Black Money, Multiple Demonetisation Spinoffs, Disastrous Prospects

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Now, falling in line with political expediency is being pushed as ‘patriotism’, so it appears from RSS spokesman Ram Madhav’s statement ‘patience of people queuing up outside ATMs and banks is a test of their patriotism.

Whereas, one supposes that the criminality that led to the death of 30 people so far should be excused in the name of ‘nationalism’!

In reality, in any other developed country there would already have been 30 FIRs of culpable homicide against the Union Cabinet and Council of Ministers over the 30 deaths that have so far occurred in connection with the fallout of demonetization. Shivpal Yadav has also just alleged that 28 people have committed suicide over inaccessibility to cash. In any case, the Supreme Court’s decision on PILs on demonetization is pending. So far it has accused the government of ‘carpet bombing’ as opposed to surgical strike; this is a ‘clinical’ slap in the face for the government, the foolishness of how this was done is not lost on anybody. This SC statement is a portent of the future orders of the SC if the situation continues, and the situation most likely continues to get worse in coming weeks.

Rest assured the current financial chaos and gradual breakdown of economy will not end anytime soon. Do the math. We have a population in which 40% lives below the poverty line. These are also landless, asset-less people, which generally means these people get by through menial daily wage, low paying jobs that don’t come with salary slips, with the two categories of people below poverty line and the lowly paid workers largely overlapping each other. Indian Express also reports only 53% of the adult population has bank accounts. That means an approximate 47% of the total adult population of around 90 crore adults, working out to 42.3 crore people, have no bank accounts. This can be construed to indicate that ours is a country where most daily wage earners, who number in the tens of crores, do not have bank accounts. Added to this, factually we Indians love cash and a large number of the rural poor keep their savings at home and the fact remains that most of our country is rural. Further, news reports and experts say most of these saved monies with the poor in the rural or urban areas is in 500 rupee notes – even the poor feel rich having their paltry savings in the form of high value currencies!

In consequence, for these people to get their demonetized currency subject to a cap of Rs 4500 deposited in bank accounts, 42.3 crore accounts have to be opened in 44 days in 102300 approximate number of bank branches across India. This is an aggregate of approx 4100 accounts per bank i.e 93 accounts per day per branch have to be opened in the next 44 days, even as the fact remains that a large number of these folk in the rural areas are illiterate and there is also the prevalence of id problems. Alternately, in the case of tens of crores of people who do not have bank accounts, have to get their money change in the next 44 days surmounting enormous logistical and cash supple problems.

But, taking into account unending and growing queues at banks and ATMs, all this is possible if these 42 crore people can enter the banks in the first place during the next 44 days.

Further, if 53% of adult population has bank accounts, we are talking about approx 47.7 crore or 470 million or 47000000 lakh people needing to get their money changed/deposited in the next 44 days while sacrificing working days and lost salaries/income to get a paltry 4500 exchanged. In addition, now they will also have an indelible ink mark after exchanging a max of 4500 rupees once, so subsequently these marked people will find it a herculean task to get more money exchanged. They can deposit the remaining in their account provided they can get past the throngs of people in queue while juggling their work – all within 44 days – .47.7 crore people have to change/deposit their demonetized currency in the next 44 days using 102300 approximate number of bank branches.

And then there are even more practical roadblocks. All the ATMS have to be recalibrated for the new size currencies in 44 days. How many companies are equipped to do this? Few, having around 4000 engineers who have to go to diverse locations across the country to do the job and this is only in so far as 166000 working ATMs are concerned and merely need change in currency cartridge size. The RBI has said that at any given time 1/3rd of the ATMs in the country are out of order. These broken down 83000 ATMs (out of a total of approximately 2.5 Lakh machines) are lying idle with various mechanical and other failures which will take much longer time to rectify than recalibrating 1,66,000 ATMs…. Additionally, flow of cash to banks has to be maintained as well. All ATMs I visited this noon (around 11 am) were closed as there was no money. Moreover, the government has admitted shortage of smaller currencies. RBI also states that almost 86% of currency in circulation is in 500 and 1000 rupee notes and hence the volume of additional smaller currencies required are huge, while those getting larger currencies of Rs 2000 are not finding takers for it in purchases because of change problems.

