Even as the common man gets in line for fifty days of pain, the affluent have

found innovative ways to launder their hoard of cash.

A week into the demonetisation drive, we are in the midst of a painful transition.
In a televised speech on November 13 delivered in Goa, the Prime Minister
sought 50 days reprieve, though he did not tell us what exactly we should
expect. Perhaps we are en route to a better state but in the interim we are left to
ponder an unedifying transition. Much of the evidence of what is taking place in
the economy since the fateful night of November 8-9 is anecdotal, but no less
valuable for that is all we have.
News from different parts of the country indicate two developments. On
November 8 itself, there had been frenzied late-night shopping till midnight
especially in the upmarket malls. This indicates that some sections of the
populace had money hoarded from unaccounted activity and wanted to get rid of
it while it was still legal tender. From the next day on, there has been a rush to
the banks to exchange currency notes and to deposit money into savings
accounts. The experience of those attempting the former has not been a happy
one. Reports speak of long waits, scuffles, bank employees favouring relatives
over fellow citizens and banks running out of cash. The mind is drawn to
accounts of the life of the people of Delhi in the reign of Mohammad-bin-Tughlaq.
Accounting for oneself
The other development is the reported spurt in deposits in Jan Dhan accounts. As
these accounts mostly belong to persons with low incomes, and often showed a
near-zero balance, it suggests that these deposits may be black income being
distributed among many agents. We have heard of benami titles to property,
could we have just witnessed the emergence of benami deposits? Could the
facility of allowing deposits of up to Rs.2.5 lakh without attracting income tax
have unwittingly acted as a conduit to the laundering of black money?
Pulapre Balakrishnan Accounts have also come of gold sales rising. How can this
be possible when high-denomination notes, which as we shall see constitute the
overwhelming part of total currency in circulation, are no longer legal tender? We
are told that this is made possible by pre-dating sales. Of course, where stock
movement is verifiable this would be difficult. But it does speak of many
loopholes that have been suggested as means of sabotaging the intent of the
demonetisation. Yet more exist. We have actual statements made by party
bosses in Tamil Nadu that they have distributed old notes to their workers before
a by-election to come. So, in Uttar Pradesh where elections are due only in 2017,
there is no reason why money cannot be distributed right away, a form of
advance payment. One would expect that the Rs.4,500 limit on the exchange of
notes is just the right magnitude in the context.
A slowing of commerce
Demonetisation had targeted the stock of illegally accrued wealth held in the
form of money. Where disgorging of it in the forms suggested above is not
possible, demonetisation would be successful in punishing the guilty. This view of
the role of money as a store of wealth is appropriate. But the demonetisation can

also affect the flow of income in the future even when it is to be earned legally. If
this happens, it also punishes the innocent. This it can do as money is also the
medium of exchange without which the overwhelming majority of transactions
cannot occur. It is not hard to imagine the impact on transactions when over 85
per cent of the countrys money stock that is, the share of high-denomination
notes in the total is sucked out of circulation. The economy has responded
predictably. The pre-midnight shopping spree of the day on which
demonetisation was announced was followed by a slowing of commerce not only
in the bazaars but also in the upmarket shopping malls themselves. Where
transactions involving employment of persons cannot be undertaken, there is an
irretrievable loss of output. It cannot be made up after the currency shortage has
been ended. The national political leadership and the technocrats of the Reserve
Bank of India (RBI) appear to have missed this possibility.
The Prime Minister has expressed his confidence that the people of India will
bear the inconvenience of the transition for the sake of purifying the country. But
engineering a loss of employment is not inconvenience, and this could hardly
have gone unnoticed by those affected. The RBIs stance is worthy of Marie
Antoinette. It is quoted as exhorting Indians to turn to Internet banking as it
would also enhance the experience of living in the digital world. This is
somewhat brazen as the RBI has been granted the monopoly of note issue
precisely so that it facilitates economic exchange. There are unlikely to be many
takers for the governments propaganda on public radio which has a kirana store
owner say that he is not worried as his money is clean and he has till the end of
the year to change it. This misses a trick as it ignores the many who cannot earn
an income as the system does not have enough money to enable transactions to
take place.
Thus views on the transition are likely to be influenced by how one is placed in
relation to the income generation process. So, for instance in Kerala, where many
live directly or indirectly on monthly remittances from West Asia and where
undeclared income is rife, a relatively aware local population is likely to see the
demonetisation as justified and hurting the rich. They may well see it as a
surgical strike. However, in small-town northern India where households are
dependent upon daily earnings from the local economy, the populace is likely to
be energised less by schadenfreude at the discomfiture of the rich as much as
the loss of their own livelihood, about which we presently read in the press. They
are likely to see the demonetisation as a form of bloodletting.
What could have been done
Could this have been foreseen? Yes, absolutely, were the policy intelligently
designed. The central bank could have started replacing the larger denomination
notes with smaller denomination ones much earlier. This would have isolated
those holding unaccounted income in the form of high denomination notes, the
unspoken premise of the demonetisation. There is of course a case for secrecy,
but the RBI has long shown itself to be unmindful of the need to facilitate
transactions in any case. This is the only conclusion that one can draw from the
fact that so large a part of the money stock was constituted by high
denomination currency. It reflects a complete disregard for the low-value

