How The Largest Democracy Trumped!!!

On Nov 08, 2016, as the world was awaiting & speculating on the election results of one of the oldest modern democracy, the prime minister of the largest democracy, in his televised address took the world by surprise at 08:00 pm IST. After months of following & speculating “Who would be the 45th President of USA?" the most anticipated election results of the year, in a spur of moment was not significant anymore; at least, it did not matter for the millions of Indians both at home and abroad. Prime Minister Narendra Modi in his pragmatic style decided AchheDin (Good Days) should start with a NayaSavera (New Dawn) taking the initial lead over Donald Trump's MakeAmericaGreatAgain.

Little would have anybody guessed the link between Prime Minister Modi's vision for AchheDin and SwachhBharatAbhiyan (Clean Indian Mission). As it pans out, SwachhBharat is not all about defecation, it is infact edification - a promise for change inviting everyone to participate and discharge with improved efficacy, whatever that may be, it can still be clean and legitimate. As an individual, AcchaDinAyenge (good days will come) for me, when I aspire for better days and that depends on what I believe. But, for a nation, AchheDinAyenge when it reflects to addresses the basic problems: Instability, Dysfunction, Corruption, Crime, Poverty, Inequality, Progress.....

In one whipping moment, “the 7th largest economy of the world demonetized a staggering 86% of the currency in circulation.” Since then, I have been hearing and reading mixed responses. Most were in support of the move lauding the will of the political leadership to eradicate black money and intensify its fight against corruption. At the same time, reports emerged against the government’s resolve, in particular by the opposition parties citing inconvenience to AamAdhmi (common people) and also the reports on how dissidents have sprung into action working with stealth and speed to scheme & create networks for themselves and for others to channelize, exchange, and bring into mainstream economy their now “no-value ?500 & ?1000 currency notes” amassed illegally and is unaccounted.  

It was heartening to read in social media about:

• Employees getting paid through invalid currency notes up to 8 months salary in advance by their employers to get rid of unaccounted cash off their hands. Only time would tell, if it’s Diwali for those employees or is it Divaaliya (bankrupt) for both of those employer and the employees.
• The gold rush to exchange their ill-gotten wealth held mostly in high-value denominations into gold ornaments.
• Agitated dissidents destroyed defunct currency by either burning or throwing it into major rivers.
• Destitute refusing to accept ?500 & ?1000 currency notes
• Cases of abandoned bags found with stash of cash.
• Sports Bookies shutting down their operations due to fear of raids and lack of legal cash and others deferring payments to winners who had speculated victory to Donald Trump.
• Billboards at Chaiwala’s saying Paytm karo for amounts as low as ?7. Adoption & Penetration of technology has been a revelation and probably encouraging tipping-off the revolution for financial systems' transparency.     
• Advises on how to legitimize by splitting huge cash holdings and deposit them “into new accounts up to 2.50 lakh, deposit into children account as cash gift received, deposit into women accounts as savings from household expenses over the years” etc,.
• How those who left their relatives for money are now finding relatives to hide money.
• Domestic helps experiencing unusual kindness from their employers - to explore if they can be used to launder their undisclosed cash.
• Divorced men who had earlier refused to pay alimony offering to pay with arrears in invalid currency notes.
• Controversies about selective leakage and that this was not a closely guarded secret – implementation was delayed up to Diwali to flush out stashed money as cash bonuses to employees and also as gifts
• Politicians agitated by the Govt. clamp down, however, most of the common public who elected these politicians to power are willing to cooperate & support the Govt. despite their inconvenience.
• The Economics Times a popular daily reported about "Pulse of the Nation" survey conducted on Nov 8 & Nov 9 after scrapping of the ?500 & ?1000 currency notes: It revealed, majority of respondents 82% favored the governments decision for demonetization.
• Common public appreciative of the bank employees for their sacrifices and dedication to help desperate people and avoid panic.  
• Finally, RBI seeking IAF support to improve efficiency in ferrying cash.

While many may have applied most of the methods listed above and invented others to convert their black money into white, others decided to avoid scrutiny and harassment at a later date either out of their voluntary disclosure or IT raids.  

But, what exactly is the truth?  It isn’t clear to me.  

• Is this the big bang reform of the government to eradicate poverty by eliminating black money? But what about black wealth?
• Is this the big bang reform of the government to work for all and not just for few privileged?
• Is this the catalyst that would initiate actions and provide momentum to an ambitious blueprint promoting an endogenous demand & growth with an exponential trajectory?   

Politics and Black Money

Is this really the surgical strike as claimed by the Govt. to eradicate corruption & parallel economy? If so, why the apprehension or hesitation to promulgate an order restricting financial contributions to political parties to be made only in the forms of cheque, demand drafts, electronic transfers or through payment via credit cards or debit cards to ensure transparency and disparities in the accounting system if identified by IT Department on the behest of ECI will lead to disqualification of the candidate even if he/she becomes the elected representative?

