common man is paying the price of non-repayment of loans by the corporate groups to the public sector banks. With increased liquidity, banks should be able to serve the corporate lobby once again in an effective manner. Concurrently, interest rates are being reduced and restrictions on withdrawal of deposits have made this step more feasible.

It should be clear that the objective behind the entire episode is to tighten the grip of the corporate lobby over the economy. This is, to all appearances, a planned surgical strike against the people, undertaken in consultation with big corporate players. It is true that the political parties that are opposing the decision are not innocent babes, and that their records in regard to corruption are not unimpeachable. But the continuous suffering of the ordinary money-using people is a stark fact, which it is difficult for Modi and his men to ignore. That is why they have been, on each passing day, issuing new directives in a manner that even Muhammad Bin Tughluq could not have contemplated.

The hard fact is that the mechanism of generation of black money is continuous. If anything demonetisation will not meet the Modi government's objective of checking black money, counterfeiting currency and terrorist financing. As per one expert's opinion black money or the cash component that may be immobilised through this disastrous move may be only three percent of the total black money generated this year. Black money will continue to be generated as it is done through investment in things like gold, property while it may not depend much on cash circulation. Problems created over the years cannot be solved overnight through harsh measures as initiated by Modi. As things are currency shortage will continue for eight months to one year and not just 50 days as claimed by Modi.

Now, economy is slowing down in all sectors, including agriculture, industries and services. Unemployment is increasing rapidly and so is the hardship of the poor. Tens of millions are facing crisis in their lives but Tughluq is enjoying classical music concert oraganised by his overseas masters. Sadly, the so-called mainstream opposition parties are reluctant to make the demonetisation issue a national agenda against the ruling dispersion at all levels. Meanwhile, it will continue to torment the political economy and the life of the people for months to come.

 10-12-2016

Frontier
Vol. 49, No.24, Dec 18 - 24, 2016