transactions that dominate the economy. It is not hard to see that a very large
number of Indians must earn less than Rs.500 a day. Given this, it reveals a
monumental lack of sensitivity to withdraw the Rs.1,000 note and bring in one of
Rs.2,000. Given the average daily income of an Indian, and the average value of
transactions, a move to a money stock far more balanced between the
denominations is absolutely essential now. The issue of a shortage of small
denomination notes in the economy was brought to the attention of the RBI
some years ago.
Stemming the rot within
The Prime Minister has brought the issue of corruption centre stage. But it is
important to recognise that there is more than one narrative on the issue. One is
that a few rich entrepreneurs have evaded the rules laid down by the state and
got ahead of the rest of the people. At one level, this cannot be denied and this
line of argument can be whipped up to some political advantage. But there is a
counter-narrative, and it is that the entrepreneur in India is forced to generate
black money to gratify the political class and the civil service who are the
gatekeepers of all activity. This is hardly a novel argument. It is what underlay C.
Rajagopalacharis imagery of India being governed by the licence-permit raj. His
only mistake was to see this as entirely due to Jawaharlal Nehrus economic
policy. Actually this is Indias inheritance from colonialism, zealously guarded by
its beneficiaries, again ranging between the political class and the civil service.
So if Prime Minister Narendra Modi does go on to check all records going back to
1947, as he has said he is willing to do to root out corruption, he may also want
to investigate the role of the government machinery in the process of generating
unaccounted income. One should not be surprised if this role is quite substantial.
Of course, one hopes he does not do this as it not only carries more than just a
whiff of retrospective taxation, it can leave us mired in a transition longer than
the one we are in now. We are told that our Prime Minister admires Lee Kuan Yew.
We know that in building his country the late Singaporean statesman started
with the civil service. He is known to have treated its members well, but is
unlikely to have countenanced their being corrupt themselves.
Pulapre Balakrishnan teaches economics at Ashoka University, Sonipat, Haryana.
The views expressed are personal.
Keywords: Narendra Modi, Goa, Mopa, Tuem, demonetisation move

The morality of binaries

G. Sampath

NOVEMBER 18, 2016 01:54 IST

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MORE-IN

Prime Minister Narendra Modi

Demonetisation

Narendra Modis political opponents stand no chance against him unless

they can script a powerful counter-narrative that resonates with the masses
and isnt about him
Demonetisation has been done many times before, without it disrupting the
lives of ordinary Indians. Not this time though. Could it have been done in
a less disruptive manner? Yes. Then why wasnt it?
While there is no answer to this question from the government, some have
blamed it on lack of adequate planning, and others on the necessity of
secrecy. But the real answer may lie in the political rather than the
economic or logistical realm. One could debate the merits and demerits of
demonetisation as the best strategy to curb the black economy. One could
also debate the merits and demerits of a fast demonetisation versus slow

or gradual demonetisation. One could debate the manner of execution, in

view of the known incompatibility between the newly printed notes and
the ATM machines that could not dispense them without recalibration. One
could debate the impact of this demonetisation the instant elimination
of Rs.500 and Rs.1,000 notes, which constituted 86 per cent of the
currency in circulation on ordinary peoples lives.

I, me, myself
All these aspects have indeed been widely debated. And it was eagerly
anticipated that Prime Minister Narendra Modi, who was away on a visit
to Japan, would address these issues on his return. Some were even hoping
that he might roll back the move to ease the pain, at least until the logistics
are in place.
Instead, the rhetorical turn in his speeches the day after his return took
everyone by surprise. Addressing public functions in Goa, Belgavi and
Pune on Sunday, he sought to turn the entire narrative about
demonetisation into one about himself, his political career, and the
unfairness of being persecuted by powerful enemies. I know what kind of
forces and what kind of people are against me now They will not leave
me alive. They will destroy me, he said. In other words, the one who truly
deserves sympathy in the present scenario is not the mass of daily wagers,
street vendors, and farmers whose already precarious livelihoods have
been disrupted, but Mr. Modi.
His rhetoric not only painted a sinister picture of anyone who dared to
question his governments moves, in one stroke, it rendered all criticism
suspect. Anyone familiar with the tropes of Mr. Modis speeches would
recognise his invocation of those who looted the country for 70 years. In
this populist narrative that he has constructed and strengthened through
hundreds of speeches over the years, the Congress equals the corrupt
equals the black money hoarders equals the elites equals the liberals equals
the Modi-critics equals the anti-nationals equals the bad people who want
to destroy India. At the same time, the good people equals the true
nationalists equals Modi equals Modi supporters equals the Congresshaters equals the proud Hindus.

