The Malicious Motives and Calamitous Consequences of Note Ban A Preliminary Appraisal

Part II

In the middle of a hectic poll campaign in UP, BJP president Amit Shah was asked in a televised interview: what did the common man gain from Note Ban? He replied that it injected sufficient liquidity into the system (meaning the cancelled notes which were deposited in the banks) and that has enabled the government to take up various pro-poor schemes in the budget.The interviewer, for reasons best known to him, did not call Shah’s bluff. He did not say Modi’s lieutenant was just telling a lie and deliberately misleading the nation. The money in the system is perfect legal tender belonging to the depositors – not revenue to the government to be used for the budgeted schemes.

Previously the BJP had claimed that the banks and therefore the government would be gifted with a windfall equal to the huge amount of the legalised currency that would not return to the system. And now that almost all those notes – including the alleged black money – have been lawfully deposited into the banks, the shameless second-in-command in the ruling party just shifts the goalposts to the opposite end and declares that the government can spend more precisely because the demonetised currency is back in the system!

Well, let us take this as yet another chunaavi jumla (empty election rhetoric) the BJP leaders have made themselves famous for, and move over to a scrutiny of the official policy response to the havoc wrought by Note Ban.

The Economic Survey and Budget Proposals

Between them, these two documents lay bare the tensions inherent in the government’s economic thinking post demonetisation. The former, prepared as usual by the Finance Ministry with some of the contributions coming from pro-government but at least nominally independent economists, recognises in part the ‘temporary’ damage done by demonetisation and suggests few countervailing measures including a half-baked scheme of Universal Basic Income (UBI). The Budget Proposals, reportedly prepared this year mainly under the supervision of the Prime Minister’s Office, blatantly rejects these concerns. After loudly projecting demonetisation as an anti-rich, pro-poor measure for months on end, the government eventually refuses to tax the rich and make even the minimum necessary provisions to help out the battered aam aadmi and rejuvenate the trounced economy. The much hyped UBI is conspicuous by its absence. Even in these difficult times, the government has stuck to the conservative tradition of consistently cutting down the Centre’s expenditure as a share of GDP: from 14.9% at market prices in 2011-12 it had already fallen to 13.4% in 216-17 and yet in the current year the share is budgeted to shrink further to 12.7%. Obviously the overriding concern remains fiscal discipline, because that is what the watchdogs of finance capital – the international rating agencies — demand.

The Hoax of Financial Inclusion

Reduction of poverty, equitable growth, financial inclusion, access to formal credit networks – many are the sparkling packages in which digitalisation is marketed around the world. The specific content and thrust, of course, vary from country to country.

In our country, the high-decibel state-corporate propaganda machine seeks to divert the people’s attention from basic problems like unemployment, aggravating agrarian and industrial crises, steadily declining real wages, rising inequality, landlessness and eviction and so on, and waxes eloquent about the supposed advantages digital money over cash. It is conveniently forgotten that for the overwhelming majority of Indians who have little money to spend in the first place, the debate over form of money – digital or cash – is absolutely irrelevant and disgusting.

The government claims that digital money will lead to formalisation of the economy, and therefore, to transparency and an end to black money. This is sheer sophistry. Are the advanced, predominantly formal economies free from corruption and black money? UK tops the list of countries which stack money in the Swiss banking system, followed by the US. Has preeminence of digital transactions prevented this? Is not Nigeria, a poor country with an extremely low cash-to-GDP ratio, one of the most corrupt countries in the world?

The problem with the official thesis on the panacean properties of digital money – that it automatically leads to formalisation of the economy and financial inclusion of the poor – is that it is impossibly simplistic and unrealistic. For the growth of a formal economy, formalisation of exchange alone is far from sufficient; what is more important are adequate development of productive forces (including technology and labour skills) as well as commensurate changes in production relations. Our tremendous backwardness in these areas cannot be overcome by, say, plastic money or BHIM or PayTm. So, even assuming a considerable progress of digitalisation in spite of the hundred constraints, that would not by itself usher in a broad-based formal economy of mature capitalism.

Similarly, financial inclusion does not occur merely by large-scale opening of bank accounts or issuing debit/credit cards. Timely and easy credit must be made available to the needy people and they must be considered creditworthy by the lending institutions. If such conditions are not met and the practical problems of employment/production/regular income are not addressed properly, mere provisioning of banking facilities remains ineffectual. That was the experience even in the pre-reform years in the case of what was called priority sector lending from nationalised banks to farmers, small entrepreneurs etc. Today the situation is no better. According to the FII survey [Financial Inclusion Insights survey] conducted last year, 23% of the accounts under PMJDY remained as zero balance accounts (of course, some of these did serve one ‘important’ purpose – as conduits for laundering black money in the aftermath of demonetisation.) This suggests that mere opening of accounts does not ensure the use of accounts to receive salaries/wages or undergo any form of transaction.

