An Administrative Tragedy
Called Demonetisation
Jawhar Sircar
Ananda Bazar Patrika, Sept 7, 2017
English Translation
The fact that India’s GDP fell to a 3-year low of
5.7 % in the first quarter of this year is no cause for celebration and it
hardly bothers most who have neither capital nor shares, as they await the next
fix of spell binding oratory. What is worrisome is RBI’s confessional report
that 99% percent of the 15.44 lakh crore rupees of demonetised 500 and 1000
rupee notes has come back into
circulation. Surely, we now deserve a ‘bite’ from the PM, whichever part of the
planet he is, about what need to do now. He was good enough to confide in the
nation on 8th
November 2016 that “the magnitude of cash in circulation is directly linked to
the level of corruption. Inflation becomes worse through the deployment of cash
earned in corrupt ways.” Within a week of the ‘big bang’, the whisperatti of Delhi and Mumbai, who know everything, were
gossiping about a massive cleansing operation that was converting dark notes to
white, and whether more money would return than what was in circulation. While
the masses who had no bank account or access to Cards and ATMs suffered and so
did their cash market, that led later to police firings on cash strapped
farmers in MP, the middle class went through pain for the first few weeks and
then plonked proxies to pick up cash on their behalf. The rich and the lords of
back money employed smarter techniques by getting a section of bank employees
to connive in accepting without question wads of black money and to convert
them to legitimate notes and for a cut,
of course. While it has surely secured a dubious niche for Narendra Modi, whose
single minded obsession has been to ensure his position in history, it is also
a case study in compounded administrative lapses.
Banks bore the brunt of public anger and were
totally flummoxed in complying with unheard of procedures but the poor banking
secretary chose complete silence, as all the talking was done by the revenue
secretary who was Modi’s chosen bureaucrat from Gujarat. If neither knew of the
new crop of currency brokers that had suddenly mushroomed, it is tragic. If
they knew and neither Modi nor the rest of his crusade-team could do nothing to
stop them, that is worse. While a certain amount of groping in the dark is
quite understandable, the sheer harassment that millions of honest citizens had
to go through is really unforgettable. RBI’s revelation rubs salt in out wounds
as we learn
that instead of being caught, the black money gang has actually become lily
white. In simple language, all that this disastrous policy of demonetisation
managed was to legitimise a few lakh crore rupees of black money that even
earns interest. Critical national decisions may call for some secrecy but to
keep everyone in the dark, except very few who are trusted, is largely
responsible for this fraud in the name of crusade against black money. Now that
UP elections are won, can the people know why a fixed date could not be
declared after which every person would need to explain how he possessed
whatever 500 and 1000 rupee notes he had, without going through so much drama?
The national government is not a pocket
state that can be run by secrecy or coteries: it needs teamwork and trust in
critical officials at all layers. Now that crores of productive man days have
been lost in unnecessary cash queues, where over a hundred have died, can we
fix responsibility on who was responsible for ensuring that all the much
announced black money becoming legitimate
currency? And all fears that the possessors of black money had
in the past appears to have been replaced by comfort. The regularity with which rules were changed displayed a total
unpreparedness and floundering that is so unprofessional. Paradoxically, the mess now provides a
perfect alibi to bankers who are now likely to be pinned down, as they can
surely claim that x and y happened when rules a and b were in operation, before
rule c came, and then complicate it beyond redemption. This explains why such a
gigantic operation has hardly been carried out in recent memory anywhere, as a
path that “angels have feared to tread”. Frankly, the very choice of ‘demonetisation’ appears to have been too brash it was just one of the several options dished out to new masters, quite
routinely, by economists and babus who hardly knew the possible consequences.
There is a remarkable absence of seasoned counsel that has been directly
discouraged by the leader, but a dose of contrary advice from those experienced
in administration and finance could at least have broken the monotonous
platitudes of his hand-picked courtiers.
We need to understand seriously
whether the RBI’s remonetisation and government’s demonetisation were in
perfect sync, and whether the RBI’s normal ‘peace time’ mop up measures served
equally well during the war time excess cash floods. From all available
reports, RBI treated the whole operation under its normal rules and the
benchmark was that on March 31, 2016, the currency with the public was ₹15.97 lakh crores, while just 3 days after Modi’s lightning, it was
down by ₹ 70,000 crore. RBI’s annual report for 2016-17
says that by January 6, 2017, currency in circulation came down by ₹ 8.99 lakh crores “which resulted in a large increase in surplus
liquidity with the banking system”. Among the steps that the RBI took, for
instance, was to absorb ₹ 5,24 lakh crores by November 25, through ‘reverse repo’, i.e, sucking money away
from cash-flushed banks; then mopping up another ₹4 lakh crores immediately thereafter by doubling the Incremental Cash
Reserve Ratio (ICRR) and then using Cash Management Bills (CMBs) to take
another ₹7.96 lakh
crores till 4th January 2017. Now that we are totally re-monetised after all
this theatrics, what happens to Modi’s primary argument,
which was that the system has just too much money that benefits
only corrupt tax evaders and terrorists? We need to know with computer figures
the exact role of the much touted Jan Dhan accounts, as stories are heard.
But now, the FM has informed us that "the object of
demonetisation was not confiscation of money” but to tackle the excessively
high cash economy that surely needs to move to a cash-less economy or less-cash
one. This could surely have been done without recourse to so much
sensationalism and pain, with due notice and a ‘cut off’ date. We are now
plagued by contradictory official claims that speak of an abysmal lack of
coordination at the top layers of administration. Thus, while the PM says ₹1.75 lakh crore is highly suspicious, his Income Tax boys say that
actually ₹ 2.89 lakh crore deposited by 9.72 lakh persons that stinks. Gone are those earlier calculations that
at least ₹4 to ₹5 lakh crore of currency is tainted and could never be remonetized as
we are now given much lower estimates. It takes just a nod to fix NDTV for a
matter that really does not relate to government’s banks but people are still
waiting for almost a year to see who goes to jail in this demonetisation drama. Or is this Act 2 Scene 2 being saved for the just
before the 2019 elections?
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