The Return of Petty Regulation?

Rules. Revisions to rules. Entitlements. Concessions. Exemptions. Penalties. Verification. Declarations. Indelible ink. Who is entitled to how much, when? Which empowered authority gets to verify details? What is the proof you are getting married? We reserve the right to examine the legality of your deposits. If you complain too much, we will redraft the rules. Everyday.  

The Reserve bank of India's rules on getting one’s hands on the Rs2.5 lakhs that has so generously been promised to those unfortunate enough to be getting married at this time are a work of art. Only 2.5 lakhs. Only out of the balance that existed on the 8th of November. Only to one side- either the bride’s or the groom’s. The central bank is sharp as a tack- it has figured out that when two people get married, only one marriage takes place. Do not try and pretend that both sides need money. The cash will be disbursed only against a list of people to whom only cash can be paid. The people being paid in turn must produce declarations averring that they do not have bank accounts.

Officialdom, which was reeling under the verbal assault of promises of minimum government has now reason to celebrate. For demonetization has flung doors to endless vistas of petty regulation wide open. And as we all know, there is no greater joy than petty regulation, for everyone gets to play. The inconvenience that people are facing will today will pass. It will take its toll on some much more than others, but the act of having to stand in queues, and go from ATM to ATM in the hope of finding a way to access what one thought was one’s money, will in all likelihood be a transient one. For a cause like the attempted eradication of black money, some transient inconvenience can be lived with.

Whatever the misgivings about the longer term impact on the economy, no one really knows what is likely to unfold, so we will all have to wait and watch. But what will undoubtedly remain as a legacy of this move is the return of the government in our lives in an annoyingly permanent way. Given that demonetization is just one of the many things that the Modi government has up its sleeve to tackle the problem of black money, the role of the ‘authorities’ in our lives is bound to go up very substantially.

The default bureaucratic position is that of nagging distrust. Everything that you say (claim), must be supported (verified, validated, endorsed) and be open to scrutiny (randomly, retrospectively). The attempt to seal all leakages and prevent potential misuse of a ‘facility’ creates an intricate web of rules and exemptions that is self-perpetuating. Every blanket rule, needs an exemption, and every exemption needs safeguards to prevent misuse, which in turn requires proof, which in turn can be fabricated. As signs of ‘misuse’ emerge, these exemptions are plugged by an even more complex layer of provisions that are superimposed on to the original framework, and this process continues organically. In a bureaucracy, rules are organisms that build their own rich, elaborate ecosystems that and self-sustaining.

The return of discretionary powers married with a really large canvas to play on, is a recipe for disaster. In the absence of meaningful deterrents against corruption within the bureaucracy, demonetization can potentially end up unwittingly being a significant sponsor of corruption and ironically, of black money.

Part of the problem lies in the manner in which demonetization has been introduced in the country, but to a certain extent the problem is a deeper one. Cleaning up any system requires punitive action, which in turn requires people who can oversee that process. The people who do this, need to armed with discretionary powers, and in the absence of any strong mechanism of oversight for this lot, corruption ensues. Having too strong an oversight mechanism, on the other hand, paralyses the bureaucracy, who then use the rules in the most literal way possible so as to avoid any blowback to themselves.

Money is a powerful force, almost ecological in its sweep, that circulates organically and electrifies virtually all parts of our life. When this ‘natural’ force is artificially stopped, and an attempt is made to regulate this circulation, one is essentially taking up the responsibility of substituting in its entirety a complex mechanism of an ecological nature with one that requires constant human intervention and adjustment. The government is trying to play God, and clearly this is a taxing job, no pun intended. It is no surprise that every day brings in a change; it is not only because of poor planning, but also because planning for such a complex project is virtually impossible.

Perhaps the government needs to take a big picture view of what is attempting rather than trying to plug every leak and ensure that no misuse takes place. Take for instance, the RBI rules on cash withdrawal for marriages. Assuming that no more than 2.5 lakhs can be allowed given the shortage of currency, and appreciating that this is by no means a generous amount, why bother with an elaborate process of verification? If the aim of demonetisation is to go after the big tax cheats, why worry about those trying to convert 2.5 lakhs? Even if some misuse takes place, the pain caused by regulating everyone is way more than the satisfaction of preventing a few from from falsely ‘cleaning’ Rs 2.5 lakh.

To go through pain for a period in order to emerge cleaner and stronger is an idea that we should be able to live with. As long as what gets created in order to make this happen does not become a permanent liability. The danger of institutionalizing distrust of all in order to punish a few is a real one. It would be a shame if the lasting legacy of big, bold reform were to be small pervasive and very stifling petty regulation. This is a prospect that should worry everyone, including those that support the government's action.

(A slightly modified version of this piece has appeared earlier in the Times of India)