Big Corporates and Primitive Accumulation

So forced digitalisation has helped neither the national economy not the general public. Whom does it serve then? First and foremost, banks (including the recently launched “payment banks”) telecom operators (some of which, like Vodafone and Reliance Industries, have also branched into the payments bank sector) Internet service providers and electronic wallet firms because they profit as intermediaries between buyers and sellers of products and services. Big enterprises in other fields also expect to gain from the decimation of their tiny competitors in the informal sector, but whether such gains will be offset or more than offset by the losses arising from the overall slowdown in the economy remains to be seen.

And who are at the losing end? Obviously the self-employed, the casually employed, those running micro and small enterprises with wage labour, and workers who are informally employed in the formal economy. They had to bear the brunt of the impact during the first weeks and months of cash crunch – workers, especially temporary/casual workers including agrarian labourers, who did not find work, peasants who failed to cultivate and/or took loans at exorbitant rates of interest, small traders and street vendors whose customers migrated to bigger shops with facilities for digital payments, and so on. They are suffering, and will continue to suffer in future: for many, job losses are permanent; peasants, unable to repay the huge loans and interests especially due to fall in prices of agricultural produce, stand on the verge of economic ruin and even suicide; traders who acquire POS machines to stay in business have to bear the additional cost of merchant discount rate (MDR, to be paid to the banks, which proves prohibitive for them though not for the big retailers) and also the burden of handling various technical and accounting issues such as self-declaration and KYC norms – in the informal/unorganised sector it is a story of endless sufferings all around.

Not that the formal/organised sector, which is predominantly the corporate sector, was not hurt. It was, both by disrupted supply chains of raw materials (mostly provided by the informal sector) and reduced demand (caused by not only the cash crunch but also depressed or vanished incomes). Manufacturing, infrastructure and real estate experienced a slowdown that is yet to be over. But while the big enterprises as a rule have the wherewithal to tide over the losses in a period of time, those in the unorganised sector lacks this resilience and often get permanently crippled.

It is hard to accept that the government and its economic advisers actually did not know about the enormous bottlenecks which make thorough digitalisation an impossible proposition in our country (in the “Concept Paper on Card Acceptance Infrastructure” published last year, the RBI itself provided us with a very good account of such bottlenecks and also showed that given the ground situation digitalisation tends to bypass the small businesspersons and caters to the big ones) or that they really believed forced digitalisation would bring about rapid and inclusive growth. The real objective could only be to promote the expansion of the formal sector (especially of its corporate core, and the cronies within that core) at the expense of the informal sector. And that’s what we are now witness to: a ghoulish spectacle of primitive accumulation in the neoliberal era.

In Marx, primitive accumulation refers to both (a) the historical phase which created the preconditions for the rise of capitalism through “a process that transforms, on the one hand, the social means of subsistence and of production into capital, on the other, the immediate producers into wage labourers” and (b) a process that is occasionally resorted to throughout the history of capitalism for purposes of maintaining and reproducing this separation “on a continually extending scale” and transcending the multiple barriers to normal market-mediated capital accumulation in periods of crisis/stagnation.[1] Over the 150 years that separates us from Capital, numerous new methods of primitive accumulation have appeared on the horizon, giving birth to a rich Marxist literature on the topic.[2]

We Indians have had to suffer the pains of waves after waves of primitive accumulation in the not too distant past: piracy and pillage by Dutch, Portuguese, Spanish and British East India Companies; the colonial drain during British rule; deindustrialisation of the great Indian handicrafts in unequal wars with the rising British industries; the evictions associated with modern industrialisation and ‘development’ (building big dams for example) in late British India and then in independent India; the spate of land grab in Dadri, Raigad, Singur, etc. which represented one of those historic moments, as Marx puts it in Capital, “when great masses of men are suddenly and forcibly torn from their means of subsistence, and hurled as free and ” unattached” proletarians on the labour market….” and finally, the Note Ban-Digitalisation onslaught.

