Mainstream, VOL LV No 1 New Delhi December 24, 2016 - ANNUAL 2016
Demonetisation: A Silent but Monster Killer - Modi Must Own Up Killing Over A Hundred in Bank Queues
Monday 26 December 2016
by K. Narayana
Over a month has gone by after the fateful decision to demonetise the high-value currencies by the Modi Government. The initial stated purposes in a bang focused on sucking out 86 per cent of the money in circulation in order to arrest black money and decapitate fake currency. As official statistics show, fake currency is just 0.0025 per cent of the total valid notes in circulation—400 crores out of a total of 16 or so lakh crores.
In fact, the bean-counters in the Union Finance Ministry had dug a mountain to catch the proverbial rat and by now it is amply evident that the project is a total failure. Just a few days after the introduction of the new Rs 2000 notes, new fake notes are already in circulation and now, it seems, the government’s hasty and ill-thought-out decision has actually created more incentives to put fake notes into circulation by either terrorist elements or our own home- grown shadow businesses.
Coming to the issue of black money, anybody with even rudimentary knowledge of economics and the way the Indian economy works, knows that only a small fraction of the officially unaccounted black money is kept in the form of cash. As is stated, more than 30 lakh crore rupees of black money are generated in our country every year. Further, the total monetary value of financial transactions in our country amount anywhere up to Rs 150 lakh crores and much of it is in the form of cash. Only two-to-three per cent of the financial transactions are by electronic means. The confusion among the policy-planners that most of this is black money is the source of this bad decision by the Modi Government. However, around 45 per cent of our GDP is generated in the informal sector while most of the transactions in the informal sector are only in the form of cash. Of our work force, 93 per cent along with those working in the rural areas never get paid through plastic money or by bank cheques. Much of this kind of money in circulation is not black, though it might be unaccounted. Hence it is not entirely illegal, though it is desirable that all these financial transactions are brought under the purview of the tax structure.
As regards the organised sector, most of the money transaction in the government sector and the public enterprises is open to govern-ment’s scrutiny, being the owner of the businesses and administration, not counting the dark money created by corruption. But in the case of private business, these 30 lakh crores of unaccounted money is generated on a regular basis in business transactions through over- invoicing of purchases and showing only a part of the sale proceeds. Many economists and financial experts have made it amply clear in the last few days that about 97 per cent of the black money is not in the form of cash. Just about 10 per cent of this, that is, about Rs three lakh crores sail abroad to foreign banks and the rest of the 87 per cent is either reinvested or is converted into assets such as share market investments, real estate or jewellery and luxury items.
A determined administration will not find it that difficult to trace these funds. But the government resorts to dramatic netting of a few hundred crores in cash and jewellery from the fraudsters, just to fool the people into believing that it is intent on catching the culprits. But even those symbolic amounts, dug out from kitchens and bathrooms, are creating a sense of loss of faith in the government among the people.
On the fateful day of November 8, Modi, while announcing his demonetisation decision, first in the Union Cabinet and then to the media, had declared that he would own the responsibility for the consequences, either favourable or adverse. This is typical of a bombastic indivi-dualist, typified by Modi. Now that in five weeks after demonetisation, the economy has come to a grinding halt, lakhs of small and medium industries are closing down due to shortage of cash, virtual collapse of the banking system and the consequent loss of more than a hundred lives in the queues before banks and ATMs, Modi should own responsibility for the death of a hundred persons.
But now when the heat is turned on him for unleashing the catastrophe, he is putting the blame on the bank staff. This again is typical of a coward, who only wants glory and no blame. Now he wants to use the bank employees as a shield to deflect the attacks. The mood of the people is changing from one of optimism that “at least something good is being initiated” to anger, disappointment and frustration at the utter failure to meet their expectations. What is disconcerting is that Gali Janardhan Reddy, the mining mafia magnet and financier of the BJP, had performed his daughter’s marriage spending Rs 550 crores and it is reported that the BJP leader and Union Cabinet Minister, Nitin Gadkary, had chartered purportedly 50 aircraft to ferry people from various parts of the country to Nagpur for his daughter’s marriage.
All this while ordinary citizens are post-poning their children’s marriages as they are not allowed to withdraw their money from the banks. And the BJP Ministers and leaders are coming out with ridiculous and irresponsible statements that people are dying on the roads, due to disease and in cyclones, then what is so special about dying in queues. People are angry, but not yet to a level where it can spark a revolt. But when millions of people are being denied their livelihood and small businesses and shops are closing down like the proverbial pack of cards, hunger and starvation are looming on the horizon and crores of poor peasants, daily labourers and workers thrown out of work, they will not be sacrificing their lives for the ‘supreme leader’. There is bound to be a cascading negative feeling, when they are faced with starvation. There is every danger of collapse of the civil society and unrest. For which Modi, true to his promise, has to bear the responsibility.
