The eighth day of November, 2016 will go down as one of those days that define an era in the annals of Indian history. Such moments usually tend to be planned confrontations, with a crescendo slowly leading up to it, and while not always obvious at that time, it is heard later, and understood in hindsight. Kingdoms and rulers are defined by these moments, mostly on the battlefield and sometimes off it.
The locus of today’s war is the Indian economy, and the Government of India has sounded the gongs and issued a battle cry against those evil-doers who have stashed away "black money". Broadly, the current move by the government involves demonetising and encouraging non-cash transactions.
To state the simple facts, without reducing to ad absurdum, the Prime Minister of India announced that Rs 500 and Rs 1,000 notes will not be valid tender from midnight on that fateful day. People were given 50 days to exchange, deposit, use it for a few things like petrol, air tickets, etc in an endeavour to basically get rid of the old notes. The exchange is subject to limits, and deadline(s) have been set for using the old notes for certain transactions. A limit has also been set for ATM transactions and withdrawing cash from banks. People have been encouraged to adopt non-cash methods of transactions.
We are still within the 50-day window.
The intention of demonetising 86 percent of the currency in circulation is to bring out the "black money". The government has been quite vocal in taking on black money, and this isn’t the first move. When it comes to intentions, there is nothing to fault. In fact, it is laudable that the government has the will to take on what’s almost become a characteristic of an Indian.
The government has identified digitisation and encouraging non-cash transactions as a cornerstone in the fight against black money. It is certainly the best way to eliminate the creation of black money — when the number of cash transactions reduces, it becomes more difficult to hide illegal transactions and masquerade them as legal; that is, people cannot create black money, when everything has been brought to account and large cash transactions will draw suspicion.
This is where eliminating higher denominations is of significance. It would mean that apart from transactions of small value, people would tend towards non-cash transactions. It would also mean that physically carrying and stashing away black money will become difficult, not just because of the weight and volume, but also because the actual value of currency in circulation will be less than what it will be with higher denominations in circulation.
The intention behind this move is excellent and noble. But what has happened is a big mess. We see queues at banks and ATMs where people are forced to wait to withdraw their own money. Small businesses and traders have lost income, and are in a fix to make ends meet. The government has carried out extensive advertisement campaigns and people have been quick to rubbish anyone questioning the move as anti-national ("With the growth of nationalism, man has become the greatest menace to man" – Rabindranath Tagore).
But beyond what at times sounds more like propaganda than anything else, what we need to look at is the success of the move — this can be gauged by the amount of black money brought out in the open, future gains from it and also the move towards digitisation. It will take a long time to know the actual amount of black money brought out. Apart from stories of certain huge deposits, the actual sums of money that have come out or been destroyed will take a long time to emerge and might still be subject to a good degree of error.
The move doesn’t eliminate the conversion of old black to new black or the creation of new black money. While the former shows how deeply corruption is ingrained in our system, the latter is possible since we still have high denomination currencies. While the headlines of new black being caught would seem to show a higher efficacy in catching hold of perpetrators, it can simply be down to reporting bias and won’t become evident till we know the extent of the new rot.
The gain to the exchequer also needs to be considered. The direct gain here would be taxation imposed on the black money reported. Here again, this money would only be subject to direct tax and not indirect taxes which were also evaded. In fact, tracing the origin of the money and therefore the point of taxation might actually lead to better plugging the system and loopholes. It remains to be seen if this gain will outweigh the cost of the move.
The indirect gain would be the income generated in the future — the increase in money in banks should theoretically lead to a decrease in interest rates which in turn would lead to more borrowings and investments into the economy. In the long run, this should outdo the loss to the economy due to demonetisation. Again, it remains to be seen if this will happen. A great impetus has been given to going digital. The general awe of using cards to pay for everything in places like Singapore, is no more a distant dream, but almost a reality — how we wish(!)
Much like the Swachh Bharat drive (ironically, the logo of this mission appears on the new currency notes — a haven for germs, dust and such-like), saying and cess-ing doesn’t really solve the problem. For every railway station that beams at us, the fact remains that 100 other places are as dirty as ever.
