Fighting an Incalculable War
Dr Asangba Tzüdir
As the entire world followed the US presidential election anxiously, Prime Minister Narendra Modi took a U-turn by announcing in an unscheduled live televised address, the decision to demonetise with a time of about four hours before currencies of Rs 500 and Rs 1000 denominations became illegal. No doubt, this decision under Modi’s reign comes as one of the biggest shocks that have rattled the entire masses. This was in tune with his pre-election plan to bring back the black money stashed abroad, which somehow suggested that the bulk of black money was located abroad. This is a naive understanding, where the range of ‘black money related activities’ are often miscalculated or ignored.
The demonetisation is being done in an effort to stop the counterfeiting of the current banknotes alleged to be used for funding terrorism and for curbing black money in the country. The move is also aimed at reducing corruption, drug menace and smuggling. However, one would wonder whether the objective is worth the move considering that India has a long history of demonetisation. The aftermath of the shock has been followed by chaotic alarm and harassment while in the process of dealing with the harsh realities of money related business transactions. The opinion of the masses differed especially on social media sites. But on the whole, the move to curb black money was appreciated in the larger interest of combating corruption, though the manner in which it was carried out by causing hardships to common people was criticised.
While International Monetary Fund (IMF) has supported Narendra Modi’s efforts to fight corruption by demonetizing 500 and 1000 rupees notes, Prabhat Patnaik, a former professor of economics at JNU called the move ‘witless’ and ‘anti-people.’ ‘Witless’ because of the way in which back money was misunderstood as “a hoard of cash” saying that it would have little effect to eliminate the actual ‘black activities.’ Days following the demonetisation have witnessed the common people being impinged largely. As the former World Bank Chief Economist, Kaushik Basu, said that the ‘damage’ is likely to be much greater than any possible benefits. A better assessment of it may be done after the completion of 50 days, a timeframe bargained by Modi to create a ‘new India.’
It has been noted that black money holders keep only a small fraction of their ill-gotten wealth as cash, hence targeting this cash may not be a successful strategy. De-monetisation may wipe out the stock of illegal wealth held in cash, but the larger concern is that, nothing has been done about the money that has been converted to assets in the form of land, gold and jewelleries and other assets. As such, it does not prevent the future build-up and continuity of black money. The other major problem relates to the amount of cash in the system. According to RBI data in 2015-16, it shows that notes of Rs500 and Rs1000 denominations formed nearly 10% of nominal GDP. Thus, it will be difficult to calculate the stock of currency that actually represents illegal money.
On the flip side, looking at the various forms of transactions done in the bank, one can imagine the amount of legitimate money getting destroyed in the attempt to demonetize in a rapid manner, a move that cannot afford to go slow considering the intensity, magnanimity of the objectives at hand. No doubt, unaccounted black money may be curtailed in the process but the consumer economy is affected to a great extent and thereby creating imbalances in the economy.
Beyond the harassment through this blanket operation, the move has been introduced and expatiated with much optimism and positivity from the Modi-led government but these are early days to make any sound calculation of the impact so also the fulfilment of the objectives. However, looking at the various points of references including the history of demonetisation in India, certain conclusions can be drawn logically. For now, it seems like a ‘surgical’ war, which is incalculable, is being declared.
(Dr. Asangba Tzüdir is Editor with Heritage Publishing House. He contributes a weekly guest editorial to the Morung Express. Comments can be mailed to asangtz@gmail.com)