Neither of these concatenations is fixed they are liable to be extended to

include new categories or shrunk to focus on a select few. But as
encapsulated in Mr. Modis teary-eyed appeal, the significant aspects are
three: the moralisation of politics, the infusion of emotion into policy
debates, and the reduction of all debate into a single question, are you in
support of Mr. Modi or not? If yes, support him. If no, then its hardly
surprising that you are criticising what he has done.

Sacrifice for the nation

While this may be a crude summary of the dynamic at play, there is no
denying that it is working for Mr. Modi. Anyone who has been out in the
past few days queuing up outside ATMs could not have failed to come
across people from every strata, but especially the lower middle classes,
who, while acknowledging the hardship they are going through,
nonetheless believe that Mr. Modi has taken a bold step for the good of the
country.
When he says, I promise you I will give you the India which you
desired I am doing what I was asked to do by the people of this
country, not only do a large number of Indians believe him, their words
supply meaning to their hardship by wrapping it in a narrative that
connects them to a larger cause, and makes them feel good about
themselves. One would have to be really small-minded to complain about
50 days of hardship if this hardship could help make India a great nation
by cleansing it of black money, no? But Mr. Modis narrative doesnt stop
at seeking the peoples support for demonetisation or for fighting black
money. He wants them to save the country by saving him from his
enemies. And speaking of his enemies, Mr. Modi said, They thought if
they pull my hair, I will stop and do nothing. I will not be cowed down. I
will not stop doing these things, even if you burn me alive. These are the
words of a person who holds the most powerful post in the country, of a
person who is supremely in command of a party that enjoys a brute
majority in Parliament.

Cult of the leader

Could there possibly be an objective basis for such utterances? One may
recall his response when cow vigilantes were on the rampage. Shoot me if
you want, but not Dalits, he had said. In a democracy, why must anyone
shoot anyone else? Was it not possible for him to simply condemn the
attacks on Dalits? But had he done so, he would have ended up
acknowledging anti-Dalit atrocities as an authentic issue during his
regime. By asking people to shoot him instead of attacking Dalits, he
flipped the narrative of Dalit atrocity into one about Narendra Modi.
His response to the ongoing currency note crisis follows the same pattern.
The demonetisation is the first bold, decisive step one with immediate,
nationwide impact that Mr. Modi has taken since becoming Prime
Minister. He did it in the most dramatic fashion. Days after the move, the
nation is reeling under the impact.
What used to be financial arcana has become a televised national
spectacle. Above all, it has underlined in no uncertain terms his power as a
leader, as someone extraordinary, and who towers above every other
luminary in the national political landscape.
This brings us to the reason why he does not engage in a dialogue on equal
terms with anyone be it from politics or the media on any of his
moves. Its because it runs the danger of diminishing his stature. It also
carries the risk of elevating the status of those he parlays with as an equal
which is another way of diminishing him in relative terms. Hence the
importance of frequent foreign trips. It is as if the only individuals he can
be seen to interact with on equal terms are leaders of other countries,
especially countries that command a bigger say than India on the
international stage. Hence the bear hug of Barack Obama, Francois
Hollande, Tony Abbott, and their ilk, extendable to other larger-than-life
members of the global power elite such as Mark Zuckerberg or Hugh
Jackman. The only modes of interaction open to ordinary interlocutors in
India are supplication, obedience, and unquestioning acceptance.

Dominating the discourse

For Indian democracy to remain healthy, it needs political leaders who can
challenge the Prime Minister as an equal. Right now there seem to be

none. Hence his manoeuvre which has now become standard operating
procedure of addressing his response from a podium, directly to the
people of India, every time he is challenged on any of his policies.
Ever since he became the Prime Minister, Mr. Modi has been firmly in
control of the national political narrative, with not a little help from the
media. The way his demonetisation drive has unfolded reveals his
willingness to leverage this control to evacuate all possible alternatives to
his helmsmanship of the countrys destiny. He will continue to do so as
long as the narrative that conflates national interest with Mr. Modis
interest remains unchallenged.
His political opponents have been quick to talk about the businessmen who
bankrolled his election campaign and are thus invested in his success. But
there doesnt seem to be adequate recognition of the fact that a large
number of ordinary, lower-middle-class Indians are emotionally invested
in Mr. Modis political fortunes. It is they who appear ready to undergo
any hardship if it promises positive outcomes for their leader not unlike
a battalion of soldiers ready to sacrifice their lives for their general.
Going forward, we can expect more from this playbook of turning every
issue into one about Mr. Modi. What should concern those who cherish
democratic values is the absolute lack of imagination or ideas among what
passes for the Opposition in the country. His opponents stand no chance
against him in the 2019 elections unless they can rise to the challenge of
scripting a powerful counter-narrative that would resonate with the masses,
and also, most critically would not be about Mr. Modi.