India stares at an imminent doom

"In the long run we all are dead", wrote John Maynard Keynes, the great British economist, in 1923 on the debate in Great Britain on restoring the pre–First World War fixed exchange rate system known as the gold standard. He said so in a befitting reply to the government’s false and misleading promises that in the long run, the move would help the nation. India, in 2017, is faced with a similar predicament after having been through more than 50 days of hardship inflicted by demonetisation and the government’s ever–changing narratives on the motive behind Independent India’s arguably biggest decision affecting the masses, chiefly, the poor.

All prime time cameras were rolled on PM Modi’s address to the nation at 8 pm on November 8. The Prime Minister appeared on national television and declared that Rs 500 and Rs 1000 notes would no longer be a legal tender.  He claims to have waged a war against black money, terrorism, and corruption. The world was astounded, the media was swayed as usual, and the common man confused. The world witnessed an unprecedented gesture when the entire country seemed to be standing in ATM and bank queues for exchanging old currency for the new ones. Over 50 days later, India is still reeling under cash crunch; a new form of corruption is on the rise and the informal sector, which contributes significantly to the GDP, is severely damaged. Despite the fact that hundreds of people have succumbed to misery this decision has inflicted upon them, the government has made over 65 amendments in the currency rules in last 50 days. Those who understand the economy and the politics in this country are strongly warning India of gloomy days ahead in 2017 with clear indications of a deep recession.

Those who stand by the PM’s move are asking the nation: does this risk of recession mean that the government should continue to tolerate corruption, black money, and Pakistan–financed terrorism?  No. But, it does mean that when the government chooses a policy instrument, the government and the public should be aware of all the benefits and possible costs of the intervention.

“I wonder whether the PM realised what the consequences would be. He emphasised the fact that terrorists were using counterfeit currency. He also talked about black money and to drastically curb, if not stop, hundred per cent of black money. The narrative of a cashless society of less cash society came much later. I am of the view that the decision that was made will not achieve the objective of curbing black money drastically nor will it have a significant impact on the financing of the terror activities through the use of counterfeit currency,” says Paranjoy Guha Thakurta, Editor of Economic and Political Weekly (EPW).  He also adds that a very small proportion of black money in the country is held in the form of cash. A study suggests that as per the Income Tax Department seizures across India, only six per cent black money has been detected in cash. So in other words, the bulk of the black money is held in form of under–valued assets including real estate, precious metals, jewellery, and gems among others.

“Demonetisation goes against trust. It undermines the entire economy of trust”, Nobel laureate Amartya Sen said in an interview, adding ,”Only an authoritarian government can calmly cause such misery to the people — with millions of innocent people being deprived of their money and being subjected to suffering, inconvenience, and indignity in trying to get their own money back.”

Indian Statistical Institute, Kolkata, has said that about Rs. 400 crore Indian currency is counterfeited and in an economy as huge as ours, this amount is not worth creating a disturbance. Also, the government has said that about Rs 700 crore have been circulating for terroristic activities. So many economists are of the view that for just Rs. 1100 crore this move of demonetisation is not a wise decision.

 

Dissecting the real motive behind the demonetisation move, Abhay Kumar Dubey, an eminent political analyst, says, “In a situation when there was no economic crisis in the country, no political pressure from the opposition, no particular threat of being tagged as a non–performing PM, Modi’s 30 months of rule has also been far better than UPA–II regime and the current government was not facing any reputation crisis as well. Despite having no strong reason to demonetise the currency, PM Modi took this decision which is a subject of surprise now. I feel this is an attempt of getting his name registered in the history by surprising all. It was a decision taken in a hurry with no homework or preparation done before pushing the country to this mess.”

Indicating the other side of the story, Anil Chamadia, veteran journalist and Editor of Mass Media says, “This government has made an attempt to find a temporary solution to the impending danger upon capitalism. The neo–economic policy has left banks to almost bankruptcy and Modi government has been under immense pressure to bring life to these banks, and the increasing number of non–performing assets (NPAs) has added to government’s woes. Another failed model of capitalism is already there in form of Special Economic Zone (SEZ). Look at those thousands of acres of land acquired by hook or crook and the structures built on those pieces of land. Who gained what out of the entire process?”

Amidst the reports of the government’s plans of waiving off or writing off industrialists’ several hefty loans and an apparent loss of a common man, PM Modi has strengthened his capitalist image when he appeared for Reliance Jio and Paytm advertisements. Endorsement of private players by the Prime Minister has never been witnessed before.  