Well, even Einstein will turn in his grave contemplating this horrific situation and how to sort it without causing anarchy.

NOT that this is about getting rid of black money in the first place….this is a case of trying to unsuccessfully kill multiple birds with one stone.

Though getting rid of black money is something which is BADLY NEEDED, to begin with the common populace with large amounts of black money don’t hold it in cash and is largely converted into gold, jewelry, land, bonds, shares, debentures, precious metals, business investments, forex, routed out of the country through havala etc. Mattresses full of cash are a rarity. In addition, there is now an active money exchange business in major cities going on in alleged collusion with officials where old currency is being exchanged for lower value with new currency. This is far as the usual black money holder goes and how they deal with it for the most part. So whether demonetization is getting rid of black money is a highly debatable question.

Similarly, whether demonetization is going to cut off terror funding is a cock and bull story. By now, the interested parties have already started printing the new Rs 500 and 1000 notes to infuse into terror activities in the country.

When it comes to political black money, this is largely held in cash as we all know elections are largely about ‘cash for votes’. So as of today, the opposition political parties are stuck with useless cash. I say ‘opposition parties’ because reports are now coming in with evidence that the BJP office bearers across India had been alerted about the demonetization as early as July and the party has already laundered its huge black funds without allowing the opposition parties to do the same. An immediate example is of over 1 crore being deposited two days before Nov 8, 2016 in the BJP’s Kolkata unit. Similarly, a picture of a BJP cadre holding a large bunch of Rs 2000 notes much before Nov 8. Additionally a newspaper reported the demonetization move as early as April this year. Therefore, it’s anybody’s guess whether the BJP have played politics with the demonetization or not.

Under the circumstances, an astute person would conclude that money short supply is going to affect non-BJP parties that are in the fray in 5 states in the coming months. So, normally the BJP should be the likely political beneficiary through subterfuge of demonetization of currencies– something which it badly needs as defeat looms large over it after failure in governance on all tangible fronts and in maintaining social and communal order and rule of law. It would not be an overstatement to say that most districts in the country have regularly recurrent communal or caste violence started by the BJP’s affiliates, job creation is at a – year low as just announced by the President, even as the subaltern plight continues unaltered.

However, the extraordinary aspect here is that despite a dozen or so people on TV saying they have no problems with the difficulties they are facing over demonetization, the public has largely not taken this well after the first two days of difficulty and their disdain is only going to multiply in the coming weeks, resulting in a possible a massive backlash against the BJP in the elections. This is because at the end of the day, this move has shutdown numerous small businesses, curtailed occupations, affected livelihood and lives of crores of people and nothing turns a voter against a political party than having difficulty in getting his daily needs of food, shelter, clothing, medicine and entertainment met, especially when he can’t use his own hard earned money. Then there is the economic fallout as this chaos could very well lead to a situation where essential commodities will be in short supply, leading to inflation, even as economic slow-down is also a certainty. In addition, the rural economy which largely operates on cash will be completely disrupted. Consequently, what the BJP hoped would gain them election victory is precisely what could undo it…. in the coming assembly elections in 5 states, this is the most likely result of BJP’s demonetization subterfuge.

On the other hand, if the government genuinely wanted to get rid of black money, the prudent way to go about it would be to strike at the root and the root is the government itself. Is the PM trying to say that he got elected without employing enormous sums of black money? But I’m not talking merely about politicians; they are of course culprits and have to be dealt with mercilessly. But equal culprits are government officials of every department in every state in the country and there are millions of them. Black money generation in today’s world is not possible without official collusion through acts of omission or commission. Next, they need to make an example of a bunch of auditing companies because no black money generation takes place without doctoring books of accounts. The largest amount of black monies is with corporate, corporate families, Hindu undivided family businesses and celebrities who use the slickest auditors to siphon off taxable income and stash it as high value assets. Finally the black trades such as bootlegging, narcotics, flesh trade, smuggling etc which also generate a sizeable amount of black money, have to be shut down to curtail the money that is generated thru this activities.

