Demonetisation, cashless economy: Covering up the fiasco with a new trick means more trouble
Despite the unprecedented man-made financial and economic disaster, Prime Minister Narendra Modi’s demonetisation adventure purged no black money.
Making a virtue of one’s mistake to escape embarrassment is an old childish trick, but if a central government indulges in it, it does say something about the character of the country.
What began as a sure-fire “surgical strike” on black money has mysteriously metamorphosed into a campaign for digital economy and cashless life. Despite the unprecedented man-made financial and economic disaster, which has no parallel in the world, imposed on the country’s poor and the middle class, Prime Minister Narendra Modi’s midnight adventure purged no black money. Almost all the black money estimated to be in circulation has found its way into the banks and by the time the 50-day deadline ends, what might have been cleansed would, be at best, a pittance.
By then, the country would have had to endure all this costly madness — Rs 12,000 crore plus for printing new notes, unestimated transaction costs, about Rs 1.28 lakh crore of immediate loss to the economy and irreversible damage to various sectors and the lives of people — for practically nothing. A pilot study in wishful thinking when the premise itself had been rejected by skilled and experienced technocrats.
That’s when the same eccentric idea gets dressed up as cashless economy and digital payments. By covering up the monumental fiasco with a new trick will lead India to more trouble, because the fundamental problem with the premise is, as Rahul Gandhi said, all cash is not black money and all black money is not in cash. The nationwide experiment of demonetisation so far has proved it beyond any reasonable doubt, and there’s no point in giving it a new spin.
If all cash is not black and all black money is not held in cash, how does petty cashless transactions prevent black money? In the best case scenario, it it will create enormous physical hardship for people and a lot of money for companies that make POS instruments and mobile and online payment firms. Does the nation or the people gain at all if people do their daily shopping using bank transfers and cards? Is it where most of the black money gets generated in India? If it’s about tax evasion by small-time vendors, wouldn’t the new GST-IT infrastructure handle it?
The government hasn’t made a cogent argument for such a move at all. All that it’s trying is to do is to cover up its failure and lack of cash because it thought of printing replacement currency only after killing 86 percent of it. After demonetisation, it’s another blunder that the government is getting into because more than 80 percent of the people are cash-dependent. It cannot be changed through a decision provoked by a distress.
It’s alright if the government had a policy on cashless/digital economy and is now rolling out a constitutionally valid process. If there was any such plan, it should have been discussed in Parliament, because some studies do suggest considerable cost in handling cash, ideally made into an Act, and implemented after framing the rules and putting an appropriate ecosystem in place. This is not a ship that can be built while sailing it.
Playing with most of the economic transactions in India without a master-plan and appropriate pilot studies before implementation is fraught with risks that might be more unforeseen than had been evident during demonetisation. Any simplistic move to address it will be like those Chinese grand idiocies (the sparrow story, the blood-plasma transfusion in Henan and Chairman Mao’s giant leap) or the social engineering experiences of Hitler (eugenics) and Sanjay Gandhi (family planning).
If the issue is really black money and if the intent is genuine, the way to go about is to implement the recommendations of the SIT on black money. In its fifth report, it does talk about curb on cash transactions, not at the grocery stores or petty shops, but at places where the money involved is big. It wanted the government to put a cap on cash transactions at Rs 300,000.
And guess what, the SIT wants it to be done through an Act. And that’s how it should be — not through knee jerk decisions or late night announcements. Did the government do anything on that? The SIT also said that government should make cash holding illegal beyond Rs 15 lakhs.
In fact, based on the experience of Indian ingenuity that was visible during the demonetisation, the government should raise the bar of stringency. Probably bring the Rs 300,000 limit to Rs 50,000 or even less. If only one percent of Americans use big dollar bills, the chances of the poor and middle class getting affected by such a cap in India must be negligible. This is the biggest transformative step the government could take, the real drive for cashless economy. An auto-driver or a beggar swiping cards is good only for WhatsApp.
Among other recommendations, the SIT wanted action on the generation of black money in education, charities and religious institutions and misuse of exemption from capitals gains tax. And probably most important of them all, it wanted transparency in participatory notes (P-notes), which are misused for whitening black money through round-tripping. Reportedly, the total value of P-note investments in India is 2.75 lakh crores with nearly a third of it coming from a tiny Cayman islands with 55,000 population. The Modi government is right — bulk of it came during the UPA regime. If you want to hit at the UPA, do it through policy.
Knowingly putting the cart before the horse defies logic, particularly for a G20 country. When there is a set of proposals from a committee of experts reporting to the Supreme Court suggest steps, why does the government drag its feet if it’s really serious about black money and black economy?
And it doesn’t hurt to admit that demonetisation was a mistake although the intent was genuine. It would make more sense if the failure is presented as a learning experience (unarguably the biggest monetary pilot in the world) on the entire range of issues related to the use of money that can help frame future policies, than being dressed up as a precursor to another pointless exercise.
It’s time to count one’s losses and move on.
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