The demonetisation divide is disturbing.
Sitting on the opposite side of the treasury bench, it becomes a normal impulse to oppose the government. But moving beyond partisan politics, a few decisions need to be seen in the context of both their end purpose and the means employed, without divorcing one from the other. The recent decision by the BJP government to demonetise requires one such analysis.
Today, India is facing countless challenges; both internal and external. Externally, a major challenge is posed by increasing assertiveness of China, a country that started its development journey with us but is now challenging the world’s biggest superpower, the USA. It cannot be disputed that it was only after it became an economic super power that China’s presence started being felt on the global high table.
On 13 November, Pakistan’s prime minister Nawaz Sharif inaugurated the operational activities of the strategic Gwadar Port, an important trade link between western China and the Arabian Sea. Gauging its strategic implications is not a tough job and is indeed a matter of concern for India. Fresh manoeuvring in the relationship of Bangladesh with China and Pakistan in the past few months compelled our defence minister to forge new ties with Bangladesh. The way India is being surrounded in the India Ocean also raises serious strategic concerns.
Without getting into the finer nuances of these issues, it is can be safely remarked that external challenges equal the internal ones, which are no less.
This country is of the youth. They are both our capital and strength. If we cannot provide employment to them, nation-building will not be possible. That is a categorical fact. The needs of our rapidly increasing population also need to be taken care of. Environment degradation is staring us in the face. We have mixed poison in the air and are inhaling it. Various reports have indicated how more people in India are dying than in China because of diseases caused by environmental degradation. It is not only impacting our health, it is impacting our society and our economy at large. If we don’t take strong steps in the economic realm, it is not very viable to expect the country to remain in its current shape.
Demonetisation and its desirability
Marx’s proposition that it is economic decisions that forge the historical narrative is so true and China is a living example of this. After Independence, the dream of making India great, a dream nurtured by the freedom fighters, was met with several roadblocks and the economic ones were the most gigantic among them.
To remove these roadblocks, it was only on two occasions that decisive steps — exuding full determination to bring a substantive change — were taken.
In 1969, the nationalisation of 14 banks by the Indira Gandhi government was a big step in regard to economic reforms. Also, the abolition of privy purses and nationalisation of coal mining in (1971-1973) was a decisive step that sent a very strong message to the people.
Again, decades of economic mismanagement pushed our economy to the wall compelling the PV Narasimha Rao government to initiate liberalisation and opening up of the economy in 1991.
The BJP government, while announcing the demonetisation of Rs 500 and Rs 1,000 notes on 8 November, joined the same line of reforms. Its consequences will be judged in time, but it can be safely said that it would be beneficial for the economy at large, given that it is taken to its logical conclusion by initiating more reforms. It is the sheer misfortune of this country that a decision that provides a direction to the country and determines it destiny is seen through a political prism.
Politics has become a 24-hour vocation for almost all the political parties. Every step is evaluated in terms of personal and political gain.
Of course, there are exceptions like Bihar chief minister Nitish Kumar who chose to see it from a different perspective, not allowing myopic oppositional politics to colour his views. On the very next day after the demonetisation announcement, Nitish supported the move. The reason for his support was simple: Cleansing Indian polity of black influence.
I have earlier, in various discussions in Parliament talked about the Mumbai blasts of 1993. And I have also highlighted that in the same year the NN Vohra Committee submitted its report. The committee highlighted the problem of the criminalisation of politics and of the nexus among criminals, politicians and bureaucrats in India. It showed how this nefarious syndicate is destroying this country. It pointed out that this syndicate draws its strength from black money. The report was completely forgotten. We should deliberate upon implementing its recommendations.
While we kept talking about curbing black money, a new power-broking class like Ponty Chadha, Matang Singh and Abhishek Verma and a host of political people who still hold important posts in different political parties, has emerged. Their sole interest is to generate black money on which to thrive. These power brokers have permeated defence deals, major policy decisions and even in the justice delivery system.
