The Demonetization Circus

2000-note

In India, a unique set of circumstances brought a new-age Chanakya – or Machiavelli, for those who have only read Western literature – to the helm.  This time around, history decided to split this shrewd mind into two bodies; one is a flamboyant orator and the other is a behind-the-scenes operator.  A Modi and a Shah, if you will.  It is an interesting combination.  One goes around town taking credit for everything good that is happening in the country, cleverly avoiding comments on anything that will adversely affect his popularity.  The other, it seems, is tirelessly working backstage to orchestrate those events.  Killing of a Muslim Armyman’s dad?  It’s a state law-and-order issue.  Flogging of Dalits?  Wait, that is our vote bank.  Need to comment on that.  Glaring lapses in intelligence and surveillance during the Pathankot and Uri terrorist attacks?  No need to discuss those issues.  Surgical strikes?  Let the Defense Minister loose and dominate the airwaves.  GDP growth numbers?  Yes, we need to take credit for being the fastest growing big economies in the world.  Jobless growth?  We can avoid talking about that.  In a mere two years, this team has managed to turn the debate between haves and have-nots into a debate between nationalists and anti-nationalists.

We can see the same nationalist debate playing out during demonetization, but it has also made Indians temporarily forget the centuries-old caste system and reveal a new class system.  At the top of the ladder are the ones loaded with black money.  From politicians, bureaucrats, businessmen all the way to rich housewives are scrambling to meet the December deadline.  Some say there are apartments, basements, storage spaces and mattresses full of old currency dying to be renewed.  Those who can backdate invoices, businesses that can declare significant amounts of cash on hand, jewelers and peddlers of foreign exchange are suddenly in demand.

Then there is the middle-class whose entire income is white, but it is all stuck in the banks.  In their own country, they are queuing up outside their own banks for hours on end to get their hands on their own money.  In a land where, until recently, 60-70% of the population had no bank account, and only 2-3% of the population paid taxes, these guys are the collateral damage.  They don’t have the cash to pay taxis and rickshaws, buy groceries and vegetables, or even buy two square meals a day.  Some have resorted to chest-thumping and nationalism.  They are probably the ones who have ‘connections’ and have gotten their withdrawals and exchanges done without having to stand in the long lines.  Others are legitimately wondering ‘What is my fault?’  Unlike the black money class, though, they can at least post pictures of the new 2000 rupee notes on Facebook to celebrate their victory of getting their own money back.

And below that is the vast swath of humanity that has belonged to the unorganized sector and lived exclusively on cash.  Some of them are newfound owners of Jan Dhan Yojana bank accounts that have not been used much.  Others are still not part of the banking system.  Whether they are employed, partially employed or unemployed, they are noticing some unusual behavior among those at the top of the ladder.  Instead of 2-3 week delays in getting their salaries, they are suddenly getting salaries for 6-12 months in advance.  Some are getting a commission to open bank accounts and deposit a couple of lakhs.  Others are finding out that they can get paid just to stand in a line for hours.  Those in favor of redistribution of wealth will be proud of Modi.

It is easy to see the immediate benefits of the move.  Banks will get capitalized and the central government may not have to resort to financial jugglery to clean up the non-performing assets of the banks.  People will order more credit/debit cards and open more online wallet accounts.  More and more businesses will start accepting plastic money and e-payments.  But unless there are more tax reforms like GST and strong incentives to become law-abiding citizens, will demonetization significantly change the macro-economic picture?  For that to happen, the government will have to demonstrate that it can trust the people and operate with minimal corruption.  And the people will have to trust the government in return and pay their fair share of taxes.  Else, we are back to square one, with stashes of 500 or 1000 rupee notes replaced by stashes of 2000 rupee notes.

Above all, this new episode of the great Indian circus makes me wonder about the nature of money.  Back in the days, currencies used to be backed up by gold reserves.  The US dollar, the world’s reserve currency, was issued against a guarantee that the American government was in possession of an equivalent amount of gold.  Most of the other currencies were pegged to the US dollar.  That all changed in the 70’s when the US government under Richard Nixon did away with the gold standard.  What we carry around in our pockets is just a piece of paper whose value can go up or down based on how many new ones the government decides to print.  Someone like Modi can come along and render 85% of those pieces of paper worthless and there is not much we can do about it.  Does it ever make you wonder what kind of wealth we are accumulating?

The western world loves to stereotype India as the land of spirituality.  While demonetization has lifted some spirits and depressed others, we have carefully locked away our spirituality in temples and other places of worship.  These days, it can also take the form of a large, open public space where phony gurus set up their shops and pontificate for a couple of hours.  We attend the poojas and pravachans, only to get back to accumulating wealth that can disappear overnight.  After observing the seemingly endless queues at my neighborhood bank for the past week, I am wondering whether I should install an ATM in my apartment complex and play these famous Pink Floyd lines in an endless loop:

“Welcome my son, welcome to the machine…

What did you dream?  It’s alright, we told you what to dream…”

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Categories: Amit Shah, Demonetization, Economics, India, Modi, Politics | Tags: , , , , , , , , | Leave a comment

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