Wednesday, November 08, 2017

Demonetization and black money

The problem with most politicians are fear of exposing ‘explosive hallucination and negative perception’, especially when they are in power.  No leaders would like to see their words, actions and public performances are criticized or ridiculed by opponents and people in India.  They consider it as an offense and insult, especially if they are in power and cannot take it on their stride, instead, they will try to suppress the dissenting voices and alternative opinions. They are fully proud and convinced of their knowledge and wisdom that is superior to anyone and the given people mandate is proof of acceptance to do ‘everything’ during their tenure in power. Their balanced resolve once considered as their strength becoming obdurate and afraid of preemptive comments aimed to befuddle their goal.   In contemporary India, we have so many leaders surrounded by ‘Yes Men’ who don’t like to disturb the apple-cart and our prime minister Mr. Narendra Modi is no different. 

When he became Prime Minister, he had nothing lose.  A clean politician not mired with corruption charges with a well nurtured brand Modi.  He had everything to gain and was gaining.  The trust level by people who had voted and those who did not vote are relatively much better than any other leader in recent past.  He, in fact, had an agenda and suitable execution plan for next five years and all he need is to start executing.  He is executing them including well researched and prepared public speeches supported by a good public relation team.  A group of social media team overworks and ensure that Modi is on top of media and digital contents.

There comes, the daring adventure of ‘black money hunter’ a disruptive plan with three-pronged strategy.  Get black money out from hole, fill the empty hole with opposition political leaders and recapitalize the economy with lakhs of crores.  The idea is remarkable, interesting and raring to go.  It is quite interesting like a Bollywood film script and had all masala mixes for a blockbuster.  The economic climate is conducive.  Inflation is all time low and consistent.  GDP growth also steady and all he need is to give a push to manufacturing segment and increase export to improve GDP.  Further he got the assurance of almost 60 billion dollars as foreign investment that is more than double comparing with UPA’s second term.  On political side, he had won every state election on his own and appointed CM on his own will.  A terrific advantage that any politician would envy of him. 
On personal level, Mr. Modi can imprint his name in the history of India as the best ever Prime Minister.  The modern Iron Man who don’t care of anyone when it comes to the welfare of the nation.  His idea of disruptive political strategy is well intended, but was it well thought out? 

In absence of Economic Advisory Council, Mr. Modi is forced to depends on National Institution for Transforming India, the policy think tank that is dear to him.  NITI and Finance Ministers are the two gateways for economic advises for Prime Minister.  Moreover, the strategy need to be developed and implemented with utmost secrecy and therefore his inner circle has been further reduced to handful of trusted minds.  This itself shows his own discomfort or distrust with his cabinet colleagues or fear of failure prevented him from disclosing to them.  Mr. Modi launched his mid-night surgical strike on black money only to be exposed soon as the most uncoordinated method ever in the history of Indian economy.    

I was coming from Karikkal after almost finalized a rental deal to start my retail textile showroom and received a call from a friend of mine informing Rs. 500 and 1000 currencies are illegal tenders. (I had promptly shelved my project in a week time, especially as an NRI I do not want to puzzle with political and economic uncertainty where I will be deprived of focusing on improving business).  I was blinded by the news, because replacing currencies are always done in phased manner and what made our PM to declare them illegal effective immediately?  We stuck with a restaurant and after coercing the restaurant owner we finally managed to pay and that too as if we are dealing something illegal.  I welcomed PM’s decision expecting that there might be something to law abiding citizens like us.

There comes the financial tsunami with all common men and women are forced to worship bank gods and live at the mercy of currency ration implemented by Finance ministry. On personal front, my cargo is held at Chennai airport due to my inability to withdraw cash.  While our PM is encouraging us to do cashless transaction with lot of lectures from ministers, media clowns and advertisements, his own customs department in Chennai was demanding cash payments.  I was driven mad and pulled my friends to arrange cash as I am stuck at Cargo offices.  A friend of mine was kind enough to send five of his employees to bank queues to exchange currency and finally managed to clear with demurrage obviously not on my fault.  Hundreds of people died at bank entrances while police and tax officials were nabbing people with crores of new currency notes elsewhere.  Common people accepted all hardships expecting some fortunes will befall on them by the mercy of Mr. Modi’s bold and brave decision.

Meanwhile, Mr. Modi delivered an emotional speech in Goa during stone laying ceremony of greenfield airport.  His speech was flawless if we look into the context of his intention, vision and goal.  He was in fact broke down during the speech and it shows that how much he loved this decision and subsequently the fear of failure started to haunt him.  If intention is the only parameter to judge the rulers than we should also accept Emergency declared by late PM Mrs. Ghandhi.  

