Modinomics of re-inventing currency

Note ban did not affect the re-election of Mr Modi's BJP to power because Mr Modi knew that majority of the Indians did not have bank notes. BJP was a clear winner of 2019 parliamentary election and has the mandate for another five years. 

On the late evening of 8th November 2016, at 9-15 PM sharp, Prime Minister Mr Modi, appeared on the national television unannounced, and made the mind numbing statement that the highest denomination notes (of Rs500 and 1000) would be worthless at the stroke of the midnight and that the citizens can exchange their old notes with new and improved freshly printed currency. Delving deeply into the much cliched commotion caused by the sudden note-ban is not the idea here. 

Rumours were rife even before the initial shock wave subsided. Prominent one among such rumours was that a special GPS enabled nano-chip is embedded into the Rs 2000 note, and that a secret central command gets an alert if more than 100 such notes were stacked together at one place. It was further rumoured that Income Tax department gets an alert from the central command to swoop down on anyone keeping large amounts of cash. Panicked hoarders exchanged new and old notes with Rs 100 notes paying 100% premium. (1a & 1b)

Much to the disappointment of common public, and delight of hoarders (1b), neither the Income Tax (IT) department nor Enforcement Directorate (ED) embarked upon any misadventure during the first few days of note ban. Offices of the then RBI governor Dr Rajan, and the union finance minister Mr Jaitly gave press releases stating that there is no danger of such a tracking devise.(1b)

Though slightly vary of GPS devices, hoarders (1a) realised that exchanging money with Rs 100 notes is an impossible task. They quickly and adroitly revised their plans. Popular among those plans was deployment of daily wagers to stand in queues at banks and post offices as banned notes (upto Rs 4000/- equivalent ~65$) could be exchanged with new notes with a photocopy of Aadhar card and about 25 loopholes were kept open for legal/illegal exchange (1c). Biggest loopholes were co-operative banks and petrol pumps. (1d)

High demand for exchange meant that bank/post office tellers were overworked, very tired, tremendously scared and overwhelmingly mad or mildly jealous about others who used this as opportunity to divert cash to the hoarders and made upto 35% commission. Thus, the note ban gave immediate employment to at least a million clueless daily wagers on one hand while on the other blessed a small portion of otherwise honest bank and postal employees with a mini windfall.(2)

But these were small timers. Even employing a million people for 30 days to stand in queues couldn't have exchanged more than 36000 crores because the queues were long. Besides common people were also in the queues and they outnumbered the worker bees. 

About 300 million Jan Dhan accounts were opened for people living in utter penury (below poverty line, BPL) prior to the 8th November 2016. (3a, 3b) Ideology behind this endeavour was to directly transfer Government benefits to the poor (3a). Roughly 20% of the total Jan Dhan accounts were tapped by the launderers for conversion of banned money to legal tender.(3c) 

Income Tax department does not red flag bank deposits below two lakh rupees or approximately 3000 $. Bigger hoarders came to an understanding with Village Heads, local politicians, self-help groups and corrupt bankers to identify large number of Jandhan accounts to park their money and to subsequently legitimise the currency. In this process, hoarders offered 15-20% of the deposited money to the poor Jan Dhan account holders for facilitating such illegal parking. It was absolutely free money. And Jan Dhan account holders are those under poverty line. Therefore, it meant easy income to 60 million families.(4)

If we estimate 1.5 lakh rupee deposit in each one of these 60 million accounts, it accounts for illegal re-entry of about 9 lakh crores post note ban. Another 2 lakh crores was illegally exchanged by bank managers and postal superintendents at a much higher premium (30-35%). 

Thus, approximately 1.45 lakh crores of rupees of hoarded currency was directly distributed to the poorest of the poor, by the black-money hoarders.  From a certain angle Note ban seems to have provided easy money to a large number of citizens under poverty line. 

None of the farm loan waivers in the history of India were of this scale. Also, the farm loan waivers are never meant to help the poor. (6)  Farm workers and workers of the unorganised sectors never get on the radar of such benefits simply because they are ineligible to receive bank loans. (7) I believe Mr Modi tried to create a system to alleviate socio-economic injustice to the really needy poor. 

Therefore, demonetisation made Mr Modi, the new age Robin Hood! While politicians in Andhra Pradesh and T-State, may have forced their candidates to spend ill-gotten wealth to buy votes (8), Modi made the miscreants across the political spectrum to uniformly fund his own future re-election.

I define this phenomenon as Vicarious Election Funding (VEF). One day IMF and World Bank will make an in-depth study of this concept - it will surely help the needy African and Latin American nations buried in abject poverty and political corruption. Even Donald Trump claimed this after signing cheques during COVID-19 unemployment. This new political economic concept of Mr Modi, seems to be a lot deeper than what appeared on the surface. No one knows the full spectrum of effects and after effects of demonetisation better than Mr. Modi. Common man may feel that this did not achieve its purpose, but he now knows that there is someone who is willing to take political risks to change his life for the better. 

We were patient with good old Rajan - he's more of a purist. He had to Go! (9) An academician who failed to distinguish the nuances of India type democracies. (10) Demonetisation was like testing the waters that has shown us how a scheme can go rogue in every imaginable way but it was worth it. One must realise that Mr Modi is often praised for his unfailing grip and he never repeats a mistake. The next move is likely to be so well conceived that it can't be manipulated. Brace for the next move!