Initially, Modi has been able to entice a sizeable number of people into believing that he is intent on flushing out fake currency and bringing all the black money generated in the last 70 years into the open. Well, dramatics aside, it shows his utter lack of knowledge of the functioning of the Indian economy. Instead of striking at the source of black money, the government has chosen to kill the informal sector and small businesses. Also by sucking up the money in circulation among a vast majority of the country’s population, they have succeeded in killing two birds in one shot.
More and more BJP operatives and leaders are being caught with wads and truckloads of freshly minted Rs 2000 currency notes. This shows whom Modi had targeted to squeeze money—surely not from his cohorts and big fish, but from ordinary citizens, bleeding them of their hard-earned meagre savings. With the NPAs ballooning to an enormous share of the banks’ assets, any more loans to big business is difficult, unless big money is infused into the banks’ coffers. The government’s demonetisation had actually achieved this in a short span of time, but sucking out money from small businesses and the meagre savings of the poor and now the banks are richer by about Rs 12 lakh crores.
The hungry wolves of big biz are already salivating at the prospect of a fresh round of orgy of loans at low interest rates. Hence the clamour to cut down repo rate and thus reap the benefit of lower interest loans with no obligation to repay. The fear of public anger only had put off resorting to the repo rate cut, at least temporarily. It is anyway going to be done, as this is what the investors, both abroad and within the country, want. So it is a classic case of reverse Robin Hood effect, ‘rob the poor to feed the rich’!
The second intended purpose of this nefarious act of demonetisation was to kill the informal sector by the traditional neo-liberal technique, known as ‘shock and awe’. Amitabh Kant of Neeti Aayog had made this amply clear when he said that now the economy will be more organised. By killing the informal sector, the policy-planners in the Modi dispensation believe that they can throw the doors wide open for the big biz and MNCs to capture 100 per cent of the market, on the ruins of the informal sector.
With 97 per cent of India’s work force subsisting on the informal sector, more than 50 per cent of the population surviving on agricul-tural activities and nearly 12 crores of people making a living by micro-scale businesses, this criminal act of the government has destroyed the little security that more than a billion people in our country had. There is bound to be hunger and starvation, surging unemploy-ment. Starvation deaths too are not very far away.
The big question is: what is the government going to do with the Rs 14 lakh crores squeezed from the people? The RSS has a long history of rumour-mongering and now just to divert the attention of the people from realising what has hit them, many people are made to believe that Rs two lakhs will be deposited into each Jan Dhan account very soon. Just a simple math can tell you that there are about 21 crore Jan Dhan accounts and to meet this requirement, the government needs Rs 42 lakh crores. I don’t know whether the people would really believe it since such kind of money cannot drop from the sky.
The only way is to fish out such huge money from the coffers of real black money hoarders and that requires genuine courage. For that the government and the ruling party must be prepared to sacrifice their lifeline of support from big business and the rich trading community. And the problem gets further compounded if the government really deposits even Rs 2000 into each Jan Dhan account as presently JD account-holders are only a fraction of the country’s poor. Moreover the lower middle classes and those poor people working in the organised sector will become a disgruntled lot. So by such a populist measure, the government and the BJP will be buying more enemies than friends. Well, we have no objection if the BJP digs its own grave, but it is the poor whose lives are being destroyed in the process. Any responsible government will utilise the money for inclusive development of the poor, who are till now deprived of the fruits of development. With crores of young people unemployed, they are waiting for Modi to fulfil his promise of creating 10 crore jobs. It is proven beyond doubt that this is yet another one of his ‘jumlas’.
Just a fraction of the Rs six lakh crores being doled out in every Budget to the rich as ‘tax incentives’ can be utilised to create livelihood for crores of educated unemployed. This will have a cascading effect of creating more than five to six crores of livelihood and only such a measure can spur the economy to higher growth. Feeding the coffers of the rich through tax incentives and dud loans (NPAs) will only strangle our economy, as we are witnessing with the neo-liberal economic policies.
Finally, the BJP’s attack on the Left accusing it of being pro-black money hoarders is nothing but utter nonsense. The BJP-led Modi Govern-ment must not forget that it is enjoying the support of only 32 per cent of people in this country and that it came to power with ‘swadeshi’ slogans and numerous promises. Instead of fulfilling the promises, the organised looters did not spare even the poor man’s kitchen, the gold and a few currency notes kept hidden by middle class women in boxes of pulses and pots for children’s marriage and/or emergency use. Those harassed and victimised women will definitely teach Modi and his party a proper lesson as and when they get a chance.
Dr K. Narayana is the Secretary, National Council, CPI.