Demonetisation: Nation paying for an amateur decision, billionaires silent

Demonetisation: Nation paying for an amateur decision, billionaires silent

Sunanda K Datta-RayUpdated: Thursday, May 30, 2019, 11:04 AM IST
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Indian Prime Minister, Narendra Modi arrives to pay tribute on the 147th Birth Anniversary of Mahatma Gandhi at Rajghat in New Delhi on October 2, 2016. / AFP PHOTO / PRAKASH SINGH |

Nearly three weeks after Narendra Modi’s surprise announcement on demonetisation, no one will question his motives. But it is clear he jumped into the decision without adequate understanding of what needs to be done. It also seems likely that the surprise measure may not have been such a surprise to everyone after all.

It’s even more curious that the necessary follow-up action is receiving so little attention. It’s not enough to abolish big notes, the uses to which they are most often put must also be tackled. That means the purchase of land, buildings and gold, and, above all, election spending. The parallel economy will never be controlled so long as every legislator starts his legislative career with the lie of the false election return he submits – as Atal Behari Vajpayee told a parliamentary committee way back in the 1970s.

Constitutional purists have also pointed out that all the announcements seem to be from the Prime Minister with Shaktikanta Das, the Economic Affairs Secretary spelling out details. Even the Finance Minister seems to have taken a back seat. As for the person responsible for implementing fiscal policy, Urjit Patel, who succeeded Raguram Rajan as Governor of the Reserve Bank of India in August, we don’t seem to have heard even a squeak up to the time of writing. This is not merely a matter of protocol, Mr Patel’s silence baffles and bewilders people groping their way through uncertainty and suffering.

There might have been less confusion if a professional finance manager had been responsible for decisions and arrangements. As it is, the amount that can be withdrawn has been changed. The periodicity of withdrawals has been changed. The amount and dates on which old money can be changed into Rs 100 notes has been changed. Soiled notes have been reintroduced into circulation to meet the tremendous demand for valid currency. Rs 500 notes are being allowed for more and more purposes. The new Rs 2,000 notes do not match ATM trays. We are told they are authentic only if the colour runs. The Hindi inscription is apparently misspelt. Second thoughts seem to have produced the decision to ink a finger.

These signs of amateurishness and bungling lead to the further conclusion that demonetisation was not a professional decision based on financial grounds. It was a political decision rationalised post facto by citing unconvincing economic grounds. Hence also the extraordinary claim that 85 per cent of the currency notes in circulation are tainted. How isn’t clear. Some are said to have been forged abroad and sent into this country through Pakistan, Bangladesh and Nepal. Some are used to fund terrorists. Some represent undeclared and untaxed earnings.

So many different reasons amount to an embarrassment of riches. One is reminded of an Utpal Dutt play (possibly Ferrari Fauj) where the police is determined to incarcerate a young man who has displeased the force. So they accuse him of being a smuggler, a wagon breaker, a thief and a murderer. The strategy of piling up a multiplicity of charges in the hope that one will stick doesn’t necessarily indicate guilt. Here, too, while no one can deny that the economy is riddled with black money, it’s not all that easy to reconcile the reasons given for demonetisation with a coherent plan to cleanse the system. Black money is not a hoard that must be liquidated. It’s a way of doing business that only strict discipline inspired by a sense of honesty can hope to reform.

Inevitably, the chaos raises questions about the degree of autonomy the RBI enjoys. The authors of the Reserve Bank of India Act knew that a monetary authority has to be insulated from government interference to some extent to ensure economic stability. While the RBI is expected to listen to the government while taking crucial decisions, there have been instances in the past where it has put its foot down and resisted political pressure. P Chidambaram, the former Union Finance Minister, claimed in a recent television interview that Manmohan Singh’s United Progressive Alliance regime had also considered demonetisation. But Mr Patel’s predecessor, Mr Rajan, argued that the pain of demonetisation would outweigh any benefits from the move.

Whether he was right or wrong is another matter. What matters is that he was not bypassed. Some banking associations have demanded Mr Patel’s resignation. They blame him for surrendering to the government’s will and acquiescing in an “ill-conceived and unimplementable move”. It is now up to Mr Patel to salvage his credibility by explaining how the monetary situation has changed since 2014 to allow such a dramatic policy decision.

He must also explain why the policy seems to affect only poor and middle class people. The rich don’t seem to have been touched. If, as statistics show,  India’s 100 richest people have more money than two-thirds of the population put together, it stands to reason that their enormous wealth must include some at least of those tainted notes that are said to account for 86 per cent of the currency. According to Wealth-X, the global leader in providing intelligence on wealth, the top five business houses accounted for 47.5 per cent ($85.5 billion) of the total $180 billion held by 103 Indian billionaires in 2014. Forbes listed only 65 billionaires in 2013 and 61 the previous year. So, the number of billionaires (and we are talking US dollars, not the despised demonetised rupee) is growing if nothing else in India is.

Lakshmi Mittal may be abroad, but there have been no reports of Mukesh Ambani, Dilip Shanghvi, Azim Premji or Pallonji Shapoorji Mistry – the other four members of the Big Five according to Wealth-X – being seen in any bank queue. That also applies to billionaires like Shiv Nadar, Kumar Mangalam Birla, Adi Godrej and Shashi and Ravi Ruia. Curiously, Ratan Tata, de facto head of a group with a market valuation in 2013 of Rs 6 lakh crores, doesn’t ever figure in any list of fat cats. Surely the others also need to deposit, withdraw and exchange cash?

One final point: why have these tycoons not commented on a major fiscal move? Some have been quick before to hail the National Democratic Alliance’s actions. Their deafening silence this time is intriguing. But there is enough applause from the saffron brigade to confirm this is a political – not economic – decision. They claimed barely 10 days after Mr Modi’s bombshell that demonetisation had reduced Pakistan’s mischief. No doubt they will soon claim it has also put an end to Kashmiri separatism, Maoist rebellion and various ethnic insurgencies in the north-east.

What demonetisation alone can’t do is cleanse the system. Tax avoidance is in our DNA, as a State Bank of India proclaimed at a recent investors meet organized by a leading commercial bank. The prevalent political system gives full encouragement to that trait.

The writer is the author of several books and is a regular media columnist.

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