November 8, 2016 will always be remembered as the day when everyone had money in their pockets but no use of it, persay. The reason for remembering it may vary depending on what happens in the next few months. Narendra Modi, on that day, made one of the biggest announcements the BJP government had made so far: demonetisation.
The high-value currency notes of Rs 500 and Rs 1,000 would henceforth not remain legal tender and two new currency notes would be introduced: the all new Rs 2,000 and a newer Rs 500 note. These drastic steps were taken in an attempt to fight black money, a problem that has stumped every government that has attempted to tackle it so far.
The success of demonitisation has so far, not been evident, even though it is too soon to make assumptions. What have been evident are the immediate effects that have attacked the citizens of this country like the common cold.
Although I belong to the privileged middle class, I keep counting and recounting the currency notes in my pocket and making drastic choices. Getting a haircut costs me somewhere around Rs 200. Since I needed to hold on to whatever Rs 100 notes I have for more essential purposes, I decided to cut my tresses myself. The arrangement worked somewhat smoothly, only if we ignore my hair sticking in all odd directions.
I am not an economist, but a student of engineering. People like me are trained to think through diagrams and graphs. Having noted the nuances of this raging face-off, I am inclined to think that this national turbulence is best seen as Modi’s Ashwamedha, or horse sacrifice.
The horse is unleashed to test resistance, or the extent to which the Emperor’s absolute sway is accepted by all within the territory. Some of the suggestive pointers in this direction are:
1. It was Modi, not Jaitley, who announced the move, which is ostensibly a financial matter.
2. The landscape of demonetisation is completely dominated by the larger-than-life figure of Modi. No one, neither Jaitley nor the Cabinet, matters one bit. Modi is the Colossus of demonetisation; or, as Venkaiah Naidu claims, the “Messiah” of the poor. (By the way, Hitler too was hailed as the Messiah.)
3. When Modi was away from the country for a few days, the demonetisation juggernaut came to a halt. It began to rumble the moment his plane touched down in India.
4. The venture bypassed the Parliament completely.
5. Modi has now turned it into an affair between him and tech-savvy citizens. The Parliament looks anachronistic, for which the entire blame cannot be put at his doorstep.
This is just me. Were the figures – such as the numbers of banks/ATMs per person, the number of persons with bank accounts, the extent of currency in circulation, the size of the cash economy, the impact on GDP, the effect on the poor, etc – factored in at all?
Removing two currency notes of these huge values is of course, a questionable move in itself. The Indian cash economy is hugely dependent of these two denominations. In fact, they make up 86 percent of the Indian currency that amounts to Rs 14 lakh crore approximately.
Taking away that huge a chunk of the cash away from the population is bound to have adverse effects. There have been innumerable reports of serpentine queues forming at banks and ATMs. The lack of hard cash in the hands of the people, especially the poor, has been nothing short of a Greek tragedy.
The demonetisation – whether actively or not – has caused more than 70 deaths so far. Whether it is because of the stress of paying debts, or the physical strain of standing in queues for hours, or just simply the lack of medical services because of a shortage of cash, people – even infants – have died.
The fact of the matter is that no government can unearth the black income in the country. It is expected that black money constitutes more than 20 per cent of India’s GDP.
One can also argue that the black economy is an integral part of economic process in the country. Wealth creation and distribution are more active in the black economy, which operates in the informal sector. It tells that a conventional rhetorical action does not save the economy.
The poor mass of the country does not have unaccounted money; however, it does not mean that their wage earnings are safe. Their earned savings need to be ratified. Informal moneylending and cooperatives have to stop the operation or link their operation through the banking system.
It also helps to see how much volume of black income exists in the country. However, this alone does not resolve the issue of black income. The concern is black economy. The black economy is well connected with mainstream economic operations as well.
Land is the most attractive sector, which connects black with white economy. It is the most manipulated sectors. If the government is committed to snooping into the network, it has to take a list of big land-holdings in the country. It is evident from the huge arable land ownerships of private corporate and individuals.
Indian capitalism is moving towards an oligopoly model which poses a threat to any attempt to unveil the black economy. Big capital is getting all forms of support to expand it. Indian politics is largely controlled by this oligopoly capitalist. As long as this prevails, every attempt to save the economy would be futile. It can create political mileage for the ruling government; however, success depends on its economic policies towards capital.