Resisting the Economics and Politics of #NoteBan
Two weeks have elapsed since the dramatic announcement of demonetization of 500 and 1000-rupee notes. In one fell swoop, the government has withdrawn more than 80 percent of the total value of the currency in circulation in the country. While the withdrawal has thus been massive and immediate, the transfusion of new notes has been painfully slow. Only about 10 percent of the value has since been replaced in the first ten days, and that too largely in the form of notes of 2000 rupees. The result has been a traumatic cash crunch, a massive disruption in the economy and incalculable hardship for the common people – in short, an unmitigated man-made disaster. On top of it, we have already experienced the shocking reality of dozens of demonetization deaths – people collapsing in queues, succumbing to stress and dying for sheer lack of timely medical care because of the cash crunch.
The government defends demonetization as a decisive blow to corruption, a so-called surgical strike on black money. Now, it is well known that only a small fraction of unaccounted-for income and wealth, which is popularly known as black money, is temporarily held in cash. How much of this cash hoard will indeed be flushed out is anybody’s guess. Certainly it is not the corrupt hoarders of black money who are queuing up outside banks and ATMs. On the contrary we have seen a new form of black economy thrive in the country as common people are forced to exchange their old notes for lower amounts while the rich use their myriad ways to launder their black money (‘donations’ to ruling parties and temples and trusts being two well-known routes) and convert their old cash into more handy stocks of the newly introduced 2000 rupee notes. The Sanghi rumour mills are abuzz with stories of hoards of cash being destroyed by the corrupt, but frenzied conversion of cash into various forms of assets in the run-up to demonetization has been no secret. And we also have it from the horse’s mouth (BJP Rajasthan MLA Bhawani Singh Rajawat) that the Adanis and Ambanis and other big business houses all had enough hint of the impending demonetization. So much for the ‘secrecy’ shrouding the so-called war on black money!
The other official claim of neutralizing counterfeit currency of course has relatively greater merit. But do we have any idea of the volume of counterfeit currency in circulation? The Sangh-BJP propaganda machinery would have us believe that every second note is a counterfeit pumped in by Pakistan. But according to a study undertaken by the Kolkata-based Indian Statistical Institute for the NIA, the total volume of fake Indian currency notes (FICN) is estimated to be of the order of Rs 400 crore, and this amount has more or less remained the same over the last four years. A large part (not by any means all, because the study estimated as many fake 100 rupee notes as 500, and old 100 rupee notes are still valid) of this FICN has now admittedly been made defunct, but it is only a matter of time till we have new FICN replace the old. The new notes have no enhanced security features and will be as counterfeit-prone, if not more, as the ones that have been scrapped.
Now just compare the monetary cost of the whole exercise of printing and supplying the new notes (some 15000 crore to print new notes plus the logistical expenses of recalibrating the ATMs, reaching the new notes to distribution points and so on and so forth) to the volume of the FICN rendered defunct (say worth Rs 350 crore), and the whole thing looks nothing more than a grand celebration of absurdity. Increasingly we are hearing a third argument – that of India becoming a modern cashless digital economy. Now more than 40% of the adult population in India is still unbanked (which is a fifth of the global unbanked population), and while the figures in India have improved only recently with the increasing practice of direct bank transfers, 43% of Indian bank accounts are still dormant. If the fantasy of a ‘cashless economy’ is to be achieved on the basis of digital transaction – and not the ancient exchange mechanism of barter – then one must first talk about expanding and improving banking services for the common people of India. All this facile cashless talk is clearly putting the cart miles ahead of the horse while actively excluding and penalising the poor!
Interestingly enough, while upwardly mobile India finds the technological reality and possibility of cashless digital transactions quite an enchanting idea, we must keep in mind that a cashless economy per se provides no guarantee against economic corruption or various other economic crimes. Indeed, in terms of cash-to-GDP ratio India does not compare too unfavourably with the developed world, the Indian ratio of a little above 12 percent is way below that of Japan (above 18%) and Hong Kong (above 14%) and not too high compared to the Euro zone countries (10%) or China (above 9%). And a country like Nigeria which finds itself in the same bracket with Norway and Sweden (all less than 2%) is perceived as one of the world’s most corrupt countries! Turning India today into a cashless economy is an elitist fancy quite akin to the bullet train idea. But these whims and fancies are exacting a heavy price – while the bullet train fancy is pushing the railways away from the basic question of infrastructural maintenance and amenity and safety of common passengers, the craze for going cashless has already resulted in the growing demonetization disaster.
At the cost of a huge disruption of the economy and the danger of a major slowdown, the demonetization drive has of course achieved one tangible result: a massive injection of cash into the crisis-ridden banking system. It is well known that the banks had been reeling under a growing burden of Non Performing Assets (thanks primarily to the loans piled up by corporate India, loans that are hardly repaid and now being written off) and they will be the only ones to heave a sigh of relief. But if the easing of the banking crisis only reinforces the existing lending pattern, the whole thing will mean nothing but an adverse redistribution of the burden for the common people.
