Demonetization: Modi Digs a Ditch for the BJP

Dalits and Adivasis are worst hot by this foolish move and will never forgive the BJP for it


The stories of devastation and deaths caused by prime minister Modi’s decision to demonetize 500 and 1000 rupee currency notes are pouring in from all over the country. In a country where 97% of all transactions by volume are done in cash, summary demonetization of its 86.4% currency value was bound to create chaos. As I write, 70 deaths have already been reported. The entire informal economy that accounts for 94% of India’s workforce and 46 % of her GDP is almost halted. The already distressed rural masses are aghast at their savings being reduced to a worthless piece of paper. Many of them haven’t even seen what a bank looks like. Long queues of people, clutching their hard-earned money, are seen in front of banks all over the country. The initial euphoria of the middle classes and Modiphiles also has melted away in the heat of this harsh reality. The harshest comment, however, has come from Manmohan Singh, who has perhaps the best possible credential in the country as the ex-governor of the Reserve Bank of India (RBI), ex-Finance Minister and ex-Prime Minister for two terms to assess this Tughlaqesque action. Describing the implementation of the demonetization drive as “monumental mismanagement” and a case of “organised loot and legalised plunder”, he said in the Rajya Sabha that it would drag the country’s GDP by 2 percentage points. He is not alone; a host of economists, experts and think tanks revised their growth outlook for India downward, some of them lowering it to a mere 0.5 percent for the six-month period ending March 31, 2017. The narcissist Modi, however, would not budge and instead call all those who question this calamitous move as anti-nationals, reminding Samuel Johnson’s famous adage.
No one has any doubt about the real motive behind this outlandish bravado. It was meant to be a stratagem to bolster his image for the forthcoming elections in Uttar Pradesh, Punjab, Goa and Manipur. All the pre-election promises remaining undelivered, most of his actions including so called surgical strike having flopped; people are bored by the empty verbiage and hyperboles that he periodically dishes out and needed some dramatic act. The opposition parties were sure to remind people during the elections about Modi’s poll promise to get them Rs 15 lakh each from the black money stashed in the Swiss banks within 100 days!
This action (November 8) was aimed at puncturing this argument and to show that the government is determined to take courageous actions for cleansing the economy of corruption. Alas, it has boomeranged badly. The unprecedented hardship it caused people has surely paved the way to BJP’s Waterloo in the forthcoming elections. This, despite its success in reducing the cash stacks of opposition parties to trash and thereby also weakening them.   

Counterfeit Economics

Modi claimed to attack black money and corruption, neutralize fake currency, and curb terror money. By now many economists have competently exposed the hollowness of these claims. As the data on raids reveal the cash component of the disproportionate assets, inclusive of jewellery (counted as cash) has been just 5%. As such the demonetization impacts, if at all, a miniscule percentage of existing illicit money. This small cash is held by the rich as lubricant for the big machine that produces and reproduces black money. Black money is generated in overseas operation through the under/over invoicing (by businessmen), rentier operations (politicians, police, bureaucrats) and various means of income hiding (realtors, private hospitals, education empires). There are many ways to whiten it ranging from small timers (many paper charity institutions indulge in these scandals) to the big fish that routes it through tax havens to India as foreign direct investments. These channels of production and reproduction of black money are not affected by this de-monetization of currency.

Fake money, if its incident is at all alarming enough, may be curbed by demonetization. However, as per the report of the Kolkata based Indian Statistical Institute (ISI), it is only Rs. 400 crore or just 0.002 percent of the total currency value in circulation, not enough to threaten the economy. The ISI report has never suggested demonetization as a measure to counter counterfeit notes. If the counterfeit currency was the concern of the government, the new currency being printed to substitute the demonetized one should have had better security features. But that is not the case. According to RBI’s admission, the new 2000 notes are being released without any additional security features. The terror money argument is absolutely untenable. If terrorists have a way of sourcing cash, they will always have ways to deal with new currencies too. Thus Modi’s economic claims behind demonetization have all been a hoax. Then there is an additional cost of printing new notes estimated to be in the range of Rs 15,000-18,000 crores and the aggregate losses due to disruption to the economy until the situation stabilizes.

