RBI

Demonetisation and it’s after”math”!!!

Ever since the RBI released its Annual report 2 weeks ago, Demonitisation (DeMo) is back in the news. And with its eminent Ex-Governor Raghuram Rajan now in India to promote his book, DeMo continues to hog the headlines and Op-Ed pages. The analysis of DeMo swing from scathing criticism of being a “big mistake” by the likes of Ex-Economic Advisor Kaushik Basu to calling it a “huge success and a course correction” by the likes of Gurumurthy, the veteran commentator on public affairs. So, as it happens in most issues these days, “for every spin there is an equally effective and opposite counter spin”! And where you stand on an issue depends on where you stand on the ideological divide.  On social media, it was a hashtag war between #DeMomenisationsuccess and #DeMonetisationfailure!

Ten months on, based on all the data available (99% of DeMo notes coming back to the banks) it seems that DeMo has not helped in sucking out the black money. In retrospection, I wonder how the government expected anybody in India to give up their prized possession (currency notes in this context) at all in the first place. In my own experience, when coming out with marketing promotion programs for the trade, we usually take twice the time for foolproofing the program compared to conceiving the program itself. This is from the wisdom of previous programs over the years where, we found that the Indian brain works over time always to find loop holes/gaps in any program announced. So, in a sales promotion program for example the trade will end up earning the incentives while you never achieve the increased sales objectives!

This is what happened in DeMo as well. If you remember, the day DeMo was announced, the chattering class’ verdict on WhatsApp group and dining area discussions was that it was a “Master stroke”! While the middle class and upper middle class folks who didn’t have unaccounted cash had to just find ways of beating the lines to exchange their notes, the ones who had, started cranking their brains. The result was the everyday tweaking of the rules and adding more terms and conditions for currency conversion. The then Economic Affairs Secretary Saktikanda Das became a celebrity overnight, thanks to his daily media briefings on what else – change in rules!

By now, it is clear that notwithstanding the anti-DeMo commentary of economists, there was overarching, tacit support for the DeMo move from common public. Inspite of loss of business for traders, loss of jobs for casual workers and loss of income for farmers the Note Bandi didn’t evoke much unfavourable mood towards the BJP so far. I am not sure if it will, from now on. What explains this paradox?

Many of the commentators have alluded to the human trait of Schadenfreude to explain this. That the poor were happy because this was one move which affected the rich and privileged and that the Prime Minister Modi had the guts to do so. This is a good possibility. But there could be more to this as well.  Within days of the DeMo announcement, the initial despair among people who were caught unawares with a lot of unaccounted cash turned into a relief, when they found ways and means to deposit the same into the bank. Among many ingenious ways, one was to tap into their own staff and workers to distribute the cash and get them deposited into their bank accounts. A report said that by Dec, the deposits in Jan Dhan Accounts peaked to Rs.74,609 crore! As of Sep, it was just 4,273 crore! The number of Jan Dhan accounts itself went up 5 times in this period!  My guess is that, in this process of conversion through the conduit of using others’ accounts, there must have been a cost.  The government must have lost an opportunity to earn taxes on the unaccounted income but those who had a lot of unaccounted cash ended up incurring a “conversion tax”! And I am certain that those who were witness to the rich incurring this tax felt certainly happy that DeMo was an equalizer of sorts. And not just being a witness, there would have been many who would have benefited from the sudden largesse of their masters as well and got their share of the “conversion tax”. So, instead of the government collecting taxes from the haves and distributing to have-nots by way of welfare measures did DeMo make it as a Direct Benefit transfer from the rich to the poor without the government in between?  Probably.

It’s evident now that the DeMo move has been a rocking political success for the government. On the economic front, though the objective of sucking up the black money has not been achieved directly, certain fringe benefits have accrued. Like reduction in cash circulation, increase in Digital transactions, and increase in bank deposits,…  These may leave the country in good stead in the future.  In the short-term however, the country skipped its GDP beat.

So when one does the after”math” of DeMo, it may well be like the popular “Elephant and the Blind men” story. For some, it’s a failure. For some, it’s a success. For some, it’s a partial success and for some it could be a partial failure. I would like to go with Rajan’s assessment that the short-term economic losses far outweighed the long-term benefits.  In hindsight, one is always wise. Other times – otherwise!

Savour the Achhe Din!!!

In these largely agonizing days in India, a call to savour the Achhe Din would seem highly preposterous, isn’t it??? Well, wait a minute!