Mr. Modi’s speech suggesting that he had developed a special bond with power and allowed this to disrupt his own mental equilibrium as it happened with Madam Indira Ghandhi.  Certainly, the macho man attitude and ‘I am the savior’ mental conformity took over our Prime Minister and the outcome is not a disruptive political strategy for good, but for bad.  Within a month as many as rules were changed on daily basis to maneuver unprecedented shocks and awes encouraged by stiff agitation from opposition and of course rudderless public.  Government was clearly under the faulty disaster management due to re-calibration of ATM and printing of new currencies. 

Former Prime Minister Mr. Manmohan Singh says ‘it is an organized loot and legalized plundering of public money’ and warned that this unanimous action of Mr. Modi will easily take away 2% of GDP growth.  Though his second point of 2 GDP loss is proved within a year, we are yet to verify his first statement. 

Why Demonetization was launched?

The initial objective of demonetization was to unearth black money; drain the terror funding to Kashmir separatist activities and Maoists in addition to weaning out counterfeit notes in market.  Removing of corruption from political and administration of India. Later, government added cashless digital transaction and enlarging of tax bracket as additional objectives.

What should have happened?

The returning of cash to bank should have been between 70 and 80% of estimated money circulation in market.  The balance that is failed to return will add up a good amount, enough to launch few massive welfare schemes.  Recapitalizing to bank for healthy capital strength and increase in lending activities.  Reduction of terrorism in Kashmir valley.  Unearthing and arresting of politicians and government officials with huge cash hoardings amassed from illegal wealth.  Setting a smooth platform for the launching of GST with lesser cap than present 28%.  A successful model for other countries to emulate demonetization.

On political front, decimating Congress once for all.  Modi becoming the Robin Hood of Indian politics and creating an ever-lasting legacy on Indian public and politics.  Large number of political defection from opposition parties to BJP. Bringing Kashmir separatists to negotiation table.
Stopping of corruption in government offices.

What has happened?             

99% of cash returned to system, thus buried the dream of massive welfare schemes and capital injection to much needed banking system.  Rs. 15.28 lakhs crore returned to bank against Rs. 15.44 lakhs crore in market.  Net benefit is a meager amount of Rs. 16,000 crore which is failed to return.
Around 500 crore worth of counterfeit notes were discovered against spending of around 7,965 crores for printing new notes to replace 500 and 1000 denominations excluding huge HR expenditures incurred during the operation.

Government received half the dividend of Rs. 30,659 crores compared to Rs. 65,880 crores in previous years due to demonetization.  (

The Modi government’s demonetization decision may have resulted in the loss of roughly 1.5 million jobs, according to new survey data put out by the Centre for Monitoring Indian Economy (CMIE).  A drop in the labour participation is the sign of economy slowdown.

Unorganized economic segment experienced the loss of around 70% during demonetization crises and slowly recovering.  Needless to say, that almost 86% of cash returned to the market and few marginal increase in digital transaction.  Cash rich status quo continues despite of demonetization.
72% increase in army personnel death in Kashmir in comparison with previous years, whereas it is considerably reduced in North East.  (Refer the link for more detail related terrorism in Kashmir and North East:

Barring few arrests of businessmen and officials during cash crises, there are no significant findings of black money hoarders within India.  While RBI have found spontaneous depositing of huge amount on certain number of accounts, this can invite penalties and tax payments and not something to cheer about with demonetization.

Is corruption stopped?  No one will think so.  Instead of going in deep, I wish to mention that corruption at ministerial level must have been stopped, due to Mr. Modi’s strong hands on involvement in central government, but that cannot be said so on state government levels, at least in Tamil Nadu.  But for common people corruption is existing in all over the country and in fact increased at every level in their day to day requirements from government offices.

Technically, politically and economically demonetization is a failed exercise and better to focus on future rather than holding it as a great achievement of BJP government, if not success.  Countering opposition arguments by constantly changing goalpost is not justifiable.  It may be convenient or appealing to intellectuals to speak about structural change, reform, future benefits, etc, but neither Mr. Modi, not Mr. Jaitley outlined the same while demonetization was launched.  ‘Work on progress or growth sequence’ arguments cannot be accepted since the government drags entire population on road with their magic word of fight against black money, terrorism, corruption and counterfeit notes.

Opposition parties charting a massive road show and decided to observe 8th November as black day true to their spirit of opposition.  Ruling BJP has decided to counter with ‘Anti Black Money Day’ knowing that there is nothing much to boast about it, but accepting failure would be fatal.  Most of BJP or Modi followers may hail this decision is bold and would credit to Mr. Modi for being bold.  The argument of ‘being bold’ do not support the failure of demonetization as any decision is validated with its results only.

BJP countering opposition with ‘Anti Black Money Day’ should have been avoided.   Accepting the management mistake is not a sign of weakness, rather a sign of honesty and strength.   However, considering Indian polity, we can expect our leaders to harness on opposition weakness and never bothered about their own weakness.  Subsequently a loss in Gujarat will aggravate Modi’s position and will be tough to face 2019 parliament election.  Knives will be out from his own NDA colleagues, unless Mr. Modi comes out with some pragmatic and logical plan to stem the rot.  Not the magical wand.