by Asis Rajan Sengupta
Frontier | 22 November, 2016
From May 2014, we are passing through series of gimmicks, Swchhata, Kashmir expedition, patriotism, Border surgical strike etc. etc. and vengeant aggressions, to assert the supremacy of a single phenomena named Modi , predecessor to Trump in USA. The latest one is the dramatic decision of demonetising 500 and 1000 denomination currencies.
Apart from the harassment and trouble caused to the citizens, the Senior Citizens, Housewives, Handicapped persons, or the bedridden ailing victims, poor people, daily wage earners, street vendors, small business, all of whom are now engaged in queuing up in long serpentine lines, for a change, and Tech savvy people running from this to that ATM, in vain, there are other issues. Let us examine.
At the very outset, let it be made clear that any opposition, criticism, be it constructive or not, suggestions are most unwelcome in this autocratic one man regime, and are deemed to be a seditious and Anti National reaction, and likely to attract legal or extra legal penalties. Demonitisation was applied to curb black currency in past also. This is for the first time that the charismatic PM himself made an appearance in media, to announce this; normally it is the domain of the RBI Governor, or at best the Finance Minister. There can no two opinions about the urgent need of taking steps to retrieve the black money, plug the routes of future generation and proliferation of the same. Another point to be kept in mind is that black money and black currency are two different issues and again black currency and fake currency are different from each other.
What are the prudent arguments launched to make the masses believe that this is a very bold step to set right the ailing economy? The huge stock pile of black currency must be recovered and put to the white fold to put an end to the parallel economy and the growth of it . The flushing out and pumping in operation would put a huge flow of liquidity to the Banking system. Banks in turn will feel the need to lend further more liberally, so the cost of fund will slide down, consequently, the cost of production and services will go downwards, more and more enterprises will mushroom ,and jobs would be created , everything from properties, Flats, Cars will be cheaper, sales to pick up, GDP obviously to skyrocket. Banks would regain lost health, economy would rejuvenate. So, the ‘rosy days’ or ‘Achhe Din’ cannot be far behind. Sounds like a Cinderella story? No wonder, the Prince of the stories, heard in childhood days, is flying and conquering the Globe on the back of the ‘Winged Horse.’ The captive princess of the economy would be rescued soon, and thereafter, they and all of us would live happily ever. Do not worry! Just put up with the present ordeal for a blissful future.
‘Adieu! Adieu! Fancy cannot cheat so well’ and we are summarily thrown back to the ground, with our feet thereon. What is black money? Black money is that part of the income, which is deliberately concealed to evade taxes and held secretly. The black money corpus has two components, one is that which has fled from the country through many clandestine channels, and safely havened in Swiss Banks or elsewhere. The other is that which is within the country, and either kept idle in the form of Gold, or liquid currency, and that which is circulating in many business enterprises, and mostly in such fields as the Real Estate, the most performing sector of our economy. From this discussion, it is clear by now that the liquid currency which has been kept idle in store house, constitutes only a meagre part of black money held inside the country. The sectors like Real estate makes free use of black currency, but here the thin line dividing the black and white is more untraceable than palpable. The black mingles with the white, it becomes white, and again it may be converted in to black. So , in intelligent people who are experts in this game of interchanging, will also apply their brains now, and convert it into white, they know the game of interplay and the Tax authorities are helpless , because of strong political connections of the kingpins. Hence only currency and the fake currency could be the targets of this exercise. Even then, it must be accepted that part of hard currency, in our country, is a huge amount, and their recovery will also infuse substantial liquidity in the system. But would that be a lasting solution, there is every reason to doubt, what is the guarantee that would not go back to the source slowly, if not instantly? At the end of the day, even for the sake of argument, we agree that a formidable quantum of black currency is recovered. It will make the economy cash surplus affected, simply because of no demand growth, either domestic or international, it will create inflationary pressure. For the purpose of investment, the Government will have to indulge in investment in infrastructure alone for the sake of ensuring G D P growth. This mono dimensional growth trajectory may prove counterproductive in the long run, as it happened in case of China. Again this inflationary pressure will set aside the effect of growth in the economy. Secondly, who is going to bear the huge cost burden of this exercise, none other than the common people? Remember when this Government assumed charge, the rate of Service Tax was 12.36 %, by these two years only it shot upto 15 % in one pretext or other. Surly it is going to be enhanced further, in the name of GST to cover these additional expenses. The only positive aspect might be the neutralisation of current fake currency. The rackets would suffer a temporary loss, but they will soon make up by printing and circulation of fresh fake currency. The dalals, border area smugglers, a section of dishonest Government or similar employees, a section of Doctors or legal practitioners, may suffer loss. The neutralisation of black currency in the hands of this section of people will have very little impact on the system. And again they will make good of their losses by gearing up their undisclosed earnings. So the benefit of this exercise is negligible but the cost is too high.
