Thursday, 29 December 2016

Demonetization Opinions

Modi was able to generate euphoria with his charismatic speeches and enjoyed numerous foreign jaunts in the last 30 months without doing anything on the ground. Now he is under pressure to manage economy properly, reduce budget deficits, rescue crumbling banks, pace up reforms moving at snail's pace and he finds no way. Even though everyone knows demonetization doesn't solve any problems and its results are unpredictable, Modi, advised by some quacks, resorted wildest gamble only to win forthcoming elections in UP, Punjab etc, followed by Rajya Sabha, President & Vice President elections. Giving undue importance to secrecy and without any preparation for this gargantuan task, he announced demonetization like a dictator keeping aside all democratic processes, he shot in his foot and instantly landed in a ditch. Now he is digging it further. It was a massive man made economic disaster with informal economy (45% GDP share & 90% job share) standstill and millions of people are without livelihood and costed few lakh crores towards expenses and GDP lost. With none of his stated objectives viz. black money, corruption, fake currency and terrorism funding are achievable, he quickly shifted goalpost to "cashless economy" which is at least  two decades away in the absence of robust rural infrastructure and reliable cyber laws. While upper classes are busy with agents exchanging their black for a fee, middle classes merrily enjoying life with plastic cards, poorer classes having lost their livelihoods were compelled to stand in bank queues for exchanging currency. Supreme Court remarked that "discontinuing of higher denomination notes appears to be carpet bombing and not surgical strike". Instead of recognizing failed operation and taking corrective steps Modi unleashed raids signalling establishing police raj and destruction of institutions and are detrimental to our democracy. His audacity is visible in his remorselessness for 100+ deaths of elderly people & women in bank queues. Ironically, Modi's ascendance to power in 2014 is characterized by his campaign expenses of about Rs.10,000 crores funded by his industrialist friends albeit in black money and today BJP is the most cash funded party in India, for which no sources or accounts disclosed. In the end, this too will pass just as another hollow exercise, but Modi will have gained attention, which he loves. Today, stunned Indians stare to see their nation's economy destroyed, institutions crumbled and democracy in peril.
            (Click on the heading for original article)
By Manmohan Singh
Prime Minister has said that we should wait for 50 days. Well 50 days is a short period. But for those who are poor and from the deprived sections of the society even 50 days torture can bring about disastrous effects. The way this scheme has been implemented is a monumental management failure, and in fact, it is a case of organised loot, legalized plunder of the common people.

In India, black money makes for bad policy
By Kaushik Basu in New York Times
Demonetization was ostensibly implemented to combat black money, counterfeit currency, corruption, terrorism financing and inflation. But it was poorly designed, with scant attention paid to the laws of the market, and it is likely to fail. Tackling corruption goes beyond currency, cash or even banking. Demonetization's economics is complex and the collateral damage is likely to far outstrip the benefits. In a country like India, where the illegal economy is so intimately intertwined with the mainstream economy, one inept government intervention against shadow activities can do a lot of harm to the vast majority, who are just trying to make a legitimate living.

Demonetization is a foolish step
By Arun Kumar
Demonetization is a tool for economic surgery when currency has totally lost its value by replacing with a new currency created. But India is not in that situation and all our macro-economic indicators were reasonably good. Black money is not a parallel economy. Black economy and white economy are largely intertwined in India. This move, which is supposed to impact the black economy, is affecting the white economy terribly. Black economy has been growing for 70 years, can’t be solved overnight. There is no magic wand. What you could have done immediately is to bring accountability in the system. One man is trying to deliver on something that is undeliverable, against the advice of everybody else. That’s not how you run such a complex country like India. If I were there I would have asked 100 people.

IMF supports demonetization but cautions transition
Gerry Rice, Director, International Monetary Fund
We support the measures to fight corruption and illicit financial flows in India. Of course, given the large role of cash in everyday transactions in India’s economy, the currency transition will have to be managed prudently to minimize possible disruption. I am just saying that when countries make these kinds of move, which is not exceptional — countries do this quite often — the transition needs to be managed very well.

