Modi’s Demonetisation Is A Well Thought-Out Move


During a conversation with a longtime acquaintance of mine about 25 years back, he made an unguarded remark that had made a deep negative impression on me. He started as a trader, was enormously successful and was then morphing in to an industrialist. He said, “You know, most of these babus and technocrats are like easy @#$&. For a price, they are prepared to do anything you want!” My reaction to his remark is not important to be mentioned here, but I thanked my stars for spending my whole career in a public sector company, doing machine design calculations and not having to face the misfortune of dealing with such types. My relationship with him after this conversation naturally was strained and it slowly tapered off. The elite class believes that everybody they need to deal with has a price on his head. Starting with the top of the heap political dog and way down to the lowly dafedar guarding the door of a sahib’s office, everybody can be bought, in their view. I do not deny the fact that there are any number of honest officers and technocrats, but the problem is that many of them are timid and offer no resistance. They know that they face the dire prospect of losing whatever little they have, if they raise their head. A few that raise their defiant head are sure to suffer but are prepared to face bravely what affects their fate. The elite class knows very well how to deal with such ‘elements’ – ignore them or sideline them. Such people are just a nuisance the elite have to live with, like flies and mosquitos. Assisted by an ever willing and growing army of compliant babus and politicians, the capitalist elite know that they can get what they want.

Many analysts and economic experts have aired their views about the recent Demonetisation move of the Modi Government. True, there are people who believe that it is undertaken with good intentions, but badly executed. The fact is that this move has been on the drawing boards of the Modi Government for more than one year. This, I believe is not a knee jerk reaction of the BJP government to the exposures of corruption cases which came in to the limelight recently. Nor is the move undertaken with utter lack of knowledge of economics as claimed by some commentators. My impression is that it is a move that is well thought-out and is executed with cold-blooded intentions. It is a major step in the neo-liberal reform process that is going on for the last 3 decades. In 2014, Modi rode to power with the financial, tactical and media support he had garnered from the ruling elite. They had high hopes on him, expecting that the ‘reform process’ will go full steam, once he seizes the reins of power. And after nearly 3 years in power, there are growing signs of impatience on the part of big business and international capitalism that he is not delivering. And it is precisely this that worries Modi, and not so much the problem of hordes of black money nor the fake currency, as is made out to be. Nor is the Modi dispensation worried about people calling up on his failure to curb either rising prices of essential commodities or his hollow promises of bringing back hordes of black riches from Swiss banks. Political rhetoric and playing on the nationalist sentiments can fool the people, as BJP had learnt to practice successfully.

Easy money is required by big capital from the banks, but the Indian banking system is going dry, like the proverbial ground water table. It has to be replenished urgently, if the rich have to get hold of more money at low interest rates. With sizeable sums of bank money turned into Non-Paying Assets (NPAs), banks are finding it increasingly difficult to survive, let alone conduct normal business. Interest on bank deposits is steadily going south making credit less costly for the capitalist class. Pensioners, families with no income other than small amounts of life’s savings stashed away in fixed deposits in banks, sizeable amounts of provident fund saved from workers’ wages, are witnessing a steady erosion of incomes from bank deposits. But these amounts are nowhere sufficient enough to meet the growing needs of the capitalist elite. They have their ambitions pegged higher. Land acquisition bill had fallen by the wayside. Labour reforms are meeting with marginal success and labour is getting more restive and assertive. Disillusionment is setting in among the youth, with the realization dawning on them that growth in the economy is not translating to job opportunities. Attacks on Minorities and marginalized sections have dented the image of the ruling party and the people appear to be drifting away from it.

With one swift stroke, by making 86% of the currency in circulation redundant, leaving a small window open for 1.28 billion people to exchange whatever they possess, has created a psychosis of insecurity. Naturally, people are made to deposit their everything in the form of liquid cash, with no other option left open. Bank deposits have zoomed, garnering a purported 6 lakh crores of rupees. But it is also emerging slowly that for the last few months, that is prior to the demonetisation, there was a surge in bank deposits. Obviously, this is not due to a sudden love of the people in the banking system, which is steadily eroding their meager source of livelihood. Those that wield power have kept their benefactors in good humor by giving prior notice. The elite and the ruling party were given a rope long enough, to enable themselves to rearrange their ill gotten wealth in to safer havens. Some has gone abroad, some in to Gold and Jewellery, but mostly into real estate. The fact that black money is scarcely hidden in the form of cash and that liquid cash forms only 6-8% of the total unaccounted holdings is well known. Presently, it is estimated that 3 lakh crores of rupees, that is about 10% of black money generated in the country, is sailing abroad. In the coming days, a higher portion of black money generated will sail abroad. This is a phenomenon all too familiar in Russia and other post-Soviet Republics, in China and in any number of African and Latin-American countries. Sometimes, ironically though, our films mirror real life. We find families of big businessmen, politicians and top bureaucrats spending luxurious lives in Switzerland, Paris and London, zooming around in Ferraris and Bugattis. It is only the 1.28 billion ordinary citizens who were dealt a deadly blow. Now, they are being coerced into putting all their meager savings in to banks and also go for credit cards. More credit cards means more money on credit. The whole economy can be turned in to a debt economy, a critical requirement of neo-liberalism. Retail trade has been crippled and may not recover in the near future. This opens up enormous opportunities for big business to capture whole-sale as well as retail markets. Poor peasants, after having lost whatever little security they have in the form of higher denomination redundant cash, will drown deeper into debts and they will naturally be forced to forego their meager land holdings. The informal sector is paralysed and in future, it will not be anywhere in a position to pose a competition to big-business. All this quickens the pace of neo-liberal reforms and Modi can regain the confidence of his mentors.

But a few thorny questions remain unanswered. If the economy were to go cashless and all transactions go digital, forget the illiterate majority, who cannot comprehend the digital transactions – is the big business prepared to make their transactions transparent and open for scrutiny. This only plain and simple rhetoric, to mask their real intentions to selectively digitize business and at the same time, turn the whole economy to debt, thus reaping enormous profits for the big-biz. The ruling class is least bothered about the fate of the vast majority of poor and marginalized, with the indecent desire for higher profits driving their actions, as is well known.

Vijaya Kumar Marla is a retired engineer and now National Working President of All India Progressive Forum, an organization of socially conscious intellectuals, with presence in 18 states in the country. ([email protected])

* – Pardon me if I sound sexist, but that is what exactly he said.

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