Demystifying Demonetization

Tearful goodbyes are being bid at the funerals of the 500 and 1000 Rupee notes across the length and breadth of India.

Some are crying more than the others. Memes galore portraying this monumental demonetization coup that slayed the money monsters have flooded the social media portals. As expected some rib-tickling and some downright crass.

The salaried class’s grief is negligible it seems on the surface as compared to that of the small business class who are probably crying tears of blood right now. After all, they did so very meticulously and painstakingly avoid the taxman’s dragnet for all these years and were able to assiduously squirrel away what they thought was a lifetime of savings.

Now its all gone. Turned into worthless pieces of paper. Even the venerable Mahatma’s image on them not able to redeem their fall from grace!

Unless you are very brave and are prepared to bite the bullet and deposit your stash into a bank account. Brave to expose yourself to the tax departments scrutiny and bite the bullet of a 60% (Tax + Penalty) grab by the government if you can’t justify the income.

The ‘Midnight Modi Masterstroke’ is being sold as the most brilliant political maneuver that the world has ever witnessed. The public allegedly is very supportive of this move if you were to believe all the social media commentators and the political pundits of a certain feather yap-yapping overtime. They claim the public is willing to endure a brief period of hardship for the greater good of the nation even drawing the extremely false equivalency with our armed forces. The nation is supposedly united and resolute in its support for this gambit to weed out black money and consequently take a sledgehammer to the head of a snake called corruption.

With the stage set, let’s cut a little deeper though into the Demonetization pie to see what kind of filling it reveals. I have already painted a very appetizing picture of the crust of the pie what with all the praise and accolades that are being heaped on the Prime Minister for his coup de foudre. That said, as I begin to cut into the pie I start noticing that the appearance and the aroma of the filling are very unappealing. What I mean by the turn of phrase is that the ‘public’ that is being alluded to in this conversation is not the majority of India but only a small percentage of her populace. That percentage of India which doesn’t get paid in cash for their days work and which doesn’t need to line up at the end of a long hard day in front of the grocers to buy the meager supplies for dinner that night with cash. This small percentage has credit and debit cards which can be swiped at will and presto food is on the table. This small percentage is inconvenienced though as they have to stand in line at ATM’s over the weekend to withdraw cash and then contend with the added inconvenience of posting selfies while partaking in the adventure of a lifetime to drive home their epic undertaking! I truly feel for them.

It’s time to take a bite of the filling now. The first taste of it is a shock to the palate. Unpalatable. The shock stems from the realization of the sheer lack of thought behind the execution of this move. Even the most pro-government economists concede that at the absolute maximum only about 7-8% of black money was being held in the form of cash (500 and 1000 rupee denominations). The remainder 90 odd percent is being held in the form of various other instruments like bullion, real estate, financial products and investments or most likely stashed away in foreign banks. This then begs the question: Why this blitzkrieg on the 10 % and only lip service for the other 90%? (the claims of the PM that he would bring back all the black money in foreign banks). I should probably use the phrase ‘surgical strike’ in this context as it is most apt seeing it was conveniently surgical focusing on the 10%!

Another narrative extolling the virtues of this move is its direct and tangible impact on the abatement of terrorism and naxalism across the country. The logic is that the cash was used to fund the various extremists and their nefarious agenda but with 86% of money (especially the higher denomination variety) now kaput has knocked the wind out of their sails. This logic perhaps holds water but it is hard to imagine if it is going to have a lasting impact on terrorism. Time will only tell and I shall be very happy if it does but I will reserve my judgment for the time being.

The lofty end game as envisaged by the government is to march  toward a cash-free society and system. It is an extremely well-disposed goal but with almost 98% of all transactions happening in India being done with cash today it seems a long, distant dream. A pipe dream some would say at this stage of maturity as a nation. That being said, we must inch toward that goal with every socio-economic policy that is legislated converging toward that goal. Baby steps and not Big Bang is the need of the hour.

Lastly, the much trumpeted benefits of Demonetization like real estate becoming more affordable, interest rates on loans coming down, growth in equity markets, fillip to Jan Dhan accounts and a salubrious impact on the GST will be the barometers to either the success or the failure of this move.

Perhaps the government of the day will pay heed and take cognizance of the mayhem it’s well- intentioned but ill-planned and ham-fisted implementation has wreaked on the public at large and will perhaps get back to the drawing board and engage the brightest minds this nation has to come up with a better and more pragmatic approach.

All of us without exception would like to see the demise of black money and the parallel economy it helps support and that could well happen in our lifetimes if proper impact analysis of public policy is performed and any detrimental impacts to the public mitigated before implementation.

But for now, we must call it what it is – A Surgical Strike on Black Money; the collateral damage of which has been the Indians who do not have any Black Money and the evidence of the efficacy of which if any is still being sought but is yet to be found!