I.G Patel, RBI Governor on demonetization ordinance 1978
From Patel’s memoirs
“such an exercise seldom produces striking results. Most people who accept illegal gratification or are otherwise the recipients of black money do not keep their ill-gotten earnings in the form of currency for long. The idea that black money or wealth is held in the form of notes tucked away in suit cases or pillow cases is naïve. And in any case, even those who are caught napping or waiting will have the chance to convert the notes through paid agents as some provision has to be made to convert at par notes tendered in small amounts for which explanations cannot be reasonably sought. But the gesture had to be made, and produced much work and little gain.”

Demonetisation is a despotic action that undermines trust
by Amartya Sen
The demonetization of currency was a despotic act as the government broke the promise of compensation that comes with a promissory note. Demonetization goes against trust. It undermines the trust of entire economy. Only an authoritarian government can calmly cause such misery to the people - with millions of innocent people being deprived of their money and being subjected to suffering, inconvenience and indignity in trying to get their own money back. At one stroke the move declares all Indians - indeed all holders of Indian currency - as possibly crooks, unless they can establish they are not.

Demonetisation isn't new and has been tried before with limited success
By Raghuram Rajan
The clever find ways around demonetization. It is not that easy to flush out the black money. I would focus more on the incentives to generate and retain black money. My sense is the current tax rate in this country is for the most part reasonable. We have a reasonable tax regime. There is no reason why everybody who should pay taxes is not paying taxes. I would focus more on tracking data and better tax administration to get at where money is not being declared. I think it is very hard in this modern economy to hide your money that easily.

Jumping in the well is also very radical, committing suicide is also radical
By Arun Shourie
While the stated objective may be good, the idea was not well thought out. The government had not anticipated the distress that would be caused by doing away with 85% of Indian currency. Small and medium enterprises, the transport sector, the entire agricultural sector. It's not possible to reach six lakh villages. They did not think about this?  It is about being carried away by a big idea, getting into a self-image that I have to do some surgical strike. Therefore every week you see them saying - its been a week, a month, I have to do something. Jumping in the well is also very radical, committing suicide is also radical...if you want to make a beginning, make a beginning on reforming the tax administration.The cash clean-up would not get to the heart of the black or untaxed money problem. People who hold this black money or black assets don't hold it in cash. He did not think India was ready to move to becoming a cashless economy.

Demonetisation won’t have lasting benefits
Larry Summers, Former U.S. Treasury Secretary
Former U.S. Treasury Secretary Larry Summers has said that the Narendra Modi government’s demonetization move would not have any lasting benefits. Terming India’s demonetization move as one of the “most sweeping change in currency policy that has occurred anywhere in the world in decades”, Mr. Summers said, “…For the government to expropriate from even a few innocent victims who, for one reason or another, do not manage to convert their money is highly problematic.” “We strongly suspect that those with the largest amount of ill-gotten gain do not hold their wealth in cash but instead have long since converted it into foreign exchange, gold, bitcoin or some other store of value. So it is petty fortunes, not the hugest and most problematic ones, that are being targeted,”

India's Demonetization Is A "Massive Man-Made Disaster"
By Jayant Bhandari
Should a single person have the authority to flip a switch and bring all trade, transactions, indeed the entire economy to a halt? Modi suffers from worst possible type of corruption: an insatiable desire for personal glory at any cost, an extremely deep moral and spiritual corruption. He also represents the worst aspect of democracy: a demagogue who caters to an irrational populace’s cravings for self-identity and release from self-responsibility.  What a crazy idea it is to have a State monopoly on money. Cash is not trickling down. The poorest 50% of India’s population, who have no reserves, are the worst affected and are going hungry. A vicious cycle has been set into motion by Modi and unpredictable problems and unintended consequences are bound to surface incessantly. Modi, in his permanent search for personal glorification could easily impose a state of emergency or go to war with Pakistan. This demonetization will go down as one of the most naïve, least thought through policy decisions ever, a massive man-made disaster.