Let us consider the theoretical aspect of it. Demonitisation, as a tool of black money control, is a discarded concept globally, in the theory and practice of Monetary Management. This is because of the huge cost of printing notes and distribution, and the related hazards. The cost factor is disproportionate with the benefit accrued, as it can target only the tip of the iceberg, in the cost benefit ratio analysis, it is unremunerative, uneconomical and non viable for that matter. Many other countries in the world, like Bangladesh, Pakistan, Sri Lanka, South Asian countries like Philippines, Thailand, or Latin American countries like Brazil, Columbia, Mexico, or African countries like South Africa, Zimbabwe or Angola are bogged down with similar problems of black and fake currency, still none of them are thinking in terms of Demonitisation, as the cost must prove a huge burden on the ailing economy, and therefore counterproductive. World famous economist Mr. Kaushik Basu, former advisor to the Government of India, and economist associated with World Bank clearly opined that this is a bad decision. Raghuram Rajan had also reservation about the efficacy. Surly, he would never agree to the proposal that was why he was bid unceremonious farewell.
Now, look at the reactions of the Bollywood celebrities, and other luminaries, who are celebrating the decision, are those, whose tons and tons of black money are stashed in various foreign destinations, and their money is playing in our stock market in the shape of Participatory Notes, conveniently none of them have to visit Markets, Malls or ATMs, let alone standing in Q s. The Politicians and the media are helpless, as they are committed to the cause of this regime. A new dimension of polarisation politics is surfacing. So far, we got acquainted with such divisions as Hindu vs. Muslims, Dalit vs. Non Dalits, students vs. authorities, beef eaters vs. Gau Rakshaks etc. Now a new idea of corrupts and cleans. When Modi and his men claim integrity and honesty, we are reminded of a well known Sayed Mujtaba Ali story in the ‘Chacha Kahini’. Chachas were the ‘Kuttys’ who operated in Dhaka at that time, as drivers or ‘Garwans’ of small horse driven carriages, were famous for their crisp wits and humours. One such story runs like this. Certain passenger was bargaining with the horse driven coach driver on the rate. The driver slyly, asked the passenger to quote his rate in a low voice lest the horse should hear, as it would provoke it’s laughter. Right from the Gujrat days Modi and his men are known for their dishonesty and fierce outrages, killing and annihilating the adversaries. Lots of examples of their money laundering can be cited, but this is not the place to dwell on them in detail. Their claim for honesty is as amusing as that.
Now , Modi and his men are to be taken for granted as the specimen of clean corruption free warriors against black money, those opposing are all corrupts and in favour of black money and black market magnates. This is the simple equation supposed to be accepted by all, otherwise one will be classified as Anti National. This is the political card he is playing, and the opposition, who are at war, are presented as black money tycoons. The fact is BJP who won the last 2014 Parliamentary election, on the strength of financial assistance lent by Ambanis and Adanis, is on not only sitting on the corpses of 2002 Riots, but also on the hilltop of black money .
Then, why is this (master) stroke? That is the question I will try to explain. All the election promises proved false or ‘Jumla’ admittedly. There is no move as yet to bring back the black money stashed in foreign Banks. ‘Achhe Din‘ is now a distant dream. In all fronts the economy and everything else is slowing down, nor likely to pick up in near future due to plaguing global recession, in this globalised ambience. Students, Senior Citizens, Dalits, Minorities, and Retired Soldiers are totally aggrieved and disillusioned. The economy is in a dismal shape in all fronts, without any positive sign of recovery in near or foreseeable future. Now the elections in U P, Punjab, Goa, are staring in the face. Kashmir militancy or the anti Pakistan patriotism, no longer paying dividends. No acceptable face as CM can be found yet. Entire party is solely dependent on the singular image of one Superman. Field survey is indicating defeat of coalition in Punjab. In U P Muslim, Dalit and even higher caste votes are hostile, so it would be a tough and uncertain battle. In Goa the infighting between hardcore RSS and the Parikkar followers are mounting, posing a threat to the electoral prospect. The Jats in Haryana, the Patidars in Gujrat, strong dissident forces are exhaling breaths on the shoulder, so they are desperate in search of a sensational ‘surgical strike’ to regain the lost ground. Hence, this gimmick is at play. BJP and their men had prior information, and they made arrangements, but the opposition, particularly Mayavati or Mulayam are caught on the wrong feet. Mayavati and the likes are the kings and queens of unauthorised black money holdings. This is nothing but a stroke to inactivate their black money kitty, likely to be used in the forthcoming polls, though at the same time it has inflicted a paralytic effect on the public life, but who cares for that? BJP aspires to sail through this turmoil.
From the discussion above, I hope to bring home my point that this is nothing but war between the contesting sides in the Parliamentary politics, where both sides rely heavily on the use of black money. In this unholy conflict, the position of the common people, running from pillar to post in search of exchange for their legitimate money, is as good as that of the blades of grass stamped ruthlessly in the ground, as a result of the fight between Elephants. From the beginning this regime is trying to threaten the people daring to oppose or contradict their designs, this is another addition to terrorise the opponents in particular and the public in general with the vile message that ‘I must be taken for granted, else I will make a hell of your lives and finish you’. So, finally, this move has less economics and more dirty politics in essence, It is a ‘political strike’ or rather a ‘carpet bombing’ on the masses, which we must bear with as nothing but ‘collateral damage’, a fall out of the ‘greater noble cause’.