Capricious laws, overzealous officials and bureaucratese flip-flops marked the demonetisation journey. A journey replete with more failures than successes, but absorbed exceedingly well by India. No murmurs of public dissent, no unrest, no anarchy, no rebellion; but dislocation and certainly disruption in our daily lives faced as we were with an acute paucity of liquidity aka Vitamin C. Cash they say is king, alas, not anymore, it died on November 8 midnight. Cash is dead, all hail the new king — digital and plastic. By disincentivising cash, the government has set us off on a different trajectory — one that requires reorientation, the coinage of a new slogan of a less cash economy instead of a cashless economy is an offshoot of this humongous exercise.
Life has been difficult for all strata of society, the conspicuous consumer or cash flashers vanished overnight, retreating in the face of a liquidity crunch and hit by the sucking out the high denomination notes. But they will be back once there is enough cash in the system. Or maybe not, for the department of income-tax and other enforcement agencies will now mine data collated to target errant tax evaders. What is perhaps a bigger embarrassment for the government is that their theorem of cash deposited and cash in circulation has been proved wrong. This gap was to be the black money component and by all accounts, it appears that the difference will be marginal.
Of the high denomination notes in circulation to the tune of approximately 15.46 lakh crore rupees, a large majority would have returned by December 30 and this debunks the much-hyped and propounded axiom. To the government’s credit, it has shown malleability and ductility in the face of the subliminal critique of its policy. Wherever and whenever necessary, it tweaked rules and regulations and while most were done showing presence of mind, a couple like the RBI notification on Rs 5,000 deposit were highly laughable; it showed that the babu had taken over.
Which he has, since nature abhors a vacuum. Armed with a database, he has declared war on the tax dodgers. India has such a narrow tax base that any new information is welcome to enlarge it. Between the income declaration scheme, which closed on September 30, and has already been shown up to be a bit dodgy in terms of numbers, the taxman has a whole catalogue of numbers and data. And this hard data is now being used to ensure that India returns to a raid raj era. “Beware the taxman cometh” is the new theme song.
Cash hoarders, tax evaders and money launderers have been targeted systematically using the same database. And what has turned up is rather surprising — money laundering or turning black into white is a cottage industry with tentacles and linkages spread all across the vast swathe of this land. Banks being the lynchpin in this fraud. Sand mining baron J. Sekhar Reddy turned up Tamil Nadu chief secretary P. Mohan Rao — both Chennai-based —who, in turn, revealed linkages to dubious Kolkata-based realtor Parasmal Lodha who, in turn, drew a connection with twice-raided Delhi-based chartered accountant Rohit Tandon. Now in the normal course, one wouldn’t have uncovered such affiliations and architecture.
Our biggest enemy lies within us, smug as we are that nothing is going to change. Prime Minister Narendra Modi changed that, gave the system a nice hard kick in the seat of its pants and unleashed a whole new cash vacuum. But India and Indians are resilient, they have contended with the curve ball thrown at them. And while getting their own money from their own bank has proved to be problematic, the Hindu way of life which teaches patience, objectivity and inclusiveness, has worked like clockwork. The negatives though outweigh the positives in the short term, consumption has taken a massive hit, a rebounding rural economy recovering due to a good monsoon after two successive drought years lies crippled. The unorganised sector which determines our exports has turned into a wasteland, for the first time we are seeing a reverse migration as migratory labour working in the construction and other sectors in urban agglomerates is returning because at least the village provides a safe haven in terms of food, if not a respectable livelihood.
India, which consumes as much as 67 per cent of its GDP domestically, has been impacted adversely. Transactions came to a grinding halt and while the flight to digital has taken place, it is too early to assess whether this is a permanent phenomenon.
There are too many moving parts to the Indian economy, the sum of parts lies damaged, the cathedral of conspicuous and other consumption in ruins. As political leaders, one has to make intuitive choices while taking decisions.
Mr Modi, to his credit, took his. The counter-narrative is that for the time being black is out, white is in even if it is a scarce and precious commodity. What is germane to this narrative is that terror financing and counterfeiting has been pole axed, tax dodgers are underground waiting for the knock on their doors.
Inspector Raj and tax terrorism is back in a redux of the early 1970s, where Hindi pulp cinema showed us on celluloid how India’s innards were being eaten away by black marketers, hoarders and gold smugglers. Movies like Apna Desh, Roti, Kapada Aur Makan, Amir Garib and Dus Numbri were touchstones in this regard, mirroring societal flaws and failures.
The last month or so has been a throwback to that era as enforcement agencies have been given a licence to demolish the veneer of respectability. Indira Gandhi steeped in socialist moorings went after the rich and powerful, nationalising sectors and including abolishing privy purses.
Hindi cinema held up a mirror to those dark days. Still later an even more draconian regime was unveiled by the Raja of Manda Vishwanath Pratap Singh who as finance minister in Rajiv Gandhi’s Cabinet went overboard and finally had to be sacked as finance minister and appointed him defence minister. He sacked two bank chairmen, secured the resignation of the chairman of the Industrial Development Bank of India (IDBI), replaced all non-official bank directors with new nominees, and made the targeting of corruption in banks a veritable crusade.
Zeroing in those who were votaries of the government, he went after every leading business house — the Ambanis, Birlas, Kirloskars, Tatas, Thapars, Modis, Bangurs and Goenkas, to name only a few — either raiding or questioning them on its financial and business deals.
When discussions across the table failed to yield the desired results, some of them were arrested as well in a series of sensational episodes. For the first time in decades, the best known industrialists in the country — men like Lalit Thapar and S.L. Kirloskar — were arrested on charges of having committed economic crimes. It was considered an outrage; abiding images of ageing industrialists being taken away are embedded in our memory recesses.
The lesson to derive from that age of excess is that a surfeit of anything is always counter-productive. One hopes that the exercise of demonetisation actualised results in lower borrowings, lower interest rates, lower inflation and jumpstarts growth in the medium term and the rigor mortis that has set in the real economy recovers.
People at the bottom of the pyramid believe that this churning will bring cheer, like desperate prey, they were made to deify ATM machines as the new God of pelf and power, they will seek recompense for being part of those long and winding queues.
Mr Modi may not have been able to tick all the boxes, but the people of India have stood by him in this transformative moment. And Mr Modi, known for his political timing, announced interest subventions for rural and urban housing reeling off a mini budget before the state elections code of conduct sets in. Hopefully, kickstarting a consumption upcycle again.