What India has done to its money is sickening and immoral
Steve Forbes, Forbes Staff
India's government perpetrated an unprecedented act of demonetization, that is not only damaging its economy and threatening destitution to countless millions of its already poor citizens but also breathtaking in its immorality. People will always find ways to engage in wrongdoing. Terrorists aren't about to quit their evil acts because of a currency change. As for the digitization of money, it will happen in its own good time if free markets are permitted. And the best cure for tax evasion is a low-rate tax system. India is the most extreme and destructive example of the anticash fad. There's no misunderstanding what this is truly about: attacking your privacy and inflicting more government control over your life. What India has done is commit a massive theft of people's property without even the pretense of due process--a shocking move for a democratically elected government.

Modi has brought havoc to India
The Guardian, Editorial
Demonetization was justified as a move designed to fight corruption and target people who have been black money. Many initially saw the withdrawal of banknotes as a price worth paying to eliminate graft. The short-term impact of “demonetization” has been dramatic: the $2 trillion Indian economy will shrink. The rich will not suffer, as corruptly acquired fortunes have almost all been converted to shares, gold and real estate. But the poor, who make up the bulk of the nation’s 1.3 billion people, will lose out. They don’t generally have bank accounts and are often paid in cash. For them, getting to a bank and queuing for hours will cost money and time they don’t have. In less than a week the policy has reportedly claimed more than a dozen lives. The government says that it will take weeks to sort out the problems. The scale and speed of Modi’s scheme has more in common with the failed experiments of dictatorships which led to runaway inflation, currency collapse and mass protests. Slower, incremental reforms do not make headlines. They do not instantly hit the war chests of political rivals in upcoming state polls. Mr Modi, a Hindu nationalist, was for a decade an international pariah over his alleged role in the mass murder of Muslims in a region he once administered. He wants to be known for something else. President-elect Trump offers an opportunity to recast himself. Two years ago Mr Trump’s svengali, Steve Bannon, described Mr Modi’s victory as part of a “global revolt”. But a looming cash crunch and an administrative crisis makes it look like the revolt might start at home.

Demonetisation shock has hit the poorest the most
The Wire, Editorial
For the last few days the world is watching the bizarre spectacle of millions of Indians waiting in long, unending queues to recover their own money from banks, post offices and ATMs even as the government at the Centre remains firmly in denial about the untold hardship to the poor. Some senior citizens have died of exhaustion standing in queues for hours on end. It is almost certain that the economy will slowdown further in the short to medium term and there could be more joblessness. Modi has further upped the ante by suggesting he could take more harsh measures in the future. The PM would have truly walked the talk if he had attacked the nexus between the big business and politics which truly nurtures the black money ecosystem. BJP is the most cash funded party these days. If Modi wants his drive against black money to have credibility he must demonstrate he can go after the big fish and cause them immense pain. So far the pain has been largely borne by the ordinary people. The next few months will make it clear whether he has bitten more than he can chew.

Modi’s attempt to crush the black economy is hurting the poor
The Economist
Consumer spending was the one thing really driving this economy, and now we are looking at a negative wealth-effect where people feel poorer and spend less. RBI failed to warn the impatient Modi that there were not enough new notes to replace old ones. It has issued a bewildering blitz of complex and sometimes contradictory instructions to banks. Its governor, Urjit Patel, has been perplexingly silent. Its reputation for probity, competence and independence is in tatters. Such a fiasco could spell disaster for the government in power. Particularly so for a party that sailed into office on promises to boost growth, provide jobs and encourage investment. Modi’s opponents have blasted his policy as obtuse, destructive and downright criminal. Modi has shifted the goalposts. What started as a ‘surgical strike’ on black money is now called the dawn of a cashless society. Pivotal elections in India’s largest state, Uttar Pradesh, loom early next year. But if more cash does not soon appear, Modi’s future may look very different.

The country is in an uproar
The Diplomat
This move has left the biggest chunk of black money untouched – the stacks that lie in undisclosed accounts in Swiss Banks. The argument provided for why this move was announced and administered overnight is that it denies hoarders of black money the chance to dispose of it. While that may appear to be sound logic, it has also apparently impacted the banking system’s ability to ensure a smooth transition. The rural poor, women who do not inform their families of hidden stashes of cash, refugees who lack the requisite documents, socially ostracized communities like transgender communities and sex workers – are other immediate victims. This is in addition to the fact that reports indicate that the government may have over-estimated the existing levels of connectivity to banking. Modi, in a rhetorically rich speech, requested the nation for 50 days to launch this self-labeled war on black money. He asked the people to make short-term sacrifices in the interest of long-term gains. Both the activist and the non-activist sections of social media have equally raved about or ripped apart this rhetoric. While it is too soon to declare whether the long-term gains are indeed forthcoming, the “short term” sacrifices have been more than significant and immensely painful.

