The demonetisation of high denomination currency notes is by far the most revolutionary feat of any Government in independent India, from which its opponents and victims are reeling even three weeks after the momentous announcement by Prime Minister Narendra Modi, on the evening of November 8.
The move must be assessed in the context of radical actions by his predecessors. Indira Gandhi’s nationalisation of banks and abolition of privy purses affected a miniscule elite; the poor were untouched and the middle class felt more secure with its savings in public sector banks which gave 15 per cent return on deposits, leading to the doubling of household savings in five years. The demonetisation by the Janata Party regime in 1978 impacted only the rich, who quickly managed the transition to currency notes of lesser denominations. As neither the middle class, urban poor, nor rural areas were affected, it grabbed headlines for a day or two and slipped from public memory.
Today, however, the poor handle high denomination notes with equanimity. The Reserve Bank of India’s preference for high denomination notes (around 85 per cent of all currency in circulation at the time of demonetisation) made these the standard currency for the middle and more affluent classes. Naturally, Modi’s bombshell announcement shook everyone.
It would be unfair to deny the inconvenience and suffering of many across the nation, yet it is undeniable that the majority support the Prime Minister, to the surprise of media persons who hoped to exploit their misery to embarrass the government. Perhaps the native intelligence of the Indian people has discerned more than the nation-wide Lutyens elite, spawned by the Nehruvian socio-political matrix that has long dominated the public sphere.
Demonetisation is the brahmastra (supreme weapon) that has killed or seriously maimed several asuric (demonic) forces tearing into the vitals of the nation. Most obvious is the black economy that has dwarfed the legal economy many times over, and frustrated development goals by denying the State its legitimate taxes.
Simultaneously, it has corrupted political parties, politicians, bureaucracy, police, judiciary et al, who protect this perverse system, at a price, which further distorts the system. Often, the media and non-governmental organisations (NGOs) serve as fronts for these interests; this complex matrix is now collapsing in the absence of its most powerful glue – money. This will be a complicated process as those involved will resist being drawn into the white economy (recall the poor compliance with the recent disclosure scheme). Credit Suisse Group AG, the Zurich-based financial services company, asserts that the richest one per cent of Indians own 58.4 per cent of the country’s wealth; the Government has every right to make them pay their taxes.
Interestingly, many small traders and shopkeepers have in the past decade moved from fully cash operations to computerizing their sales and giving receipts to customers. They, and the urban poor (vegetable and street vendors, etc.), bounced back from demonetisation within days and could offer change to customers with the new Rs 2000/- notes. That is why the social unrest desired by many aggrieved parties failed to materialise.
However, one must in fairness express sympathy for households with a wedding in the family; those who had difficulty in paying school fees and hospital bills, and tourists and travellers who landed in India in the immediate aftermath of demonetisation. The Government was also slow to respond to the needs of the farming community, imposing needless conditions on purchase of seeds. Fortunately, the acreage planted under the rabi crop has increased 36 per cent.
Cynics allege that the Prime Minister was motivated by the forthcoming elections in Uttar Pradesh, Punjab, and Goa, and has crippled his opponents who would have trouble organising rallies and undertaking election expenses. The Aam Aadmi Party’s near collapse in Punjab and forced withdrawal from the municipal elections in Mumbai supports this theory. But the rage articulated by the Trinamool Congress, with others following suit, shows that the impact is beyond States going to the polls. So far, only the Janata Dal United in Bihar and Biju Janata Dal in Odisha have publicly supported demonetisation.
But the real losers are the Great Crime Syndicates. Intelligence sources say the ban, smack in the middle of the wedding season, was driven by reports of a heavy infusion of fake currency to fuel terrorism. The timing preempts any precipitate action by the incoming Pakistan Chief of Army Staff. In one scoop, all fake currency stands junked as bank counting machines have scanners to detect faulty notes.
In Kashmir, inability to pay Rs 500/day per stone pelter has ended that menace to the police and security forces. Raids on the NGOs run by Islamist preacher Zakir Naik and allegations of a raid at the premises of separatist leader Syed Ali Shah Geelani show the Centre’s determination to crackdown on the sources of extremism and terrorism. Maoists are equally affected. Worst affected are the drug mafia, hawala agents, extortion mafias, and even human traffickers (especially of young girls). Overall, the underworld has been badly crippled.
There is also a large class of affluent urban professionals (one lawyer alone coughed up Rs 125 crore in cash during a raid on his premises) who have large incomes outside the tax net. Many in government service have amassed illicit fortunes. Much of this wealth, if held in cash, may go down the drain, bringing windfall profits to the Reserve Bank of India (we will know after December 30).
However, it appears that many have used agents to dump money in Jan Dhan accounts that are suddenly flush with money. These rich people are unlikely to personally know so many persons with Jan Dhan accounts. Only agents could deposit over Rs 64,000 crores in empty Jan Dhan accounts (over Rs 10,000 crore in UP alone) so quickly. By sealing these accounts and keeping a sharp eye on the Nepal and north-east India routes, many money laundering channels are being chocked.
It was a wise move to close the Cooperative Bank route to depositing trashed currency, though that is possibly the surest way to bring all black currency into the system, and the Government may take a call on this after the December 30 deadline. Certainly it must now push formal banks into rural areas, rather than leave villagers at the mercy of cooperatives controlled by political heavyweights. Demonetisation has decapitated a hydra-headed monster. It remains to be seen if it can regenerate itself, and to what extent.
The Pioneer, 29 November 2016 [Title: Demonetization is the weapon against asuras]