Demonetisation of the Indian economy: A layman’s reaction

I am no expert on this subject. I have to rely on expert opinion to understand the implications of demonetisation. I have put-together a selection of reactions on ‘demonetisation’ from some of the leading names in India’s contemporary discourse on India, its society, economy and peoples. Therefore, the title of this blog article may appear misleading to some of you. But, it is also true that while utilising expert opinions to get clarity on what’s going on (see the quote graphic below), I will share with you my own views as well. Therefore, mine will be a reasonably informed layman’s reaction.

I have tried to contrast opinions as pro (green) vs. against (red) the decision to demonetise the economy. Some experts are obviously politically inclined while others express their views as ideologues of certain kind of policies.  From first reading, it will be clear that all of them have made equally meritorious comments and assessments.  We will look at them in greater detail in their relevant contexts.  As a non-expert lay person, I am not as apolitical as Mr Narayana Murthy (Infosys chairman) is. I need not be.

Demonetisation: Reactions from prominent citizens of India

All of us, rich or poor, female or male, scheduled caste or upper-caste, urban or rural…all of us acknowledge that the country as a whole is struggling because of cash-crunch. Most people including me share Mr Murthy’s sentiments that the society should try to help and accommodate the needs of the most disadvantaged, especially under these trying circumstances. The Prime Minister (Mr Narendra Modi) himself has time and again acknowledged the difficulties faced mainly by the rural citizens and workers in the unorganised sectors of the economy.  Mr Arun Jaitley, the Union Finance Minister made a statement at the Hindustan Times leadership summit a few days ago that “with such a large population, there will be long queues [in front of banks and ATMs]”. While it was made as a jokingly rhetorical comment, it also casts doubts on the central government’s attitude when it took the decision to demonetise the economy on the fateful night of November the 8th, 2016.

Dr Surjith Bhalla (commentator and economist) and others like him have expressed cautious optimism at the government’s move to demonetise the economy and he hopes that the PM will back this up with other necessary steps. Former Finance Minister Mr Chidambaram while vehemently opposing demonetisation, agrees that more tax reforms are necessary. What those steps should be is debatable. Mr Chidambaram and Mr Arun Jaitley are in opposite political parties but those who have followed their careers know that they are quite cordial with each other and have common economic policy views. But on the matter of demonetisation Mr Chidambaram’s criticism of the government are well placed.  He says in a TV interview that the government did not consult anyone and did not obtain an adequately grounded view of the situation before taking such an unprecedented decision.  He rightly identifies that maintenance of secrecy would not have been affected if the PM had consulted top experts and opposition leaders after swearing them to secrecy.     

Dr Manmohan Singh (former RBI governor and former PM) made a fiery intervention in the Rajya Sabha during the debate on demonetisation when the current PM was in the house and listening.  It was an extraordinary 7 minutes in my view and I openly expressed my joy (on facebook) of hearing him speak after so long.  He made some excellent points in his incisive statement, which he later elaborated in an opinion written for the English daily The Hindu. The quote I have reproduced in the graphic is an excerpt from his article. I was deeply touched when Dr Singh recollected his years of standing in long queues for rationed food during the war years (mid 1940s). Many of us, especially the current young voters (born after the 1991 liberalisation), don’t realise what our country has been through to reach a state it is in today.  They know UPA II, they vaguely remember UPA I and probably just know the name of Mr AB Vajapayee (NDA I). They may not know their own state’s political history. We have taken three steps forward and two steps back all the way but we have made some progress.  Long queues have always been the norm in India, and strangely enough there were also long queues to buy some useless mobile SIM card recently in India! Was Mr Arun Jaitley just reflecting on this fact?  I am not so sure.

Dr Singh along with Prof Amartya Sen (Economist and Teacher) have made a philosophical assessment of a decision of such magnitude and repercussions. Prof Sen is well known for his anti-capitalist views. Those who don’t know that he has stood for social equality and dignity (consistently over many decades) are quick to rubbish him saying that he is anti-right. His point about “economy of trust” is fundamental to any civilization and key to this discussion. Demonetisation has made many wary of the banks for sure. While many bank employees are working doubly hard to ensure that new currency notes reach the last man in the queue, there are some rats who are further damaging the central and state banks’ legitimacy.  Before you dismiss Prof Sen’s view, please imagine what ‘economy of trust’ means and why we have not progressed towards “politics of trust” even after 69 years of independence (see postscript). This also hits at the core of Mr Chidambaram’s criticism of the government, which lacked trust in the opposition (the feeling was perhaps mutual). 

Ever since he has taken oath (May 2014), Mr Narendra Modi has been stressing at every opportunity that his government is for the poor. Even after taking this latest decision, the PM has invoked “justice for the poor and benefits for the poor” in his rallies and speeches in Uttar Pradesh citing demonetisation as the panacea for corruption related diseases. In his latest radio soliloquy, he again asked his 1.25 billion countrymen to help the poor, the elderly, and disadvantaged to get online and be part of a digital economy. Many in my parents’ generation and certainly a large majority of my grand parents’ generation have never used a bank card in their life and they should not be forced to do so at this stage. What the PM must realise is the society adapts slowly to most technological innovations. As my grandmother in her mid-80s used to tell me, “don’t try to change me now.  I am too old”.   

Going back to Dr Bhalla, it is useful to note that he is also known for his antipathy towards “doing politics in the name of the poor”. I share Dr Bhalla’s general view that India has suffered a lot over the decades because of povertarian politics. Yes. Economic policy in India must work towards alleviating the ills of poverty and hunger and all political parties have at least this in common. In India, the left and the right and the centrists, all political parties are socialists to different degrees and it is a necessity. But, claiming that every policy decision is made thinking of the poor is not only illogical but also disingenuous. The PM cannot say that demonetisation was undertaken to benefit the poor. At the same time, policies meant to support someone can have significant consequences for someone else. Let me make this clear to one and all.  Demonetisation had nothing to do with the poor in our country, yet the poor have taken the brunt of this, they have bravely embraced the PM’s decision partly because they have no choice. Again, Mr Narayana Murthy’s words are relevant. He regrets that sacrifices are coming from the most disadvantaged in our society. The poor have embraced the PM’s decision also because they share a bit of optimism that Dr Bhalla expresses.  They are hopeful that the PM will follow up this ‘high-risk’ but well-intended carpet bombing (to quote the Supreme court) with other less-risky things to curb systemic corruption. I remember the online survey done on by the PM’s event team.  While most correspondents had given positive reviews on most parameters (even if we ignore the fact that the respondents were loyalists of a certain type), the one thing that received relatively poor ratings overall was the central government’s inaction on corruption. Was Mr Modi anxious to do something?  Mr Arun Jaitley sounded optimistic about the steps the government has taken. The genuineness of the intentions expressed by the Prime Minister (on Nov 8th) will be tested in the coming months and years.

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