The debate is about nationalism and patriotism
The Huffington Post
The debate is no longer about demonetization, whether it works or not, but has been transformed into a debate is about nationalism and patriotism. Plastic is the new patriotism in cashless India. PayTM is the new khadi. Your debit card is your new charkha with which to spin the dreams of India Shining. No one can defend black money, not even those who hoard it. By making it a debate about nationalism, the government tries to cleverly sidestep a more contentious issue of demonetization. Once patriotism could accommodate a spectrum of opinion. Now patriotism is about uniformity of opinion, preferably the government's opinion. Any difference of opinion is tarred quickly as anti-national by the troll brigade. Modi, born after independence, represents an India that has benefited from the sacrifices of its forbears but has little appetite for sacrifice of its own. Rahul Gandhi has never understood that mind shift. He still sells the sacrifice of the Gandhis, way past its expiration date, oblivious to the fact that no one cares about that anymore. Modi, astute politician that he is, understands that his job is to sell success, not sacrifice, with the minimum of sacrifice required at least from its voters. And now suddenly his voice choked with emotion, reminding the nation of his many sacrifices and asks voters to bear with the woes of demonetization. It's no longer a debate about the merits of demonetization or the problems of its implementation. It's about nationalism, jawans and aged mothers. And which spoiled corrupt anti-national naysayer dares to be seen on the wrong side of that argument?

Demonetization cures the disease but kill the patient
By Ramesh Thakur, The Japan Times, Opinion
Disruptive technology can unleash creative forces through destructive impact on an industry that exists in a stable equilibrium of vested interests. Will demonetization cure the disease but kill the patient? By withdrawing 86 percent of circulating currency the Indian government burned down its economic house in order to eradicate the pest of corruption? Such shock therapy in a major economy is without precedent, so no one can predict the long-term structural impact and the full range of intended, pernicious and perverse consequences. The policy is an attack on the Indian way of doing business. Has a single parliamentarian, let alone Cabinet minister, stood in line to exchange currency notes? Demonetization attacks the stock without touching the flow of black money. The move also confuses the black with the informal economy by conflating cash with black money. India’s formal and informal economies are not quarantined from each other, but form a seamless value chain. Almost one-third of the working capital of small businesses comes from the black economy. Can that lost capital be replenished with fresh credit? Shock therapy without institutional transformation enlarges government while minimizing governance; more government equals more corruption. Demonetization cements the Indian government’s reputation for capricious and arbitrary economic actions. It could denude political rivals of substantial cash assets for fighting the forthcoming elections in Uttar Pradesh, India’s most populous state. Another governance pathology is the failure to tell friends from foes and a stubborn refusal to listen to contrarian voices from people of goodwill with the requisite expertise. Instead the government’s default mode is to attack any criticism as somehow anti-national or pro-corruption.

Policy intention and implementation are inseparable
By Rhea Karuturi, The Stanford Daily
The question hardest to answer: Can you separate the intention of a policy from its implementation? And what does that mean in the context of an underfunded government riddled with corruption and charged with a sprawling population united by their diversity? How do we reconcile Modi’s aspirations for a cashless economy in India with the sheer number of people in the economy leading a hand to mouth existence? We need big ideas, bold moves and the audacity to hope. But that doesn’t justify this kind of policy, which writes off the suffering of millions as collateral damage when that suffering could so easily be avoided. And while this policy may make the government wary of large changes, what we don’t need is another political era defined by meek bandaids for gaping wounds. What we need from the Modi government is for them to keep dreaming but to do it better: and to do the hard work of making those dreams work with the reality we have.

There is an empathy deficit
Monishankar Prasad, Author and editor for Alochonaa
The unbanked and informal economy is hard hit. The poor do not have the access to structural and cultural resources to adapt to shock doctrine economics. The poor were taken totally off guard and the banking infrastructure in the hinterland is rather limited. The tech class has poor exposure to critical social theory in order to understand the impact on the ground. There is an empathy deficit.