Essentially, this whole exercise reeks of being, in the false pretense of public good, primarily a financial assault on opposition political parties with specific intent of garnering political advantage and mileage, whereas the assault on eradicating black money is secondary expected fallout. BJP apparently tried to use eradication of black money to generate a political spin-off for itself. Unfortunately, the ground reality is the opposite and this is likely to backfire very badly against the BJP and Modi as far as the electorate is concerned. You can’t pretend to fight black money while pursuing black motives and using black means to gain political mileage.

The other apparent spin-off is also that, having failed to stimulate any substantive economic growth promised during election campaigning, and having failed to bring back the huge black money abroad, the economy is not where it should be and the banks have no money to inject into the economy even as the fact remains that the banks have approximately over 1.5 crore Lakh bad debts. That is why you have the banks whole-heartedly complementing the government over this move. The CEOs know their banks have substantially gone bust due to bad debts. The UP CM had an uncanny point when he said black money fuelled the Indian economy during global recession; if not most of the population would be scrounging to make two ends meet during the last decade. That is the unsavory truth. There is no money to inject into the economy through banks. What better way can there be to infuse cash into banks which criminal borrowers who always have a nexus with politicians can avail as loans and retain part of it as keep as black money than to use this measure of demonetization to cash up the common man’s savings accounts which the banks can then give out to bad debtors? Perhaps the government is also construed to do this as a repayment of the debts incurred during the 2014 general elections largely alleged to have been funded by black money emanating from the corporates, business classes and castes. I mean, for instance, it would have cost Adani a mind-boggling sum to zip Modi across the country in his private plane for electioneering in 2014. Being a businessman, would he have done this without expecting handsome financial returns? Make your own conclusion.

If this was to be done at all puritanically, without ulterior motives wrapped in it, a prudent way to do would be to first announce the infusion of new 500 and 2000 rupee notes WITHOUT announcing in advance the demonetization of old 500 and 1000 rupee notes. That way all the banks would have had ready cash for the white money holding populace. Only after that the government should have demonetized Rs 500 and 1000 notes suddenly. As a result, the country would still have functioned undisturbed despite a large percent of the population not having bank accounts and 1/3 of our ATMs out of order. In addition, the BJP would have got accolades for it unlike the brickbats it is receiving now.

But whether even such an exercise would eradicate black money would still remain a eternal moot point as it is a historical and economic fact that demonetization has never succeeded in weeding out black money and black economy. It only clips off a small tip of the super-massive ‘moneyberg’ called black money! Besides, the new 2000 notes now makes it even more easier to stack larger amounts of money with less hassles than those represented by Rs 500 and 1000 currency notes.

As far as the government is concerned, going by the daily new changes and announcements it is making with regards to the implementation of this demonetization indicates that they neither planned anything in advance, nor do they have a clue as to what they were getting themselves into. We have becoming a laughing stock abroad.

One disturbing video doing the rounds on social media is of a group of youth beating a police officer near an ATM. Elsewhere looting of provision shops is taking place and banks are being stoned and the media is not reporting this. A report has just come in of a cash van being attacked in Guwahati and one person being killed. If this takes on widespread dimensions the government would not have any option than to impose emergency. This reminds me of the Reichstag fire that led to total dictatorship in Germany. We were never ever ready for demonetization the way it has been done. Fine mess we are in.

Finally, if anyone can explain how all this is going to work for the benefit of the poor and the honest tax-payer as the government claims it would without taking truly effective measures needed to curtail black money in the short or long run, he/she would be in line for the next noble prize in economics and finance.

Oliver D’Souza is a journalist and award winning author who can be contacted thus:[email protected]

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