  • New Delhi, Oct 1984 – The then Prime Minister Indira Gandhi is assassinated by 2 of her own body guards. Over the next few days, thousands of Sikhs get killed and their property burnt in Delhi in a violent reaction.
  • Chennai, Dec 1987 – M.G.Ramachandran, the charismatic actor turned Chief Minister of Tamil Nadu died after prolonged illness at his residence. His death sparked off a frenzy of looting and rioting all over the state. Shops, cinemas, buses and other public and private property became the target of violence.
  • New Delhi & Parts of North India, Aug 1990 – The then V. P. Singh Government decides to accept Mandal commission report which recommended 27% reservation for OBC candidates at all levels of Govt. services. Large scale protests erupted mainly in North India including self-immolation bids by students against co-opting the report.
  • Mumbai, Jan 1993 – Following the Babri demolition in Dec, 1992, what started as peaceful protests escalated into large scale communal riots in Mumbai between Dec 1992 and Jan 1993 where thousands of people died, properties looted and destroyed.
  • Thane, Mumbai, April 2001 – Shiv Sena Leader Anand Dighe dies in Singhania Hospital, Thane at a relatively young age of 50 following a cardiac arrest. As soon as the news of Dighe’s death broke, irate Shiv Sainiks went on a rampage in the premises of Singhania Hospital and set on fire the hospital.
  • Bengaluru, Sep 2016 – Supreme Court orders Karnataka to release of 15000 Cusecs of Cauvery water to Tamil Nadu. Immediate violent reactions erupted with burning of TN registered vehicles and destruction of public and private property.

In all the above, one can notice that while the provocations are different – from a leader’s killing to another leader’s own demise to a political move to demolition of a religious symbol to an adverse Supreme Court judgement that too in different parts of the country, the reaction of the people followed a pattern. Violence, looting, mob fury, vandalism,…,…. leading to many deaths and large scale destruction of property.

This proves that as Indians we are a bunch of gullible emotional people. We can get easily provoked into carrying out what are supposedly unlawful activities that bring disrepute to the country and also affect us economically.

In any country’s timeline there are defining moments. Moments which change the destiny of the country for the good or worse. Our country’s history since Independence also is replete with such defining moments – some of them which we can be proud of and others which push our heads down.

I reckon that the Demonetisation call of 8th Nov, 2016 would be such a defining moment in our country’s history when it’s scripted later. I am not here to pronounce this based on the economic benefits of Demonetisation. The erudite are already doing it with media abound with pieces hailing and trashing the move in same breath. And frankly it is early days yet. However something else that is monumental is happening in the country which is what this post is on.

Going back to what I elucidated in the beginning of the piece, in our country we get easily provoked. And the result of the same is there for all of us to see. In this context let’s look at what’s been happening since that eventful address to the nation of the Prime Minister Narendra Modi on 8th November:

  • Bulk of currency in circulation was withdrawn and we were told to go Banks/Post offices to withdraw/exchange the old currencies before Dec. 30th
  • Since then there has been serpentine lines in front of banks.
  • Banks have been woefully short of currency as RBI’s supply chain right from printing to distribution has not been able to cope up.
  • Banks when they had currency only dispersed high value 2000 rupee notes.
  • ATMs have not been mostly functioning and if working for few hours, could give us just 1 note of Rs.2000.
  • The rules of withdrawal and exchange have been changing by the hour and have been the butt of new WhatsApp jokes by the minute! In fact the exchange goal post of 30th Dec. has been brought forward.
  • Both the TV and print media have myriad stories of how Demonetisation has affected the common man in urban and rural areas.
  • There have been many deaths attributed to Demonetisation in many parts of the country. Every day there are updates on the death toll in the media.

demon-toon

It’s almost a month now and still the situation is fluid. As one can see that this Demonetisation gamble by the Govt. has presented to us – public many, many opportunities to get provoked.  But the one difference is we that have not got provoked. At least up until now. And I hope I have not spoken too soon.

The resultant emotional outbursts leading to violent reactions for events mentioned in the beginning are sometimes quite spontaneous (though it is still difficult to explain the reactions so very violent) but many times orchestrated to further political interests. In this case (Demonetisation) also we have seen few political parties trying their best to spin things out of control and bring the Govt. on its knees. But just that this time around, few things have been different:

  • The common public of all hue – have not taken to damaging of banks, burning of empty ATMs, attacking Bank officers, setting on fire currency vans,… even when they have been driven to heights of frustration.
  • There have not been blackening of faces of BJP leaders or burning of effigies of PM or the RBI Governor!
  • For the 1st time in my memory, political parties had to go a large length to explain that they were not supporting any Bharat Bandh supposedly after reading the citizens’ Anti bandh mood!
  • For the 1st time again in my memory, no political party has given the Demonetisation move a communal colour so far. Otherwise in our country any decision from awarding a Padma Shri to constructing a hospital is given a communal tint by commentators and vested interests very convincingly.