Modi has shot himself in the foot
By Swaminathan Aiyer
The fact is that you are creating a problem for 100% of the people to catch the top 0.1% of the people. There is going to be huge distress and uncertainty especially for informal economy, poor and peasants who are totally cash dependent. Modi is gambling that there will ultimately be such a positive thing saying I have cracked down on black money and counterfeiters that it will offset the distress being caused to the public. It is a very risky political gambit, causes a lot of pain to everybody and will backfire on Modi. The ultimate problem is much deeper one that we are pathetically impotent in stopping illegal transactions of various kinds. This is very adroit move with political risk, senseless and sure to backfire. Modi has shot himself in the foot and India lost.

Demonetization: Wheels within the wheels
By Ajith Pillai
The recent demonetization drive by the Narendra Modi government is a classic “bolt out of the blue” event that stumped the nation. Providing a rationale for the largest cash culling operation in the world is difficult unless one quietly accepts the official thesis that it was a surgical strike against black money when no more than five percent of unaccounted wealth is in cash. Demonetization was supposed to be a fight against black money but now it seems like a war against the people. All conclusions drawn are limited by the fact that the prime minister took the decision keeping even his cabinet and top bankers in the dark. The only objective demonetization has served is in neutralizing counterfeit currency which funds terrorist groups of about Rs 400 crore and secrecy served no purpose. Cash culling has been projected as a fight against illegal wealth because of its popular appeal. Modi has been reiterating that those who oppose the government are with the evil forces behind black money. BJP hopes to score a moral political victory by projecting few lakh crores of unreturned money as black money disabled. In the past one year, public sector bank NPAs and bad loans doubled compelling former RBI governor Raghuram Rajan recommending a clean-up of the banks through recovery of bad loans by even taking over the assets of defaulters allegedly close to the ruling dispensation. Post demonetization, the defunct money that the common citizen has returned to the banks will be what rescues the banks and not any black money. Banks find themselves in a happy situation where they can consider delaying action against errant corporate houses and big business responsible for the NPAs.

The situation has gone from bad to worse
By MS Sriram, IIM Bangalore in
In a single announcement, the prime minister Modi declared 86% of the currency as not being legal tender and faith in the currency was fundamentally shaken. The secrecy of the operation has completely prevented adequate preparation. The extent of the exercise for replacing 86% cash has not even been thought through. In short, we are in a massive mess. In shortage times, human tendency is to conserve, hoard and not circulate. We have never seen a real run on the bank in India. What we are witnessing now is a unprecedented run on the banking system and is the worst man-made disaster. Right now, the ones who are celebrating the assault on black money, terrorism and counterfeits and pontificating that we should bear a bit of pain for a great gain are the ones who are in the electronic economy. Imagine the service providers whom we are bypassing are the ones who are not in the digital economy, and are losing business. They are very large in number and they either have to work, or stand in long queues for getting their own legitimate hard-earned cash. The digital divide was never more stark. The informal economy people are patient, and are making informal arrangements in the supply chain.Would the system be able to infuse enough circulation before the informal arrangements and faith breaks apart? This experiment will see much bloodshed and several heads will roll.

Delhi’s planners double down on their ‘cashless society’ blunder
By Wall Street Journal
In a cashless society the state has far greater means to harm the public, both through inept policies and abuses of power. Cashless society is suspected at creating economic devastation and usurping of an individual's economic liberty. Sweden may be the best model for cashlessness, as only 2% of transactions use cash. But Sweden has low corruption in government, reliable legal protections, high social trust and advanced financial and technological infrastructure. India has none of that, but it does have government officials with radical plans to reshape a society in which half of the population doesn’t even have a bank account. Indians would benefit from access to digital finance, which can cut transaction costs, make credit more affordable and channel state aid directly to citizens, bypassing sticky-fingered bureaucrats. The government can help by liberalizing financial regulation and improving telecommunications infrastructure. But it should also respect citizens who want to keep at least some cash. Imposing a “cashless society” is antithetical to economic liberty.

Patriotism is the last resort of the scoundrels;
Pseudo patriotism is the last resort of the incompetent.

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