Demonetisation is an important but small step to check these trends. To take it to its logical conclusion, the government has to strike on benami property, where most of the black money is invested.
Tough economic decisions are required to strengthen democracy. Nitish’s decision to ban liquor — estimated to cause a revenue loss of thousands of crores — was to benefit the people at the bottom of the social pyramid. And when this happens it strengthens the democratic ethos of the country. In 2005, Bihar was written off by the leading publications of the world such as The Economist, TIME and Newsweek. It was declared as a hopeless case. But the same Economist magazine in 2010 talked about its transformation and turnaround. It was the result of some very strong legal and economic steps, like speedy trials — wherein 90,000 criminals where convicted in record time — and sounding the bugle against benami properties of corrupt government officials and politicians.
It is assumed that in a democracy, strong steps cannot be taken with decisiveness. And the long-held image of India as ‘soft state’ allows the corrupt and the thugs to turn audacious enough to openly endorse, support and perpetrate wrong.
Today top economists are arguing that the current demonetisation might be problematic in the short run but it will be beneficial in the long. Consider this: In Khairagarh, Chattisgarh, after 29 years, people came out in the open to pay up tax worth Rs 50 lakh. This is a story of a small district in Chattisgarh. In Ranchi, after demonetisation, Rs 1.16 crore was deposited as municipal tax in one week against Rs 20 lakh a week in normal times.
A Congress member asked in Parliament as to what was so great about demonetisation. It has happened earlier too. Now consider this: In 1945, of a total Rs 1,235 crore worth of currency, Rs 143 crore (11.57 percent) was demonetised. In 1978, out of Rs 9,512 crore, Rs 146 crore (1.53 percent) was demonetised. In the current exercise, of the Rs 16,41,500 crore currency, Rs 14, 21,539 crore (86.6 percent consisting of Rs 500 and Rs 1,000 denominations) has been demonetised.
This is huge and unprecedented. In terms of the value of the currency, it is a whopping 73.656 percent more than the 1978 exercise. In terms of the number of notes that need to be removed, it is even more mind-boggling. Against around 10,00,000 (give or take a few lakh) notes taken out in 1978, this time around 22,56,00,00,000 (two thousand two hundred and fifty-six crore) pieces of currency will have to be taken out. That is, this time, the effort is 22,56,000 percent larger.
Now the government should ascertain the impact of demonetisation on Naxal funding, insurgency in Kashmir and the North East. It needs to enquire as to what extent the reports of note-burning like the one reported from Kolkata are true and who these people are. Information regarding this will justify the government’s move. And in due course, all efforts should be made to ensure that if we want to move towards a cashless economy, the infrastructure to support this dream is put in place quickly.
What the Opposition should be doing now
Now what should be the role of the Opposition in this case? I think it should be of constructive deliberation. Rather than blindly opposing demonetisation, it is a moment when the Opposition should initiate a debate as to why in the last several decades, in spite of all the serious talk on the issues of corruption and black money, we failed to take any decisive steps.
In 1962, Lal Bahadur Shastri formed the Santhanam Committee to suggest ways to tackle corruption. While one of its recommendations did result in the setting up of the Central Vigilance Commission (CVC), several other important recommendations were never debated seriously. In the following years, numerous committees were formed on the same issue and several reports on corruption and black money were submitted to the government, but without any substantive outcome.
Corruption and black money was once a big issue. But over the decades, instead of sharpening the fight against corruption, ironically it got normalised by the shameless acceptance of its inevitability. In Jawaharlal Nehru’s first Cabinet, a minister named Keshav Dev Malaviya had to resign because he was accused of taking Rs 10,000 donation in elections.
Sankar Das, in his biography of Nehru, writes that in April 1963, certain charges of a minor nature were brought against KD Malaviya — a Central minister. Nehru asked SR Das, a Supreme Court judge, to ascertain whether there was a prima facie case against Malaviya. Nehru otherwise liked Malaviya because he had done useful work in helping develop oil prospecting in India. Das’ enquiry was not conducted openly; it was held in camera. However, Das found that there was a prima facie case against Malaviya on two out of six charges. Malaviya resigned.