The RBI has cut its GDP growth forecast for this financial year from 7.6 per cent to 7.1 per cent, citing the government’s demonetisation exercise that sucked out 86 per cent of the currency in circulation. Rating agencies and broking houses have also cut their estimates of India’s GDP growth for 2016–17 in anticipation of disruption in economic activity during the October–December quarter because of the cash crunch. While, Fitch Ratings lowered India’s GDP growth forecast for this fiscal to 6.9 per cent from 7.4 per cent, saying, “Time spent queuing in banks is also likely to have affected general productivity. The impact on GDP growth will increase the longer the disruption continues.” 

“It’s certainly a monumental miscalculation at PM Modi’s end. As it has already claimed over a hundred lives, it can’t be rolled back now. And in the long run, it has dangerous repercussions. The new currency will certainly fill the void sooner or later but the damage to the informal sector is a serious wound. 90 per cent of the employment is in the informal sector which is cash–based. Folks are losing jobs and businesses are on the verge of death. Now Indian economy, which remained intact from the global recession, has been put in a deep crisis. Depression and disappointment among masses have started brewing and revolts against the government are clearly visible now,” said Dubey.  

Sharing the same sentiment, Thakurta added, “I believe this decision has been arguably the most disruptive decision of its kind taken anywhere in the world, especially when there was nothing much out of the ordinary at the time in the Indian economy. So this decision, ostensibly to surprise people, was taken with very few people knowing when it would be. I think the poor of this country have been affected the most. Those who are daily wage labourers, farmers, and traders of perishable commodities, elderly people as well as women who saved a lot in their daily life. It is also important to note that people have been put to great difficulties and inconvenience and much more than that. A lot of pain has been inflicted upon a large section of this society.”

In a sharp attack on Indian government’s demonetisation move, Steve Forbes, the Editor–in–Chief of Forbes magazine has gone all out and expressed, what they have done to the money is ‘sickening and immoral’. “India is the most extreme and destructive example of the anti–cash fad currently sweeping governments and the economics profession.” He added that India, apart from immorally harming its own people, has also set a bad example for the rest of the world. 

India may have the world’s second largest internet user base, but connectivity remains out of reach for nearly 950 million citizens, an Assocham–Deloitte joint study has revealed. “Even with the internet data plans in India being among the cheapest in the world and the average retail price of smartphones steadily declining, connectivity is still out of the reach of nearly 950 million Indians,” it said. India currently has about 350 million Internet users, second only to China. But the flip side of the story is that we have a long way to go for a cashless economy.

“We are a country of 130 crore people with roughly 85 crore being adults. We have about 45 crore bank accounts with few debit cards and credit cards. Out of these 45 crore accounts, roughly 25 crores are Jan Dhan Yojna accounts and even today, one out of 4 of these accounts has zero balance. Reports have also come up saying that in order to meet their targets bankers have deposited 1 rupee balance to lakhs of such accounts to exclude them from the zero balance account list. Forget about internet access, about 40 per cent of the population doesn’t have a regular supply of electricity in this country,” said Thakurta, adding Modi government’s shift to cashless economy is nothing more than an attempt of diverting the attention from the failure of demonetisation move.

A report by Google India and Boston Consulting Group showed that last year, around 75 per cent of transactions in India were cash–based while in developed countries like the US, Japan, France, Germany etc it was around 20–25 per cent. Due to demonetisation, business for mobile or e–wallet companies has been upped by up to 4 times and the figures are increasing.

Putting a strong statement, Anil Chamadia signs off, “I don’t see any possibility for a cashless economy in the nearest future, as projected by the government. Those who are campaigning for it are ignorant of the fact that a major proportion of our rural population has not held a pencil in their hand, let alone a smartphone.”

“There has been an unfortunate tendency in our country from time to time to take umbrage at the expression of any view perceived to be hostile to our social or cultural institutions, past or present. Similarly, critical appraisals of our heroes and national icons of the past have been met with hostility and sometimes even violence,” were the words of President Pranab Mukherjee at the inauguration of the 77th Session of Indian History Congress at Thiruvananthapuram on December 29. This is not the first time the Constitutional head of the country reflected what the country has been facing, several other prominent voices have shared the same thoughts. 

The intensity of the fast worsening situation could also be measured when the Prime Minister says, “Those who are against demonetisation are like Pakistan as Pakistan violates ceasefire to make sure terrorists infiltrate into Indian territory, identically the opposition is creating chaos in Parliament so that the cheats get away. I had never imagined that politicians will stand with corruption.” Running a government with no strong political opposition, media, and thinking class in the country, Modi government’s intolerance to the argument does not augur well for the democratic tradition of India. Dragging nationalism into every issue is an easy escape from facing uncomfortable questions and it has been evident in the social media as well where a systematic strategy is in place to defend the government beyond facts and logics. How murkier the situation has become is also clear when in a newly lauched book,  'I am a troll' by Swati Chaturvedi, where Sadhvi Khosla, a former BJP social media cell volunteer, reveals how they were asked to target minorites, Aamir Khan and journalists voicing against the system.