Demonetization – A perspective




DEMONETISATION – A Perspective – HK Agrawal

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Demonetisation has undoubtedly been the biggest news item for India in 2016. It has affected the  country’s economics, finances, politics and social structure. Innumerable articles, editorials, messages on social media, debates in Parliament have been devoted to this topic. Opinions, even among economists, have been very sharply polarized.

Unfortunately, the political views of authors – for and against Modi have deeply coloured most of the opinions on Demonetisation.  For bhaktas, everything was great;

whereas for Modi haters, it has been  a conspiracy against the poor farmers and the labour sections of this country. As always, perhaps, the truth lies between these two extremes.

The Political Game

Let us first examine the political implications of demonetization. For me personally, it has represented an inflexion point in Indian politics when a Government moved from “populist measures” to a “decisive hard step”. Demonetisation may have hit the traders and business class – the traditional support base of BJP, the most.

Modi daring to hurt his own support base is ‘a new’ in Indian politics, where all decisions have been based on electoral calculations. After long, we have a Government which is willing to take politically risky, tough decisions which, in its view are, ‘desirable, for the country and its economy.

Of course, people can differ in their perception of “what is the desirable or correct decision”. But I do not think one can find fault in the intent behind demonetisation. No politician will hurt his or her own constituency unless he/she has a strong conviction on a subject. Why, then, is there is so much criticism of this scheme? Or in the way it has been implemented?

The Haves and The Have-Nots

To understand this, we have to look at the demography of this country. Today, two conceptual ‘States’ constitute the nation.

First ‘State’ is of ‘The Haves’. This group constitutes of Politicians, Bureaucrats, Large Industrialists and the moneyed class. The country recognizes them as VIPs – the kind of people who do not have to stand in a queue for darshan at Tirupati. This group has all the power/money/connections and also the Black Money. They are willing and are able to break all laws of the land (have you ever seen any VIP being ‘challan-ed’ for wrong parking). In fact, your VIP status is easily judged. The more laws you can break with impunity, the higher you are in the pecking order. Political parties are perhaps the biggest hoarders of black money in the country. Readers may recollect that a few years back, Politicians (cutting across party lines ) also wanted the Right To Information Act to exclude political parties.

The second group of course is of ‘The Have-nots’ – the law abiding common man of the country without any power (and without black money).

VIPs and the Law

Demonetisation was against black money and hence against VIPs. But total implementation was also in hands of these very VIPs – who have been able to subvert the scheme. Have you seen any of the politicians, Babus, Industrialists standing in the long queues in front of Banks? They are people who subverted the system in collusion with Bank officials. If greed doesn’t help, fear will. One hears that in the interiors of UP and Bihar, many Bank Managers have exchanged large sums of old notes. Goons with guns still manage things in parts of India.

Therefore, in my humble opinion, administrative reforms, demolition of VIP culture, establishing rule of law (by openly punishing VIP law breakers) should have preceded this mammoth exercise. Perhaps our decision makers had not fully reckoned with the power and innovative dubious strategies of this group.

As far as the second group of law abiding ‘Have-nots’ is concerned, they suffered for no fault of theirs due to the now ‘infamous’, lack of implementation, administrative and logistics capability of our officialdom.

The very group Demonetisation targeted managed to subvert it. In the process, it has hurt (atleast in the short run) the common man of the country, it was supposed to benefit. How ironical/sad!

So, has Demonetisation been a failure? In my view, it is too early to pass a verdict on it. Perhaps we will be wiser after 3-6 months about the full impact of this decision. I am sure many Studies/Doctoral Theses will focus on Demonetisation. I also hope that it will be followed by many other reforms. We need to continuously work against the generation and hoarding of black money. Electoral reforms to break the influence of black money in politics will also be helpful.

Instilling Fear of the Law

But one thing appears certain – For the first time in independent India, Modi has instilled the fear of law in the hearts of law breakers. Also a move towards a digital economy, at least at an awareness level, will prove useful in days to come.

Hindsight is a great teacher. In hindsight, a decision of this magnitude needs much better preparation. The Government has been caught woefully short. The Government should have started by demolishing the VIP culture; administrative reforms; electoral reforms; and establishing the rule of law (without any discrimination).  This would have improved implementation capability. Is that a Chicken and Egg question?

(Mr Agrawal, 70 years young, believes the greatest Truths of Life are very simple and can be expressed in a few words.)