The trauma of demonetisation far outweighs any gains it might eventually produce.
Effects of note ban are disastrous
There are two issues involved here — one the reasons behind this decision, and the second whether this pain will give us some good results or not. Let’s get into a little background about India’s cash outlook. I am giving you figures which have been sourced from several reports by experts. As a percentage of GDP, the value of notes and coins in circulation in the Indian economy is 12.2 per cent, which is higher than countries like Russia, Brazil and Mexico. The ratio of money held in notes and coins to the amount held in demand deposits and savings account in India is a staggering 51 per cent, well above several countries. It is also a fact that fewer than 45 per cent of Indians above the age of 15 have used a bank account. Less than 12 per cent have ever used any kind of non-cash payment instrument.
So in a country like India, which is extremely cash-intensive, squeezing out 86 per cent of the currency in circulation is bad economics.
The reasons that have been given were counterfeit currency, terror funding, black money and finally going cashless.
Counterfeit currency cannot be the reason as per reports a secret study by intelligence agencies along with the Indian Statistical Institute has revealed that Rs 400 crore fake currency is in circulation. So for Rs 400 crores, should we junk about Rs 15 lakh crores currency? The argument does not much ice. Now terror funding — we saw that terrorists who were killed by our security forces had new Rs 2,000 notes, so that argument has also failed. Next was black money, we have seen all reports which have emanated on black money, they say the cash component of black money is only six per cent rest all is stashed in bullion, real estate, etc.
Finally we come to the cashless reason. As per reports, India is a fiercely competitive telecommunications market, possesses well-developed financial markets and is a leading exporter of technology services. But less than three per cent of Indians have used a mobile phone to receive a payment, compared to 60 per cent Kenyans and 11 per cent Nigerians. Also, cashless payments are much more sizeable from a value perspective rather than a volume perspective in India. The reason is mainly access and connectivity, which are a big hindrance. Now before solving these problems, if we rush into a cashless mode, it is like putting the cart before the horse.
According to reports coming from across the country, small traders and businesses have been severely hit. Let’s look at the figures: two-wheeler sales have dipped, IIP manufacturing has dipped, sales of HCV heavy commercial vehicles have dipped and the freight traffic of railways has also gone down. The impact of all this is India’s economy is projected to grow at 6.5 per cent instead of the 7.8 per cent projected by economists earlier. Other projections coming in are certainly not flattering for the government. Moody’s investor’s services say asset quality at Indian banks reeling under a pile of bad loans will weaken. Small businesses, the biggest creator of jobs, are estimated to forfeit transactions worth $9 billion. These are alarming projections.
Let’s also look at small industries. The shoe industry in Agra is in tatters, and there have been major layoffs. Similar instances are being reported from the lock industry in Aligarh, hosiery industry in Ludhiana and Tirupur in Tamil Nadu. Farmers are equally hit because of cash restrictions — sowing of wheat has not taken place. In Nagpur, oranges are not being picked up, and there is a serious crisis. The government itself is admitting that in two quarters there will be problems. In reality, no economist has praised this effort, and the effects are disastrous on the economy. Sadly, there is going to be no gain after this pain.
Abhishek Dutt is spokesperson, Congress Delhi Shadow Team
It’s really an economic satyagraha
The debate on Narendra Modi’s demonetisation has been based on a flawed assumption that it is a policy. Unfortunately, both vocal supporters as well as its opponents share this hypothesis, shrewdly construed by anti-demonetisation forces. It is a programme, which emanates from a sane vision to create an egalitarian sentiment.
Its impact, generally calculated in terms of GDP, is a gross injustice with the very idea of demonetisation. It has multi-dimensional effect from democracy to economics. It demolished politico-economic oligarchy, which commanded maximum black money and used them to influence policy, politics and public opinion industry.
Over the years black money has become an integral part of economic activities. The magnitude of black money has not so important than proportionally its manifold dysfunctional impact on our civil life, culture and polity. Therefore, demonetisation is both generative and regulative.
A common man does not need a textbook economist to enlighten him about pitfalls or benefits of demonetisation. They experience it in their day-to-day life. The pain generated by growing inequality multiplies by unethical behavioural patterns penetrating from top to bottom. Therefore, this move can also be seen as a correction in the philosophy of neo-liberalism, which demands the least state intervention and assumes that for faster growth and development society has to bear the pain of both corruption and inequality. The state has been increasingly withered away under the impact of big capital and their insensitive masters. Corruption and black money led the failure of the pink tide (Communist ascendancy to power) in Latin America and it also showing the tendency to unsettle many developed liberal democracies, which have moralised inequality. All these remained incomprehensible for the anti-demonetisation forces, which combined political parties, corporate/business class and their apologists in the West. Convergence of their interests created a coalition of forces. But the collective conscience of the Indian masses defeated the anti-demonetisation coalition, which coincided with anti-Narendra Modi rainbow. People bore the pain but remained unfettered in supporting demonetisation, that’s why I call it an economic satyagraha.
But there is also a sad part of the demonetisation debate. It has been trapped into micro narratives shrewdly construed by the brain trust of black money. The public discourse has been made prisoners of sensational breaking news, how much money deposited, queues in front of banks and ATMs, some exceptional incidents, etc. It is not that they do not deserve attention but they can’t be the centrality of a debate. Unfortunately, agencies of the Indian state, like the Niti Aayog, collectively could not create meta-narrative on demonetisation and left everything from micro to macro to the Prime Minister to explain and interpret. It suited the economic oligarchy of the country, which was most affected by unexpected march of ethics and democracy in neo-liberal economic horizon. It is to be pondered whether what the Planning Commission successfully used to do for Jawaharlal Nehru or Indira Gandhi, could the Niti Aayog do for Mr Modi? Blind anti-Modism in Indian politics privileged these agencies of uncriticality.
Last but not least, Mr Modi has also given a powerful message that ethics and the quest for egalitarianism are not in the past tense but very much present in the dictionary of governance. The pink tide may fail due to lack of their conviction in people’s welfare, but the saffron tide can’t fail due to its undiminished commitment for the people’s cause.
Rakesh Sinha is associate professor, University of Delhi, and honorary director of India Policy Foundation