DeMo a big policy fiasco

Kamal Nayan Kabra

The latest monetary and currency circulation data published by the RBI has nailed many myths assiduously built around a historic political and economic measure of epic significance: it was supposed to strike a deadly blow against huge hoards of black money as the high denomination currency notes were simply rendered not worth the paper they were printed on! Thus, what was wreaking havoc of many deadly hues on the common masses was supposed to give way to a future free from the scourge of black money. More so because it was felt by the man on the street that the big daddy who ruled the economy and polity on the strength of his black money winning favours from the rulers would now be rendered cashless. His menace would be over and life would become liveable once again!
Once the grace period for legally converting one’s legitimate money was over, like with a magic wand, the whole mountains of black money were to disappear in thin air. Hence people bore with the cashless existence and all the costs it imposed. In fact, they voted for the rulers who took such an anti-rich step as the denial of one’s licit incomes and savings kept in the form of a small number of high value currency notes was considered but a temporary phase of compulsory penance, of course, for the sins of the big brother who amassed huge amounts of black money. It was no small step as Rs 15.44 crores of high value notes facilitated the conduct of the whole economy, including its black part, which, according to some guess-estimates, constitutes over 50 percent of GDP. Thus, with the death of black money, people expected a New India where honey and milk were to flow once again.
It was projected and propagated as a big bang move to strike a deadly blow on a major form of the fruits of illegality –a virtual white-collar crime by the rich, powerful and famous (the crème de la crème of the country).The RBI data show that it ended not with a bang but with a whimper. There is hardly a parallel of a policy coming to a copper like this one in the annals of policy failures in India. A paltry sum of Rs 16,000 crores, that is a little above one percent of the total, only failed to be presented to the RBI. Contrast it with the widely publicised expectation that something like Rs 3 lakh crore would fail to return to RBI. What has happened is an object lesson against future bravados of this kind which refuse to recognise the nature of the malaise and run into over-dramatic and unrealistic moves without even the minimum preparation. What the RBI reported amounts to saying that in all a total of Rs 15.28 lakh crore of high value notes were returned, meaning in effect, exchanged; yes, indeed, exchanged, for the new currency notes. Now they are at least for the time being lily-white legitimate currency with which the same old games can be played.
What comes out loud and clear from this grand and costly fiasco of substituting pure political gimmick for a hard-headed, scientific, holistic measure is something no future anti-black money measures would ignore if one were to learn at the school of hard knocks. Briefly, black economy is a deep-rooted deviation rich in tremendous, multi-pronged capabilities and innovations as it is among the well-established behavioural features of the rich, powerful and famous who are closely inter-connected on a long term on-going basis in polity and economy. But being parts of a mass democracy of a highly skewed society, they have to adopt postures of justice, fair play and equality with a place for everyone under the sun. It means there is a wide systemic chasm between the professed and the practiced. It has to be accompanied by many means of concealing the illegitimate and still be able to make use of it. Thus it is little wonder that the black sharks coped with demonetization by making use of hundreds of devices to convert black into white and vice versa. The formal system of the RBI is just not designed to be able to discover and deal with such underground creativity. The point is that the opposition groups, similarly steeped in the black and grey political economy of India, would of course make ritual noises based on the ammunition the RBI data provide but with little long term positive pay–off. (IPA)

Tuesday, 12 September, 2017