Financial Inclusiveness

• Was the urgency & push for Jan Dhan Yojana a move far greater than the projected “financial inclusion of the under-served and a move to encourage them to use banking structures for their regular transactions” but a precursor for demonetization?
• Was Jan Dhan Yojana the preparation to move all financial transactions through formal banking institutions?  Yes, it did certainly increase the bank account penetration rate, but at the same time it has also contributed to a steep increase in the total number of dormant accounts to 43% (considered among the highest in the world). Was this the big move by the government to ensure people deposited their small savings confined in their home with the banks to later exchange it? Or Was it part of a bigger plan to attract first-time bank account holders to start using formal banking services: zero balance accounts and direct transfer of subsidy benefits might not have been enough.
• Would those in the rural household be comfortable to make or receive payments through electronic fund transfers, say thorough IMPS (Immediate Payment Service). How are they going to be trained?   
• Was the move aimed at home makers to declare their unaccounted wealth, secretly held by them and also encourage and provide them with access to formal banking systems & financial services to save, make, or receive payments?
• Would this infuse of wealth deposited by unsuspecting common people and home makers who have maintained their kitty of small savings in the confines of their house going to benefit the economy and give it the required impetus to grow at higher rates? Well, assuming it does, how much wealth would this infuse into the mainstream economy?
• Common people and home makers are not responsible for running parallel economy. Their high-denomination cash deposits come from their piggy banks, saved over time and is out of their hard-earned money. What is the guarantee that they would not be harassed or put to undue hardships by the Income Tax officials in the days ahead in the pretext of investigation? 
• Is it really going to force those involved in money laundering to deposit their huge stash of cash though “zero value” now into banks and compel them to declare their source of income and assets?
• But why demonetize currency in a country which is predominantly a cash economy only to reintroduce the same denominations? This does not look like a move towards cashless economy.
• Why demonetize currency when two-thirds of the population live in rural areas and access to banking institutions and financial infrastructure is not that remarkable.

Taxation Reforms

• Was this a move to widen the tax-base from the present 1% of the total population? What is the probability and projected numbers?
• What about, improvements for effectiveness of tax administration by improving accuracy in estimating revenue forecasts, estimate tax gaps and track tax collection?

Demonetization for Cashless Economy or just a Bank Note Switch 

• Why demonetize and reintroduce the same high value denominations? This does not translate into demonetization; it is just reduced to a “bank note switch” aimed to give just a mild blow to the black economy & counterfeit currency. But, is the cost of printing new currency notes justified? Will this root out the problem of black money & parallel economy or have we been pushed to the threshold of another spiral?
• Why introduce ?2000, when shops & service providers like bus conductors and autowala’s crib for chutta rupaiya even when we extend ?100
• But, why introduce ?2000? Doesn’t it attract counterfeiting and make it more profitable than before? Doesn’t it make hoarding even larger stash of money easier? Doesn’t it defeat the objective?
• Doesn’t transitioning to cash less economy look difficult in the wake of dismal high school completion rates at 42% and lack of adequate digital infrastructure?
• Was this the only option available to force currency hoarders to exchange their private holdings and make legitimate their holdings which would infuse their wealth into the regular banking system?

Banking System

• Is this a one-off event or it is the initiation of a chain of episodes to periodically demonetize high value denominations including those launched recently and would be launched in the future, until people involved in illegitimate hoardings & trade practices get sick and tired and surrender all their private holdings to the formal banking structure.  
• Was this the plan to bail out nationalized banks facing liquidity crunch due to their growing NPA’s?
• Was this a 2 step plan to bail out the crumbling real estate market? Generate liquidity for the banks, banks offer loans to consumers at attractive rates to improve demand. 
• Is the new found liquidity infused into the banking system going to be used for restructuring the loans extended to ………..?

Well, the more I think, more of these questions keep surfacing and for most of them, I might never find an answer.

I’ve heard about grey market, black market, black money etc., and that this parallel economy is enormous as the white market. It spurs growth in the unorganized sector contributing almost 20-25% of the GDP indirectly. I’ve heard it also offers more goods and services than the mainstream market and even caters niche segments (weapons & drugs). It also functions in a very honest & organized manner except that they are unauthorized or unofficial so are at liberty to legitimately violate and not adhere to “taxation and trading rules and regulations”. So, when this black money component is already playing its role to contribute to the growth of the economy why make an attempt to destabilize it by introducing new currency notes? The point is, the impact may only be short-term with no long-term gains for the welfare of the honest citizens and we would soon see parallel economy booming and functioning as usual funded by the black wealth created over the years by the black money. 

Wait, why we are even discussing about the existence of corruption and a thriving black economy even after so many years of independence. Isn’t it a tell-tale indicator of “weakness to act by individuals – driven by speculations of personal gains, fear of repercussions or compromise and also the lack of states will to curb this menace”. To me this is the problem statement, this is what we should be developing action plans for the AchheDin and SwachhBharat to dawn.  

No, I’m not against the government’s move, it’s a transformation that was much needed. I stand by and completely agree with the government’s good intentions to strengthen the economy, bring-in transparency into the financial system, stop misusing trust, reform tax structures and widen the tax-base, develop a more equitable income & wealth distribution, fight against tax-evaders & curb amassing ill-gotten wealth, fight against smuggling, stop corruption and bribes, bring back the money parked in foreign banks, encourage corporate investments, prioritize education and health care, investments in PSUs for modernization, ease of doing business and boost confidence to invest in India,

Well, how this episode unfolds will be interesting to follow, but one thing that I do know is this “demonetization or the bank note switch” whatever Govt. & people decide to call it, has so far attracted over 3 lakh crore as bank deposits bringing the much required liquidity to the banking system. If speculations are bang-on target at 5 – 6 lakh crore deposits, this would also enable the government to easily meet the fiscal deficit target despite the higher burden of salaries due to implementation of 7th pay commission.

About me, I'm one among those who never stopped having AchheDins, now I believe, soon there will be better AchheDins for me and my countrymen.