Across the world, the Modi government’s poorly planned and executed demonetisation drive is being held up as an example of what not to do
TMC activists protest the demonetisation drive in front of RBI in Kolkata on Thursday. Pic/PTI
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BJP President Amit Shah recently reduced his weight from 116 kg to 91 kg, a remarkable feat that must be applauded. It isn’t because of the stress over the poor execution of Prime Minister Narendra Modi’s demonetisation of high-value currency. And it isn’t because Venezuela on Saturday postponed till early January the demonetisation of its 100-bolivar note after two days of pandemonium. Modi’s cheerleaders had cited Venezuela as proof of global endorsement of Modi’s act of financial recklessness, overlooking Venezuela’s hyperinflation as the reason for the Latin American country’s ‘Hail Mary’ demonetisation. (The 100-bolivar was to be replaced by other-denomination currency printed abroad; unlike the Indian rupee.) Venezuela’s postponement has had a deflationary effect — on BJP morale.
Actually, there has been zero global endorsement of demonetisation. Even the author of a book about the need for countries to go cashless — former International Monetary Fund (IMF) economist Kenneth Rogoff published The Curse of Cash earlier this year in which he blamed high-value currency for existing solely to finance all manner of illegal activity — wrote last month about how misguided Modi’s demonetisation drive was. Rogoff’s prescription had been that high-value currency like the USD 100 bill be gradually phased out over the course of years (he said just stop printing it instead of demonetising it); he did not prescribe this for developing countries. Modi broke both rules, so it is no wonder things have spiralled out of control. Former US Treasury Secretary (their finance minister) Lawrence Summers has warned other countries not to repeat Modi’s blunders. The Harvard Business Review this week said demonetisation was a case of “poor policy and poorer execution”. Others remain politely and discreetly silent, but the fact remains: Modi has turned India into the planet’s laughing stock.
No wonder the brainstrust behind demonetisation — Modi, Shah, Finance Minister Arun Jaitley, Power Minister Piyush Goyal — are depressed these days. Despite Jaitely’s repetition over the weekend of the government’s claim before the Supreme Court that there was no largescale violence due to demonetisation, reports of agitated crowds are popping up all over rural UP, causing BJP MPs from UP to panic. Their Assembly election is around the corner, and by the government’s own admission, the cash restrictions will continue past Modi’s own 50-day deadline of December 30.
The brainstrust openly blame corrupt bankers and tardy ATM adjustment for the unfolding nightmare. This plays well with their cheerleaders, who overlook the fact that bank corruption is just a drop in the ocean of demonetisation; the fundamental problem is that new cash is not being printed fast enough. The RBI’s figures (till the RBI decided to stop putting up such information on its website) were that till December 10 only R4.61 lakh crore of currency was printed or in the market, which is just one-third the value of the Rs 14.9 lakh crore demonetised on November 9. Experts predict it will take four to six months for full replacement. Jaitley says there won’t be full replacement, and that some of the remonetisation will be with digital currency. This sounds like bluster.
Yet, if there is one thing that is predictable about Modi, it is that he will not back down. Thus we may expect him to act again around New Year’s, after his 50-day deadline expires. There has been speculation on further moves against black money, and also speculation that on the eve of the UP poll, Modi will announce cheap loans to farmers citing the ‘gains’ of demonetisation. No wonder the Congress party sought to pre-empt Modi by demanding loan waivers to farmers, though if it thinks it has stolen Modi’s thunder, it ought to consider the possibility of another surgical strike across the Line of Control in Kashmir just before the UP election. There’s nothing that the bland Rahul Gandhi can do to pre-empt that.
Experts expect that around January 1, there are likely to be rules for the registration of gold, as well as real estate curbs. Talk is the government will require gold biscuits/bars and coins to be registered, making it illegal to transact any unregistered gold. Jewellery will be exempt. On real estate, Modi is expected to limit property holding to two per individual. Though one might argue that benami property in the names of family members is an easy solution, this curb is expected to cause a rush of selling of excess property, and the resulting glut would drive prices down in what would be a buyer’s market. If the demonetised black wealth has re-entered the banking system, as figures suggest, this is the only logical next step.
These measures will do nothing to speed up the printing of cash, however. Come 2017, India will continue to be the laughing stock of the world. And Amit Shah will continue to shed the kilos.
Senior journalist Aditya Sinha is a contributor to the recently published anthology House Spirit: Drinking in India. He tweets @autumnshade. Send your feedback to mailbag@mid-day.com
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