While the economics of demonetization is clearly dubious, it is the accompanying political process and discourse which are particularly deceptive and dangerous. The government claims that the planning and preparation for demonetization was underway for quite some time. In April 2016 we had the SBI talking of ‘rumours’ of demonetization, and the previous RBI Governor Raghuram Rajan who held office till 4 September 2016 was known to have been against the idea of demonetization. What then was the institutional mechanism that took this momentous decision and oversaw its planning and preparation? And how did the PM’s picture appear overnight in advertisements promoting a particular brand of digital wallet which is aggressively marketing itself using demonetization and the resultant cash crunch as a rare business opportunity?
The Prime Minister made the announcement in a televised address to the nation but refused to face Parliament on this issue. And now he has launched an app to ascertain people’s views on demonetization (and that too without offering them an option to disagree on most questions!), making it absolutely clear that it is only the manufactured consent of the digitally empowered that he cares about, the experience of the digitally excluded and dissenting views just do not matter. The subversion of parliamentary democracy and the arrogant flaunting of the digital divide have never been starker. Equally revealing has been the reaction of Narendra Modi and the Sangh-BJP establishment (ranging from outright denial and trivialization to sadistic derision and emotional blackmailing) to the disastrous fallout of demonetization, the traumatic economic disruption and mounting miseries of the people including scores of demonetization deaths.
All the miseries being inflicted on the people, and the violation of so many rights, including the most basic right of being able to access one’s own hard-earned money, are being trivialized as a temporary inconvenience and glorified as a sacrifice for a corruption free India. And audaciously enough, the government is packaging the whole thing as a measure to promote economic equality and punish the rich. But it is not difficult to understand that just as the principle of one person one vote has not stopped the concentration of political power in the hands of the super rich, the temporary rationing of notes too is not going to bridge the growing rich-poor divide in the society. It is also instructive to note that when the UPA government went for a partial demonetization exercise by withdrawing currency notes printed before 2005, the BJP had dubbed it an anti-poor diversionary exercise to obfuscate the real issue of black money stashed away in foreign banks! Interestingly, the Modi government has raised the limit of the Liberalised Remittance Scheme to allow Indian citizens to remit annually as much as 2.5 lakh US dollars abroad apart from the right to carry another 2.5 lakh dollars per year for every person going on foreign trips.
Revolutionary communists and all other forces of people’s movements must boldly resist the disastrous economics and populist politics of demonetization. The government must be held accountable for the reckless manner in which it inflicted the ill-conceived idea of demonetization and the disastrous fallout that has engulfed the common people in its wake. There can be no scrapping or restricting any widely used currency without adequate availability of replacement notes. The cooperative banks, which are the lifeline of the rural economy and the bank of first resort for the bulk of India’s agricultural population, must be allowed to discharge their full functions.
The government must answer for every demonetization death and must compensate the people for the loss of livelihood and economic disruption. For the peasantry, reeling under successive droughts and a chronic agrarian crisis, the demonetization has been a brutal blow in the midst of the busy sowing season, and the least that the government must do is to waive all farm loans and ensure free supply of inputs. Similarly, agricultural labourers, other rural workers, small traders and transporters, unorganized/informal sector workers and daily wagers, street vendors and greengrocers who have all been hit hard by the reckless note ban must be adequately compensated for their loss of livelihood.
The government must also be held accountable on the issue of combating the menace of black money and corruption, the pretext on which it inflicted this disastrous course on the people. The list of willful mega defaulters must be made public and they must be forced to pay up, failing which their property must be confiscated and companies blacklisted. The Panama Papers on foreign account holders and now the explosive Sahara-Birla Diaries with details of political payoffs to facilitate tax evasion are both in the public domain and the government must be made to answer and act on them. And last but not the least, there can be no cleaning up of black money without breaking the business-politics nexus, without making it mandatory for political parties to make public their entire finances, stopping corporate funding and excessive electoral expenditure.
For the Modi government, demonetization is of course part and parcel of its autocratic agenda. The way the government went about the whole thing reminded many of the Indira-Sanjay era of Emergency four decades ago. The attack on the press, the forcible imposition of family planning in rural areas and mass eviction in the name of urban beautification, the suppression of dissent, the crushing of the people’s democratic rights and political liberties, the suspension of parliamentary democracy and arrest of all opposition leaders and activists – all these trappings of the Emergency resonate in the air as the Modi government goes about politicizing the Army and militarizing politics, curbing the media and inflicting an unmitigated disaster like the ongoing trauma of demonetization in complete defiance of economic logic and parliamentary procedures.
The people of India have of course begun to sense this danger. And the cry of ‘Note Nahi, Sarkar Badlo’ (Not Notes, Change the Regime) being heard increasingly across the country reflects this realization of the people. It is the urgent task of every defender of the interests of the people to champion this democratic spirit and wage a determined resistance against the reckless offensive of the Modi government.
