Barring the infamous emergency of 1975 enforced by Indira Gandhi, India’s millions had not been thrown into a convulsion on a scale wrought by Prime Minister Narendra Modi’s demonetisation with its chaotic impact for the entire population and a distressed economy, neither job-creating nor inclusive.
Nobody would grudge the altruistic Modi his noble intent to end corruption and black money, but his “surgical strike” as his ministers take pride in characterising his November 8 action in illegalising 86 per cent of money in circulation, had deprived the people at all levels of much-needed cash in time. This has pushed the poorest among them to the veritable brink of survival. Ultimately, at some point of time, we would hope to get to know the outcome of such an arbitrary exercise of power in relation to its ostensible purpose. It could prove to be a pittance for the assumed hoards of tax-evaded cash for nefarious purposes. Thus, it could set a train of more desperate moves to bring out the elusive black money, whatever the consequences.
The Modi Government seems to have moved into gear of decisiveness, with the majoritarian streaks of some of its ministers, ignoring canons of our proud Democracy. Instead of the promised achhe din, the people of India are bearing economic pain in the third year of the Modi Government. The economic adventurism underlying the demonetisation has to be viewed in the political context, with the forthcoming elections in UP, a crucial pathway for 2019 when Modi would be aiming at his second term. Whatever that may be, he could have mitigated the unbearable sufferings of the middle class and poor in having access to their hard-earned cash for day-to-day transactions. That would have necessarily involved the Prime Minister at least consulting close confidantes including economists who would have spelt out ways of achieving his objectives with less pain for people at large. And expert advice would have spelt out a phased approach and ensured technical advice on preparations needed for such an assault.
That the country’s monetary authority was itself caught unawares is clear from the pre-arranged interview with its head, Governor of RBI Dr.Urjit Patel, who breaking his silence thus far, said demonetisation involved “mammoth logistics”. There was no indication in the interview as to how long it would take for normalcy in the banking system to be restored to be able to meet genuine needs of honest customers and for fulfilling credit requirements of the economy. The Governor said the situation was gradually easing.
On the disruption of trade and business in the country, Dr Patel said it is “very rare to remove 86 per cent of the currency in circulation in one go” and then listed the steps taken by RBI to meet the situation on a daily basis. An acute financial stress or money black-out is continuing to take its toll in several ways. The masses, urban and rural, line up for wherewithal after surrendering whatever they held in the banned currency.
With the arrested flow of cash, economic activity is grinding to a halt in many places, the most affected being the vendors of vegetables, fruits and other perishable goods, retail traders who are witnessing steep fall in sales, and the small-scale industrial units facing demand constraints. Workers are not getting paid their dues and migrant labour has become the most vulnerable in this cash squeeze, thousands of them returning home without being able to realise their earnings.
The end of a gigantic social misery is not in sight, at this stage. With the people’s money locked up with the ill-prepared banking system, it could be a few months – not Modi’s “fifty days” even after demonetisation has played out devastatingly for 20 days – before one could go to a bank for cash with some confidence. This again is subject to the Modi Government not coming up with ‘fatwas’ on how banks regulate business. In the guise of relief, a gradual remonetisation has been taking place through RBI with a series of relaxations.
It would be months before the printing of new notes of the required quantities is completed. Given the huge amounts poured into banks by genuine customers, RBI has announced an incremental CRR till Government issues market stabilisation bonds. In effect, this puts Government at greater fiscal comfort, enabling it to set apart a certain amount for recapitalisation of stressed banks while generally it should boost some development expenditure such as on infrastructure. The first charge on it for Finance Minister Arun Jaitley would be to make up the shortfall in keeping fiscal deficit at the budgeted 3.5 per cent of GDP. But the Modi Government plans to turn the adversity for the masses into an opportunity for its grandiose plan to march toward a “cashless economy”, even if the required logistics for it in far-flung areas of the country and preparing the people, with high illiteracy and ignorance, to get used to digitalisation would take a long period. But Jaitley wants India to get used to the “new normal” as a result of demonetisation.