Demon-etisation

Really interesting perspectives are to be had near the bottom of the economic pyramid. The anger, the solid opinions and the firm belief that all that is to be known is already known, the luxury of confidence and faith. Ignorance is truly bliss. My auto driver asked me cautiously what I thought about Modi and demonetization. The question reminded me of undergrad days when most questions on distributive policies got stuck at the point of India’s vastness and a population of 1.3 billion people (1.2 billion during those days). A critical analysis of most well intentioned and well thought of policies would run into the problem of targeting and reaching the correct population; 1.3 billion people is not a joke. So my immediate reaction to the demonetization was “I hope they have figured out the logistics.” But life is not Shawshank Redemption. Hope doesn’t take us too far. So with these thoughts and memory of a week of rationed living which seems nowhere close to ending, I replied that I wasn’t so sure about the logistics of it. It was as if this was the moment my driver had been waiting for. The stage was set, the cue given and in due course the monologue began. 

Arrey madam desh drohi hai yeh Modi. Mahine ka 1800 deta hoon main biwi ko subji ke liye. Ussne agar 1200 ki sabji kharidi aur 600 bacha liya toh 4 mahine mein 2000 hue ki nai? Kala dhan hai yeh? Ji nai. Khoon paseene ki kamai hai. Bolte hain desh ke liye hai. Arrey zinda hi nai rahunga toh kya Modi kya desh. Bolte hain jakar bank mein jama kar do. Aur fir kya karoon? Humein toh bank bhi loan nai deta. Union waale ya mahajan ke paas jana parta hai. Yeh auto bank ke loan se nai kharida hai maine. Parso mere padosi ne aatmhatya kar liya. Beti ki shaadi thi agle hafte. Modi ko kya samajh aaega. Upar baith ke bolna aasaan hai. Humari zindagi jee kar dekho. Bank ke line mein khade rahenge din bhar toh khaenge kya?

The man was distraught. His hero had metamorphosed into his nemesis. The complaints went on. Broken promises? Unfulfilled hopes and aspirations? Welcome to Animal Farm.

It’s really interesting times that we are living in. The country as a whole feels like a giant laboratory of guinea pigs with a few innovative scientists figuring out aims and methodologies for experiments. A mob of unruly guinea pigs? Lets experiment with pellet guns. A lot of black money hoarded as cash amongst the relatively naive guinea pigs? Lets change the medium of exchange! But sir the guinea pigs might not like it? Oh well, we shall appeal to their sense of nationalism. Since most have a very vague idea of what a nation state means and their psychology since time immemorial has caused them to come together in the name of a common enemy, real or fictional, we will get them around. Go read one of the dystopian novels on socialism: Animal Farm, Atlas Shrugged or just any other. Lead with confidence and they will follow. True. But sometimes patience runs out and personal inconvenience makes people see sense.

The three-fold rationale of the demonetization drive, namely, dealing with black money, funding for terrorism and counterfeit currency are all noble. Agreed. But sir your means to the said end doesn’t make sense. Four concerns that immediately come to any bull headed mind (apart from concerns surrounding preparedness and logistics) could not have escaped the ignited minds of top policy makers.

The first is with respect to the timing. In Julius Caesar when Cassius was instigating Brutus against Caesar he uses the following argument: 

“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.”

I wonder what tide they saw in our affairs that November seemed like the time to them to suddenly demonetize 86%(in value terms) of the currency in circulation. Did they forget November onwards is time for holidays (hence tourism), festivities (from marriages to festivals), fairs (at the Pushkar fair of 8871 cattle that was brought only 2453 were sold, according to the Animal Husbandry Department), big budget movie releases and above all and most importantly the time for harvest of vegetables and sowing of Rabi crops. The latter could definitely have not escaped the attention of Mr. Modi, because only day before they increased the MSP of pulses. Not only are farmers facing the heat of a collapse in demand, a collapse in the supply chain and hence prices but also the inability to purchase inputs ahead of the planting of the rabi season. Let’s not forget that channa (chickpea) happens to be a rabi crop and in the not so distant past its prices were a source of deep consternation to the policy makers. Why could this demonetisation not happen in May? Why not wait for a few more months, when domestic economic activity is at its nadir rather than peak? The farmer was just beginning to feel happy after a good monsoon.

The second issue is with this entire rhetoric around black money. Your demonetization helps get rid of the stock of black money already accumulated (assuming it’s successful that is). But where did the money come from? The source? The system of generation? Have these been dealt with? How do contractors get government tenders? Has the process become transparent? Case in point: One of the trainers at my gym is charging 30% commission to make black white. You cannot deal with a flow variable with a policy that is only dealing with the historical stock. A point highlighted by Raghuram Rajan way back in August. Raghuram Rajan, you must be having the last laugh. I can’t imagine this demonetization happening in this chaotic manner with you at the helm of the RBI. No wonder they let you go.

The third issue is that of alternatives. Had all alternatives been considered before coming up with this scheme? Were there less risky and more reasonable ways of approaching this issue? Ila Patnaik’s suggestion that everything could have happened in exactly the same manner except that the RBI could have introduced the new ₹500 notes a few months earlier on grounds of better security sounds reasonable to me. The same surprise demonetization. Everything else exactly how it happened but there would have been at least some new ₹500 in the market instead of the RBI issuing the old notes till November 8, 2016, hours before the demonetization happened. This wasn’t an Iron Man movie where a press conference was called in the last scene (first part) by Robert Downey Jr for the grand declaration that he was Iron Man. You were going to impact an entire country of 1.3 billion people that relied heavily on cash transactions in its day to day life. Highway to hell? Sure.

And finally the question of requesting Indians to use plastic money.  If you’re wondering what’s happening in the hinterland of this nation then P. Sainath’s article will give you a flavor. Can only remember the haunting “If they don’t have bread, let them eat cake”. “Let them eat cake” (supposedly spoken by Marie Antoinette upon learning that the French peasants had no bread)! The quote reflected the princess’s complete lack of understanding that the absence of basic food staples was due to poverty rather than a lack of supply. We, the upper middle class millennials who had the luxury of using plastic and mobile wallets, used paper and not plastic because in the majority of our day to day transactions, there was and is no supporting infrastructure. In Jammu and Kashmir internet bans have been imposed to deal with the unrest. How do you expect people to transact Mr. Modi Antoinette? 

P.S: Ashutosh Varshney’s article Post-truth demonetisation provides interesting perspective and analysis of demonetisation.

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