For the above reasons I would like to believe that the benefits or otherwise of Demonetisation notwithstanding, this move will emerge as a defining moment in India’s history – where the public of India completely toed the line of its Prime Minister, shunned the rhetoric of others, remained unprovoked and went through the grind.

I am not sure if we as a country will display such great maturity in reacting to unfavourable events in the future. But for now, let’s savour the Achhe Din!!! Shoba De in her today’s column calls 2016 – Annus horibilis! No, Ms. De – for this significant change in our public reaction, 2016 is in fact Annus mirabilis!!!

Toon Courtesy: Satish Acharya

Also read my other post on Demonetisation – “Cash Mukt Bharat” here!

Cash Mukt Bharat!!!

  • The neigbourhood vegetable bhaiyya Yadavji is still going strong negating all predictions that the organized retail will swallow the likes of him. Organised retail didn’t quite swallow him. But he is now a fringe player of that organized retail. I pick up the weekly need of vegetables and fruits. His son who is in his early twenties, quickly totals up the bill in a handheld POS (Point of sale) device and lets me know the amount. He then sends me a request for the payment using his UPI (Unified Payments Interface) App on his smart phone. I approve the same and the payment gets credited to his account.

  • Adi Ganesh Store which was a popular shop in our neighbourhood In Mumbai catering to the typical needs of the South Indians (Read as Filter Coffee powder) is now Adi Ganesh Super market. They now accept payments in credit cards even for purchases under Rs. 100.

  • At the Guruvayurappan Temple nearby, the Hundis for coins and cash have been replaced by plastic card swiping machines where all donations can be made and receipts received.

  • Our family physician Dr. Purab is still the smiling self and fit as ever. He continues to give his own medicines but one can pay his fees through credit card.

  • The “Old paperwala on call” still comes promptly to collect the old newspapers. He now has a tie up with the Big Bazaar chain of stores and gives Big Bazaar cash cards for the paper taken.

  • Almost all auto rickshaws are now part of some aggregator or other and are accepting payments through mobile wallets.

  • The Domestic help handed over a card which had the details of her bank account number to which she requested the salary be transferred.

  • It looked like that the benefits of JAM (Jan Dhan Yojana/Aadhar/Mobile phone) which had threatened to be just a great theory has become a reality.

I realized that India in Jan 2025 is not the same in more ways than one as it was in 2017 when I left for abroad.  But I am surprised first, impressed next and fascinated finally by the transformation of a country in the area of financial inclusion and the transition to almost a Cash Mukt Bharat in just 8 years!

Almost everybody I talked to credited this transformation to various moves the present BJP Government undertook and in particular the “Demonetisation” of 500 and 1000 Rupee currencies in 2016. I remember that time very well. It was in November of 2016 when the country had just finished its annual quota of bursting crackers for Diwali. On 8th night, it was the turn of the Prime Minister to set off his Diwali bomb. At the stroke of midnight 500 and 1000 Rupee notes lost their legal tender. What followed in the next couple of weeks I now realize had sown the seeds for India almost becoming a Cash Mukt Bharat.

currency

With almost no cash in hand available, the general public had to resort to ways and means to avoid using their left over legal tender and use them only sparingly. People started doing day today shopping of veggies/fruits,.. in super markets instead of the neighbourhood vendor though he sold stuff fresh.  People avoided auto rides by hailing on the roads and resorted to “Ola Autos/Ola Cabs” where they could pay by mobile wallets. Within few days as banks resembled Ration shops of the 80’s India with serpentine lines right from sunrise, vegetable and other vendors started accepting cheques for payment in fear of losing their customers.  Most food establishments who had a minimum limit for accepting credit cards removed such limits. In the hinterland of India is where the impact was colossal. Though a big population was banked under Jan Dhan Yojana, till then they were not banking. The overnight shortage of currency, helplessness in otherwise carrying out day to today lives and finally the threat of losing business permanently pushed many to figure out alternate ways for making and accepting payments and they did. There was utter chaos for few days as the country came to terms with the move but ultimately in the long run, change did happen. In India normally change is slow. But under duress change is swift.

“Can you get up now?” It’s the wife at home waking me up from my nice Sunday afternoon siesta.  “I told you to think of a topic to write for the daughter for tomorrow’s Children’s Day event. Did you think of something??” I had not. But muttered as usual, “Yes”. What’s the topic on?? She asked. And I answered, “My dream India @ 2025!!!”