India’s demonetization policy has come under severe strain and opposition. A comprehensive critique has been advanced by the highly qualified and experienced P. Chidambaram, Member of Parliament (MP) and Finance Minister of the previous Prime Minister Manmohan Singh government in Delhi. In view of its importance, we examine this critique in some detail below.
Sharad Pawar, MP and former Agriculture Minister in the previous government said of the policy : the ‘operation was successful but the patient is dead!’
Chidambaram’s critique (Sunday Express, December 18) was sharper and more detailed. Other politicians intellectuals, public men and the ordinary person have been critical as well and attacked Prime Minister Narendra Modi, who is, however, unrepentant and continues to laud the virtues of his controversial policy while at the same time shifting the goal post to his call for a cashless economy, which seems evasive if not unrealistic in the present Indian context.
Modi seems to be insensitive and out of touch with the ground realities in India despite mounting popular disapproval of his policy.
Chidambaram’s critique is couched in terms of the winners, losers and the utterly devastated. He attacks Modi for his lack of information and knowledge about the consequences of the demonetization of Rs. 500 and Rs. 1000 notes; that it would result in 86 percent of all the currency notes going out of circulation; and that printing new notes would be an elongated process.
Modi is accused of misguiding the people by his demeanor and rhetoric though the skeletons are now tumbling out of the cupboard.
Chidambaram explains that the winners, the losers and the utterly ruined categories of people would be as follows.
The winners are the hoarders who laundered every note in their possession; the launderers and brokers who earned huge commissions; the bank officials who undertook to convert the demonetized notes and handed over bundles of new 2000 rupee notes to the tax evaders; government officials including policemen who cajoled or threatened bank officials to open backdoor exchange counters to carry out exchange old notes for new. They all succeeded beyond expectation and ensured that every note of the 154 billion rupees were returned to the banking system safely!
The losers are the average citizens who was forced to make several visits to banks to withdraw money from his own accounts; the citizen with a few old notes in hand but with no access to banks (because of distance) who had to exchange her notes at a discount; the home maker who had to scrounge for money to provide at least one meal a day for her family; the patient who had to forego his treatment at a hospital for want of money; the student who had to opt for a free meal at the local Sikh temple; and the farmer who could not buy seeds or fertilizers or hire labor and was forced to take a slide in productivity; and other similar people who were put to enormous difficulties in getting their money from banks to meet their daily needs.
The utterly ruined are the laid-off laborers, daily wagers, the self-employed, the artisans, the small businessmen and others such as truck owners and drivers. The vegetable-producing farmers whose market prices crashed are among the worst sufferers.
Everyday, an estimated eleven hundred million people are forced to stand in a serpentine queue before bank branches and ATMs; the promised withdrawal of the Rs.24,000 per week does not often occur; daily wages and daily income for millions of the poor are not paid; commodity prices have fallen with no sign of any compensation being paid; and hundreds of people have died.
Professor (Lord) Meghnad Desai, writing in the same newspaper, notes poor the implementation, the fiasco of recalibrating ATM machines, the ingenuity of black money hoarders who use proxies to deposit money, buy foreign currency, land and gold.
Many members of the ruling BJP were said to be among those bought land on a large scale with black money in several states; and there was the the problem of non-availability of new notes.
In addition to the above, a number of distinguished economists contributed to the demonetization debate mentioning among other things that the policy was ‘an essentially political move; that it was insensitive, gratuitous and appalling; that it amounted to firing cannon balls to kill mosquitoes; that it displayed arrogance and insensitivity; that it was an exercise in Manichean economics; that it was an authoritarian quackery; that it would cost the economy heavily; that it amounted to a frightening abandonment of reason; that it was a case of throwing the baby while retaining the bath water; and that it was a case of cavalier or even cynical political calculation.
Unlike his critics, Modi resembles Donald Trump who belongs to the era of ‘post-truth politics’ in which it is easy to cherry-pick data to come to whatever conclusion one likes: in this case ‘demonetization’!