This sort of aversion to corrupt practices has dissipated largely. It is an indisputable fact that black money is the direct outcome of corruption and there is a symbiotic relation between the two.
In the past 40 years, since the time I started observing social and political developments, the base and impact of black money has increased manifold. As members of the Opposition we need to look up how many committees were formed to check corruption and black money in last few decades and question why no steps were taken to implement their recommendations.
We need to ask if the governments till now were only interested in forming committees.
The World Bank has put the extent of India's parallel economy at roughly 20 percent of its gross domestic product (GDP). The 2014 and 2009 Lok Sabha elections were evidently fought with black money. People like Baba Ramdev, Ram Jethmalani and Professor R Vaidyanathan were vocal about this. It can be nobody’s case that the host of social evils facilitated by black money can be allowed to remain. Now that the government has decided to demonetise currency, there is no point in irrationally criticising it.
Of course, some tough questions need to be asked of the government. But before that as an Opposition we should see that the government machinery ensures that people in the most distant places get the new notes in the shortest span of time.
Also, all the news that is emerging after demonetisation should be debated. A few days ago a leading financial paper reported that at the India-Bangladesh border, the fake currency racket has suffered a huge setback due to the demonetisation process. The same day Mint published a report headlined, 'Hoarders woo friends to turn black money into white'. According to this report. big politicians and government officials are asking people to help them convert their black money into white for a commission.
Some other reports claimed that the government is monitoring the income of around 400 big jewellers. Given the fact that a 10-gram gold coin costs Rs 30,000, a briefcase full of such coins can hold black money worth crores. Another important concern is the way Jan Dhan accounts are being used to stash black money. According to a Times of India report, Rs 170 crore was deposited in these accounts in just three days. The government needs to probe all abnormal transactions in these accounts.
It is estimated that Rs 30,000 to Rs 40,000 crore of hawala money is with terrorist organisations. According to some estimates, terrorists funding in Kashmir rides on this money and following demonetisation, this has been severely affected.
All these news reports — both positive and negative — need to be debated and dissected by the Opposition to ensure the government follows through and taken demonetisation to its logical end. The extent of black money is vast. According to World Bank, it is around 20 percent of the total GDP.
The government estimates it at a far more conservative Rs 15-20 lakh crore which is less than 20 percent of GDP. What is the exact extent of this is tough to ascertain. Professor Arun Kumar, who has written a very important book on the subject, has, in his article published in Economic and Political Weekly (subscription required), put the figure at 62 percent of the GDP. That, too, in 2013.
It is true that farmers, small businessmen and traders, patients, passengers and common people are facing huge problems. But in a decision of this scale, it was bound to happen. An argument has been made that people should have been given some time before announcing demonetisation. It is common sense that if such a big decision had leaked even 15 minutes before earlier, it would have had the potential of destroying the economy. It is natural that with a population of around 1.3 billion, there will be challenges. The government needs to provide immediate succour to the people and move quickly to mitigate the adverse impact of this massive move.
This is a fight against organised corruption. Information regarding tax havens on foreign shores was given to this government time and again. In 2015, the Black Money Bill was introduced to bring back black money. But a measly Rs 2,500 crore was netted.
Then came the income declaration scheme. By September-end, only Rs 65,000 crore had been received. If the estimated black money is Rs 10-15 lakh crore and only Rs 65,000 crore is received, it surely calls for some serious steps.
All said and done, there is no denying the fact that demonetisation is an audaciously positive move. But it can reach its logical end only if it is accompanied by electoral reforms, confiscation of benami properties and stern action against those still in possession of wealth disproportionate to their known source of income. These objectives if attained substantially would set India on a different course. Politics can come later.
The author is a former editor of Prabhat Khabar, a Rajya Sabha MP from Bihar and JDU spokesperson. Views are personal.