Implementation is what matters, and for that we need two things:
b) Education (different from merely disseminating information)
Quoting the number of bank accounts is a moot point. What matters is the number of digital transactions actually carried out as an overall percentage of transactions. What also matters is the available infrastructure and if it is enough to support (almost) everyone going digital overnight (if 86 percent of the cash is removed and only a small percent is added back, then clearly this is the intention and way out).
Without going into servers and capacities, we have to look at the availability of PoS machines and cards, net banking facilities, smart phones, phones (for UID) etc. And beyond that, we need to look at whether banks can receive requests, process and issue/digitally enable people overnight, especially when they are caught up in changing money and accepting deposits. The obvious answer seems to be in the negative, especially considering we still have villages without electricity, or proper banking infrastructure. While it can be argued that quite a sizable quantum of legal transactions are non-cash anyway, what needs to be remembered is as a government, it is equity that matters — the quantum doesn’t matter, but the number of transactions do. And what needs to be remembered is that we are talking about not just about illegal money, but access to legally earned, taxed money and transacting using it.
While anecdotal stories have been published to draw us into thinking that people have adopted digital technology overnight, the reality is far from it. Educating people goes beyond advertising and pushing matter — it involves teaching them how to register, use and transact using digital technology securely. As such there is much distrust in technology, especially when it comes to money, by quite a large portion of the population.
The government seems to have overestimated the influence of the prime minister and assumed it as enough motivation for people to believe and switch over. But the panic that followed the announcement and practical considerations like paying for food and rent, and standing in queues to get money for these things didn’t really allow for much room for people to consider what was being said. So while being highly nationalistic and soldering along queues, people did not have time to learn and adopt. Maybe the government could have used the wait time to actively educate people using its highly-motivated volunteers.
The difference between fortitude and balderdash masochism lies in choosing the moments you use to exhibit the underlying quality — to use a much-too-familiar example would be of Karna from Mahabharata who bore the pain of a creature digging into him while his guru slept — which as anyone would tell you led to him being cursed to forget all he knew at the moment of reckoning. The intention may be right, but personality-driven egotistical heroism is the also the start of a tragedy. All the suffering of civilians and soldiers (to the convenience of those who bring them into conversation) is of nought when you have neither stopped the creation of illicit money nor have you caused a major shift towards cashless economy.
To be fair, corruption is too deep-seated in us to simply adopt to a new system overnight. It would be akin to fundamentally killing a part of ourselves. As much as a majority has elected this government on the strength of a supposed maverick, it isn’t enough to inspire what would seem like harakiri. This is especially so when the priest is corrupt and the believer is corrupt — the God too is corrupt and that’s what the people seem to be praying to anyway.
It would have been wiser to adopt a bottom-up approach and create the infrastructure first. Slowly prod people to move away from cash and allow the majority of the country which transacts in cash to get an idea of how it works. Demonetisation then would have made sense and could also have been done anyway with the issue of new high denominations.
The ultimate aim is to always win a war, not merely a battle. It might seem unfair to judge an army based on a single battle, but some battles are more significant than others. This certainly is so. This round of the battle, with the advantage of surprise on the government's side and all that it had its disposal, including the implicit trust of many, is the government's. But when almost all the (faceless) leaders of the enemy camp are intact, and many have lost the trust they had in the government, what did the victory achieve? It is possible to kill an elephant and deceive a person, but not an entire country, especially when the people you are supposedly fighting for are the collateral. And in a democracy, even if you honestly believe in what you said to be true, you better be ready to answer questions and not expect people to radically change their lives merely on your word.
Time will tell who wins the war.
Nationalism stems from a feeling of oneness, and making people insecure — to think you can’t access a lifetime’s work (legally earned, tax-paid) the way you want, isn’t going to inspire that, how many ever ladoos you distribute. Above all, this shows a lack of trust in your own citizens — to catch a few thieves, the entire nation is being asked to line up. Who is going to identify them, remains a mystery.
The author is a chartered accountant from Chennai
Updated Date: Dec 21, 2016 08:21:32 IST