Demonetisation has been touted by the government as the solution to black money and corruption — projecting an image of rooms full of hidden cash as the evil poisoning our economy and society. The misdirection of this policy, its drawbacks policy have been pointed out by Roshan Kishore, Saquib Salim, Prabhat Patnaik, and large sections of the media over the past few days. A broad analysis of what has occurred will help us understand that the policy has two political aims: to give the semblance of crusading against black money while doing nothing of the sort, and to fill the coffers of public sector units and banks (rather than admit their starvation due to lakhs of crores of bad loans. Here's the analysis:
It is important to know that only 15 percent of cash is in the form of Rs 100 notes, and 85 percent of it is in the form of Rs 500 and Rs 1,000 notes. Almost instantly the ability of the middle class consumer to make purchases online through Cash On Delivery was taken away, including orders that had been made a few days before the announcement of demonetisation.
Most of the black money that is believed to exist, is in liquid form with majority of the chunk abroad. Further, this definition of black money does not include the erstwhile forms that have over the years now been legalised, normalised or legislated through tax breaks. Billionaires and corporations, thanks to loopholes in laws, have been able to keep nearly all of what they earn.
The "black money" rhetoric also fails to disclose that favours are the main and highest form of corruption, especially at the highest levels — publicly undetectable and legally permissible.
The most important purpose of the forced depositing of currency, according to Janata Ka Reporter, appears to be the dire need to fill Public Sector banks’ coffers in wake of bad loans - to keep them afloat. This route has been seen as more accessible rather than recovering it from the rich defaulter — in effect bailing out the billionaires who squandered public money. If the establishment was genuinely serious about black money, why did it let Vijay Mallya leave?
The many ways in which the government’s decision affects poor people adversely has been well explained in various articles. The father who was saving up for his daughter’s wedding, the many people who have died after collapsing while waiting in lines at the bank or the ATM, the farmer whose agricultural income (non-taxable) is often kept at home for expenditure over a long term, the fact the ATMs are heavily concentrated in urban areas, the fact that hospitals are turning away people in serious need of treatment, the fact that a majority of families are having trouble buying provisions, the fact that people in dire need of cash make journeys outstation to bigger cities only to unsuccessfully attempt to withdraw cash.
What was startling was the fact that the decision to outlaw high currency notes adversely affects the BJP’s own shopkeeper base to no end, with several shops closing for lack of customers.
It's worth noting that the government approved changes to anti-corruption laws that would serve to shield bureaucratic staff from probes, reported in Scroll.
There also appears to be an attempt at starving non-BJP political parties of cash for campaign expenditure before the UP elections. What has also emerged is that several BJP state units deposited vast amounts of cash to the tune of crores of rupees in the days preceding the currency ban, effectively having been given prior notice.
A further end of this policy could be the encouraging of long and short term loans to more people while boosting savings. This would enable the banks to, in the future, gamble with ordinary people’s money by loaning it out to defaulting billionaires, and to, secondly, recover loans far more easily from ordinary people. Further, it would stop the Public Sector Units from going broke as the public sector banks can loan them anything as of now.
Shortly after the outlawing of high currency notes, we can see the rise of exchange touts who would exchange one Rs 500 note for three or four notes of Rs 100. This creates a chunk of black money of its own. There is also concern that this change, and economic and statistical implications, could be used to mask the lack of economic development under the Modi regime.
The announcement came parallel to the US election, and in terms of political diversion, also came with the news that Afspa (Armed Forces Special Powers Act) was extended in Assam by 6 months, and expanded in Arunachal Pradesh by 3 districts.
Ultimately, this demonetisation policy only makes it harder for offenders to spend the black money stashed domestically in cash form fast enough. The culprits in the Panama Papers will go scot-free. The ends appear entirely political. The citizens of India, with consent or without, just bailed the government and the billionaires out. This demonetisation is essentially a move to cover up a larger monetary mismanagement.
The author is a research scholar in modern and contemporary history at Centre For Historical Studies, Jawaharlal Nehru University.