‘Swachh Bharat’

Modi rhetorically associated the demonetization decision with his Swachh Bharat campaign, knowing fully well that little has come out of even that campaign. If he had given half the amount of money spent on just advertisement(s) of the campaign to the Dalits who have made—for centuries– India livable, much could have been accomplished. But while they continue to struggle for their demands to abolish manual scavenging, Modi trumpets his Swachh Bharat campaign. He claims to free India of corruption and dirty money. One of the reasons for his being voted to power was the spate of corruption scandals during previous UPA II regime, which he had effectively exploited promising the country transparent and ‘minimal government with maximum governance’. Half way through his tenure, the sources of the big ticket corruption appear to be thriving in his rule more than ever. The political parties, the fountainhead of corruption, still stay opaque and out of the Right to Information (RTI) net. The names of 648 traitors given in the ‘Panama list’ have not yet been divulged. His government has written off Rs. 1.14 lakh crore corporate loans owed to banks in the name of NPAs. The NPAs of the public sector banks have crossed Rs. 11 lakh crore, but there is no action whatsoever against these corporate thugs. The direct tax arrears of corporate billionaires hover at over Rs. 5 lakh crore but Modi has never spoken against it. The tax exemptions to them during the last decade exceed Rs. 40 lakh crore, the annual rate of which during Modi regime has crossed Rs. 6 lakh crore as against Rs. 5 lakh crore during the UPA. Modi as such has been hugely supportive of corporate corruption, the real generator of black money.
Even the implementation of this demonetization is suspected to be engulfed in corruption. The dramatized secrecy of the decision is for public consumption; it was as such known to the inner circle of the BJP comprising politicians, bureaucrats and businessmen. This can be seen (or deduced) from the spurt in bank deposit during the quarter ending September 30. The West Bengal unit of the BJP is reported to have deposited a total of Rs 3 crore in its bank accounts in the hours before the announcement. A BJP leader posted pictures of wads of Rs 2000 notes much in advance of the demonetization and a digital payments company printed a full page advertisement lauding demonetization in a newspaper on the morning following the announcement at 8 pm on November 8, 2016. Actually, demonetization opened an entirely new business of converting demonetized currency notes at a percentage/commission. No wonder that there has not been a change in India’s rank by Transparency International at 76 out of 168 countries during the Modi regime.  

Narcissistic Stupidity

It is only an inveterate narcissist who can commit such a stupidity of such monumental proportions. It also speaks of India’s institutional character (or weakness), which is so ready to buckle before the power. Leave aside Modi, it bespeaks badly of the calibre of the finance ministry mandarins, particularly the RBI governor Urjit Patel, who has not only failed to preserve the prestige of his office but also earned an ignominy of professional incompetence. It is unlikely that the monetary experts in RBI could not foresee the flawed economics of the decision but they obviously fell before the emperor’s will. Demonetization is no cure for corruption; it has been tried by rulers at various points in history but never with the currency used so widely common people.

The last time Morarji Desai had demonetized a 1000 rupee note in 1978 which was hardly seen or accessible to the average Indians. It could be worth Rs 15,000 today in its purchasing power. It constituted just 0.6% of the money in circulation then as against in 86.4% today.

Modi during his foreign visits –or his election forays into Uttar Pradesh–always brags about his achievement of Jan Dhan Yojana (JDY), which is just an extension of what the previous UPA government had implemented through policies of financial inclusion. He forced the banks to open accounts just to score a Guiness World record. According to a survey conducted in July 2015, 33% of the customers indicated that their JDY account was not their first account and according to the World Bank report 72% of them have a zero balance. Another survey by World Bank-Gallup Global Findex Survey showed that about 43 percent of the total bank accounts in India are dormant. Even the RBI says that only 53% of Indians have bank accounts and much less really are operating them. Most bank branches are moreover bunched in tier 1 and tier 2 cities and vast rural area is scantily served. 

Only a narcissist could be deluded to dream of a cashless economy in India in such a situation. It is utterly stupid to think that such a decision could endear the BJP to the people.

Needless to say that the people at the lower strata like Dalits and Adivasis are the worst hit and they will never forgive the BJP for this move. The BJP has variously tried to project through its hanumans (Dalit leaders in their fold) that the demonetization decision was rather as per the advice of Babasaheb Ambedkar. It is a white lie. But even if Ambedkar had said such a thing in some context, can it override the actual sufferings of the masses or alter the nature of reality? It would have been better if the BJP had heeded to Ambedkar’s more pertinent advice that bigger than life size leaders in politics are the biggest danger to democracy. 

(A version of this article appears also in the Economic and Political Weekly)

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