Foot Notes:

1. a) Rs 100 note continued to be legal tender with no frills attached, real or imaginary b) Hoarders are a broad class of people who deal with cash and often found among, Benami operators (9), petrol pump owners, contractors, transport and logistic business owners, liquor contractors, paint and hardware shop owners, builders, real estate brokers, Iron and steel wholesalers, gold and silver merchants, general pawn brokers, stockists, film producers and doctors etc. Professional money lenders, stock market operators, professional money launderers and betting mafia are the bigger fish with nation wide networks. Politicians of various parties, creeds are seamlessly mixed across these classes and were instrumental in providing visionary leadership to i) exchange banned notes with new bank notes and in ii) hiding it back from detection during the note ban crisis. b)https://indianexpress.com/article/technology/tech-news-technology/nope-rs-2000-note-does-not-have-a-gps-nano-chip-inside-it/ c) https://economictimes.indiatimes.com/news/economy/policy/demonetisation-23-places-you-can-still-use-your-old-rs-500-notes/articleshow/55604427.cms d) In 1998, when a friend of mine (MD of a pharma co) met the CMD of Charminar Cooperative bank at a designated meeting place fixed by the banker, which happened to be a high end brothel at Banjara Hills area, Hyderabad, the bank Chairman said, Interest rate would be 25% if my friend is planning to default & 16% if there were repayment plans. The central bank, RBI doesn't have much control over cooperative banks in India. 

2.a) Further reading, Man Who Corrupted Hadleyburg, Mark Twain - Any publisher or browse for a gifting Russian pirate on the web. b) For surreal reading, https://www.thehindu.com/news/cities/Hyderabad/Money-exchange-fraud-four-more-held/article16774095.ece c)https://www.hindustantimes.com/india-news/demonetisation-axis-bank-suspends-19-employees-over-illegal-practices/story-1k7hwAoamgVlfQDFQuEBvI.html d) https://www.businesstoday.in/current/corporate/demonetisation-ed-attaches-over-rs-2-crore-assets-in-axis-bank-pmla-case/story/346286.html?utm_source=recengine&utm_medium=WEB&referral_sourceid=275598&referral_cat=Banks e) https://www.abplive.in/india-news/bank-fraud-demonetisation-narendra-modi-kotak-mahindra-hdfc-axis-bank-vaidyanath-cooperative-bank-rbi-income-tax-enforcement-directorate-471783 e)For older modus operandi, https://economictimes.indiatimes.com/industry/banking/finance/banking/rs-50-cr-loan-scam-at-canara-bank/articleshow/361066.cms?from=mdr

3. a) The concept of Jan Dhan is akin to welfare state model. For a discussion on Jandhan & its objectives: https://economictimes.indiatimes.com/industry/banking/finance/banking/20-lakh-people-join-modified-jandhan-scheme-total-account-holders-32-61-cr/articleshow/65827104.cms b) Government data upto 2nd November 2016 shows 25.44 crore Jandhan accounts (https://community.data.gov.in/accounts-opened-under-pradhan-mantri-jan-dhan-yojana-pmjdy-upto-02-11-2016/). By Dec 6th 2016, total # accounts as per Govt statistics is 30.77 Crores (https://pib.nic.in/newsite/PrintRelease.aspx?relid=174575) 3c) This is a guess. I don't have enough evidence to prove - which would be clear, unedited data from banks that hosted individual jandhan accounts, on a time scale. Deposit and withdrawal details in jandhan accounts post 8th November in amounts Rs 20000 to Rs 1,99,999 should provide the evidence.

4. As per the estimates published in https://www.moneylife.in/article/data-suggests-jan-dhan-accounts-were-used-for-money-laundering/55230.html, about 83000+ crores worth deposits in jandhan accounts were suspicious. Suspicious because crores were dumped into these accounts carelessly. Actual scam is much bigger because of calibrated illegal deposits not exceeding Rs 1,75000 in a large number accounts. Any deposit below Rs 200000 is above suspicion as per law (https://economictimes.indiatimes.com/wealth/tax/when-to-say-no-to-cash/articleshow/64763471.cms). 

5. RBI was never sure whether the money in circulation was 14 lakhs crores or 20 lakh crores. There was neither conviction nor hard data back up in the RBI statements about total money that was in circulation nor the Government could gain any oversight on the freshly issued 14 lakh plus crores. Money discovered by ED, Income Tax and CBI raids during and post demonetisation counted along with voluntary disclosures was less than 1000 crores. https://www.indiatoday.in/india/story/demonetisation-what-india-gained-and-lost-1327502-2018-08-30

6. As the farm-loan is practically interest free, it is tapped to maximum extent and repurposed. Farm loan waivers in India largely benefit land-lords and habitual defaulters.

7. Schemes like MNREGA, NFWP, DWAKRA etc., meant to provide regular income, loans etc., to the rural and urban poor via self-help groups that are largely mismanaged and the funds usually end up in wrong hands. On the other hand, the rich farmers feel that programs like NFWP (National Food for Work Program) encouraged the working class rural poor to become lazy bums. 

8. Personal interviews with such beneficiaries. A boy in my own employ reported to me that their family of 6 received Rs72000 in cash from Party A (Rs 30000), Party B (Rs 30000) and Party C (Rs 12000). This data was cross checked at random places and it is a fact that Rs 5000/- was given for one vote by two major parties in Andhra Pradesh state. Party C's candidates could not mop up so much money. In Telangana state, votes were bought for Rs 2500/- as per eye witnesses and beneficiaries. Comparisions with the benefits voters received in Andhra Pradesh turned people against ruling party, which lost seven seats to the rivals. 

9. It is a temptation to call this class of individuals are Benamese, but the danger of confusing them with either Penkingese or Assamese discourages this usage

10. "When I was innocent, around in 2007, I wanted to buy a house - the builder asked how much in white and how much in black? Then I went to see a cooperative bank, whose chairman's son is a friend - He asked - if you want to pay back, interest rate is 14%, if you want to default, rate is 24%. It sort of game a scare and decided never to own a property in India." -story as told by a friend.