Modi’s Demonetisation in a Larger Context

Exactly 100 years ago, Lenin in Imperialism the Highest Stage of Capitalism talked about “the separation of money capital… from industrial or productive capital”, which “reaches vast proportions” under “[i]mperialism, or the domination of finance capital”. And he added:”The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the finance oligarchy…”

Since the advent of neoliberalism in the last quarter of the past century, finance capital has further bolstered its dominant position, achieving for itself larger and larger freedom from state regulations. Under popular pressure some restrictions were put in place in advanced capitalist countries in the aftermath of the crisis that started in 2007;but many of these are in the process of being rolled back. For example, Donald Trump has pledged to drastically water down – if not abolish altogether – the Dodd- Frank Wall Street Reform and Consumer Protection Act. With rapid advances in information technology, fintech firms – such as Microsoft, Visa, Mastercard — and their associates have taken upon themselves the task of aggressively expanding the frontiers of finance both within and across national economies. The concerted efforts for promoting digitalisation, briefly noted towards the end of Part I of this article, is a part of this ongoing international initiative.

But the commonality ends here, with the shared vested interests of finance capital and big corporates in pushing for cashless economy as in many other countries. As for the specific form and content of demonetisation in India, it is marked by certain peculiar features.

First, such a costly gamble is really unprecedented in world history. Over the past century several total demonetisations have taken place in: (a) countries reeling under hyperinflation, with inflation rates measured on a weekly or monthly (rather than yearly) basis, such as Germany in 1923 following devastation in WW I; (b) countries on the verge of economic collapse, such as Zimbabwe in 2015; and (c) countries in deep economic or political crisis, such as Ghana in 1982, Nigeria in 1984, Myanmar in 1987, Zaire in 1993 and the USSR in 1991. In every case there were some very special, compelling reasons. In Zimbabwe for example the value of a 100 trillion Zimbabwean dollar note dropped to about 35 American cents last year and forced the government to abandon the troubled national currency for the US dollar. Nowhere was such large scale but partial (86%) demonetization attempted, and that too in normal circumstances and on such flimsy grounds.

Second, Note Ban definitely bears the unmistakable marks of Modi: the theatrics and demagoguery of the 8 November announcement and his subsequent sermons; the way the Prime Minister took such a high impact decision all by himself ignoring the elementary democratic norms like prior consultations with the apex bank; the obstinacy and arrogance with which he rubbished all criticism and suggestions on this question; the way all opponents were branded as corrupt anti-nationals; and finally, the cruel refusal to use the budget route for offering a healing touch to the honest, hard-working Indians brutalised by Note Ban. In intent and content, impact and implications, it is definitely a key element in the evolving economic programme of Indian fascism, authored by a worthy disciple of Guru Golwalkar and the first Sanghi to have occupied the top post in the country with a free hand to rule, unhindered by any balls and chains imposed by partners in a coalition government.

Third, the present aggression on the life and livelihood of those who comprise the non-corporate informal sector – the forcible separation of many of them from their “means of subsistence” – is being carried out not in one stroke with brute physical force (as in the cases of land grab for example) but slowly by economic means. Moreover, the whole project is meticulously marketed as the first serious, effective, national attack on black money and corruption. All this prevented an immediate outburst of popular anger and resistance, but hard facts of life have already started revealing themselves through the fog of confusion created by the RSS-aided government propaganda and it will not be long before the megalomaniac despot is duly punished for his economic war on India.


1 Marx elaborates the different dimensions of primitive accumulation in different contexts in many places in Capital – primarily in Volume I, Part VIII (quotations in this paragraph are from Part VIII) but elsewhere too. His dynamic understanding is highlighted when he observes, “The history of this expropriation, in different countries, assumes different aspects, and runs through its various phases in different orders of succession, and at different periods.” While narrating the “Genesis of the Industrial Capitalist”, he takes note of some of these “different aspects” or forms/levers of primitive accumulation: ” … the discovery of gold and silver in America, the extirpation, enslavement and entombment in the mines of the aboriginal population”, slave trade, piracy, pillage of colonies by European powers, “the system of public credit, i.e., of national debts”, the “international credit system “, and so on and points out the basic commonality: “… they all employ the power of the state….”. At a certain point, “law itself becomes… the instrument of the theft of the people’s land” – exactly as it has happened in our country.

2 Among these contributions, special mention must be made of David Harvey’s formulation of “accumulation by dispossession” – “the continuation and proliferation” of primitive accumulation in very many forms including commodification of land and eviction of peasants, monetisation of exchange and taxation, usury, use of the modern credit system (credit cards, easy loans and instalments, sub-prime housing loans and foreclosures in the USA, etc). Among the main features of accumulation by dispossession he includes financialisation, which is particularly notable in the context of the present discussion. 