The decision of the Government of India to demonetise Rs 1000 and Rs 500 at midnight on Tuesday caught the country by surprise. It was timed, maybe on purpose, to coincide with the shock of Donald Trump being declared President-Elect of the USA. The social media
"bhakt" chatter quickly moved from fearing the worst for the world under a Trump-led USA to hailing the demonetising as a "surgical strike" against black money. The similarities between the two incidents are striking. The US polls didn't quite indicate a Trump victory, it was probably driven by voters who didn't disclose their preference for Trump. Similarly, India Inc, those most likely to be affected by removing Rs 1000 from legal tender, is most vocal in its appreciation of the "
masterstroke."
Now, most politically-correct politicians have supported this move claimed to address the issue of domestic black money, barring a few in the Congress claiming to speak for the harassed
aam aadmi and
UP regional satraps who suspect the real motive is the upcoming assembly elections. Ironically, there is probably some truth to both these allegations. While it's difficult to argue against the larger objective of a crackdown on black money, especially in these times of ultra-patriotic smog, the NDA would be smug in the thought that a large portion of political funds for UP elections have overnight been written off.
There is also the small factor of a majority of the middle class suddenly having to scrounge for short change for their daily needs. Not to mention the impact on a largely legitimate rural agricultural cash economy. What happens to 45,000 weddings on the 20 auspicious dates coming up in November? The long queues outside ATMs and jewelry shops evoked scenes of resource-scarce Soviet-era socialism. My technology-adverse mother is stuck in Mumbai without any money, at least money she can legally use. However, most of the youth I spoke to seem to be elated by this move. They genuinely believe that it will help in curbing black money.
Again, Modi seems to have gauged public mood or public anger against the rich and corrupt (yes, they are synonymous in the mind of the Indian public). It laid down a perfect environment for this "surgical strike". The PM seems to have mastered the political packaging and timing too, given the recent years of economic hardship. But in the media-driven euphoria, the finer question on whether this will actually help in curbing black money still remains open.
There's no doubt that the demonetising of large currency notes ensures a one-time house cleaning. Cash stashed under the mattress ala Bollywood movies of the 70s becomes obsolete with the crooked money-lender or corrupt
babu falling victim to the crackdown. The movie would end with his ill-gotten gains burning in a pyre of smoke. However, I fear that this leaves an opening for the sequel to follow very soon. It's just a matter of time before the same villain stashes lean mattresses with newly-minted Rs 2000 notes. Unfortunately, we can't do an annual house-cleaning exercise without risking the stability of our currency.
As long as the sources of generating cash and its utility still remain open, this is unlikely to lead to any major curb on black money. It's prudent to remember that the similar 1978 experiment by the Morarji Desai government had no visible impact. 40 years down, we probably have much more black money in the system than before. What's changed are the reasons for this cash generation.
There is no longer an abnormally high tax rate of a 100% like in the 70s but we have a well-developed cash economy without which buying real estate becomes impossible. How would political parties fight elections or
babus earn post-retirement benefits if bags of cash are not available? And let's not talk about tax collectors where a standard rate for services seems to have been fixed of 5%-10%. Now these vaults of "black money" would have been hit hard with the demonetisation, if it weren't for the new ingenious industry that's come up overnight, offering to convert notes into legal tender for a 20% charge. We forget our thriving money-laundering sector using small deposits in innumerable nondescript shell companies. This dying sector seems to be delivered a bonus by the government.
The fact that it was a bold move is acknowledged by all, but will it have a lasting impact on black money is highly doubtful. The fallout of a massive contraction of business for the next few months until the new notes come into circulation, just before state elections, is a risk by any political standard. No doubt a calculated risk, shaped partly by demolishing the political coffers of the opposition. However, as long as cash is in demand and can be spent, it will continue to be used.
So why are we not using technology to prevent bribes and curb the generation of black money? Why haven't we look harder at over-invoicing of construction and imports of big business to ensure that millions are not stashed abroad or round tripped back. If the government investigates some of the NPAs (non-performing assets) with Indian banks and actually acts on the forensic evidence, it would probably have a more significant impact. Why have we not instituted a transparent system of bidding for real estate, like in the West, rather than leaving buyers to the mercy of brokers and middlemen? Instead of closing the massive exchange of cash, we have chosen to bring in a regulator whose orders will take years to be implemented due to an over-burdened judicial system. The Indian obsession for gold and jewelry is well known, yet we haven't been able to increase the scrutiny on its manufacture and sale.
Lastly, how would the political system survive in a transparent environment, where votes are seeded in the name of the
aam aadmi and yet political donations by lobbies and companies are seen as its anti-thesis?
(Kalikesh Narayan Singh Deo is a second-time sitting Member of Parliament from Bolangir in Odisha and a prominent leader of the Biju Janata Dal.)Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.