Wednesday, 30 November 2016

Demonitization 2016: Arrogance, Audacious & Atrocious


Democracy in its true sense is rule by people. Principles of Democracy are: (1) a political system for choosing governments through free and fair elections; (2) involves the active participation of citizens in politics and public life; (3) protection of the human rights of all citizens; (4) rule of laws and procedures apply equally to all citizens.

The fundamental characteristic of a democratic state is accountability and transparency. Political and official classes finds ways to undermine this principle for personal benefits and are destroying the society. Without accountability and transparency, democracy will die and autocracy erupts.


In the history, only unstable economies mostly ruled by dictators resorted to this kind of desperate step and never could really make intended gains. Our own 1978 experience of demonetization of higher value notes amounting to just 2% cash in circulation was disastrous since it produced zero gains, and resulted in spurt in gold demand forcing RBI release its gold reserves. In a stable democracy like India when all economic parameters are positive there is absolutely no justification for demonetization of very large amounts of currency i.e. 86% cash in circulation with complex and undesirable effects. The solutions to problems highlighted by Modi has roots and solutions lieing else where but not in demonetization. No economist would recommend this kind of suicidal step.


I.G Patel was governor of RBI 1978. He was not happy about the government's move. Patel observed that “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 naive. 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.”


In the past demonetization has been thought off as a way of getting black money out of circulation. It is often cited as a solution. My sense is the clever find ways around it. They find ways to divide up their hoard in to many smaller pieces. You do find that people who haven't thought of a way to convert black to white, throw it into the hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives not to generate and retain black money. My sense is the current tax rate in this country is for the most part reasonable. I would focus more on tracking data and better tax administration to get at where money is not being declared. It is very hard in this modern economy to hide your money that easily. (Raghu Ram Rajan was RBI governor till Sept 2016 and it is rumored that he didn't like this Modi's demonetization and silently exited declining second term).


World Bank Chief Economist and India’s former chief economic advisor Kaushik Basu said that the Narendra Modi government’s demonetization drive was not ‘good economics’ and that the damage it causes will be greater than its benefits. “GST was good economics; the demonetization is not. Its economics is complex & the collateral damage is likely to far outstrip the benefits,” Basu tweeted on Friday Nov 11, 2016. Basu was the CEA in the Finance Ministry from December 2009 to July 2012.


On Thu Nov 24, 2016, former Prime Minister Manmohan Singh criticised, in Rajya Sabha, the Narendra Modi government over its surprise move to demonetize Rs.500 and Rs.1,000 currency notes. In uncharacteristically strong words, the mild-mannered Singh called demonetization "organised loot and legalized plunder," adding that it was a "monumental management failure." Dismissing the government's defense that in the long run demonetization would be good for the country, Singh said, "For those saying this is good in the long run, it reminds me of John Keynes' words, 'In the long run we are all dead'."


The Section 26 of the RBI Act, empowers the Union Government on the recommendation of Central Board to declare that “any notes issued by the Reserve Bank will no longer be legal tender.”

Union government on November 8, 2016 in exercise of this power passed the order demonetizing Rs. 500 and Rs.1000 currency notes which constituted 86% of total currency in circulation of Rs.17.65 crores amounting to Rs.14 lakh crores.

Demonetization by law was done in 1978 by an ordinance followed by Act, which demonetized 2% of the then existing currency.  The move was directed at freezing the secret funds of politicians, especially Indira Gandhi’s Congress. This provided an opportunity for parliament to debate before passing the Act. Modi's executive order even though legal has deprived Parliament, its right to discuss and vote the Act. Ironically Modi Govt doesn't have majority in Rajya Sabha and this executive route is undermining principles of democracy on such a major issue with devastating impact on all classes of people of India. Hence it is undemocratic even though legal. The move even though stated to eliminate black money, fake money, corruption and terrorists money has underpinnings of UP & Punjab elections in the coming few months.


Article 21 reads as: “No person shall be deprived of his life or personal liberty except according to a procedure established by law.”

The Supreme Court reiterated that the “right to life” included the right to lead a healthy life so as to enjoy all faculties of the human body in their prime conditions. It would even include the right to protection of a person’s tradition, culture, heritage and all that gives meaning to a man’s life. It includes the right to live in peace, to sleep in peace and the right to repose and health.


In a major step to check black money, Prime Minister Narendra Modi on Tue Nov 8, 2016 announced demonetization of Rs 500 and 1000 currency notes with effect from midnight, making these notes invalid in a major assault on black money, fake currency, terrorist money and corruption.

Economists opined that demonetization at best empties some of the stocked black cash and black money generation, corrupt practices and terrorist operation which uses regular banking channels for receiving money will remain unabated. Black cash is just 6% and fake currency is less than 0.03% of cash in circulation and doesn't justify huge expenditure of over Rs.12,000 crores for printing replacement expenditure alone and its complex impact on economy is unpredictable. Black cash hoarders will find numerous ways to convert sacrificing a portion of it. Demonetization is resorted to in countries which are in financial imbroglio, as a desperate attempt by autocracies but never in stable democracies. And results are usually different. Demonetization of 86% cash in circulation is likely have major impact on all sectors of economy with unknown dimensions.

The new currency with no additional security features, fake currency printers will be back into business in no time, with in maximum of 5-6 months.

The stated objectives has nothing to do with demonetization are fake and unstated objectives are political i.e. UP & Punjab elections in coming few months followed by Rajya Sabha and President & Vice President elections.


Black money from business transactions by concealing income from legitimate activities and corruption bribes, foreign exchange violations is one thing and black money earned by criminal activities such as extortion, smuggling, mafia, hawala, crimes, terrorism, etc is a different thing. In case of second, it is a crime on society and must be handled with iron fist eliminating them at sight. In case of first thing, from where most black money comes from, corruption bribes and income concealing and evasion of income tax and such black money is not that bad, as much as dramatized by Modi, as long as that is in circulation with in India. The only bad about black money is that government loses income tax revenue and apart from that loss it is as good as white money for the economy. Black money going into real estate and bullion becomes dead. Black money sent out of the country in hawala foreign currency and hoarded in foreign banks impacts our economy. Black money hoarded in foreign countries by manipulating imports & exports also impacts our economy. Therefore Modi should have focused on Swiss & foreign bank accounts, foreign exchange transactions for fairness rather than carpet bombing the whole nation where any gains could be less and complications disastrous.


Even though this exercise started about 6 months ago with full secrecy, RBI Governor Raghu Ram Rajan was skeptical about this exercise which defied economists perceptions. Not to confront with Government on this matter he declined 2nd term and silently exited in Sept 2016. Since UP & Punjab elections are fast approaching Modi wanted demonetization to be completed before start of EC's model code of conduct and take political advantage of its perceived success. Hence urgency to print replacement currency in two months. The only option was 2,000 notes. Any other combination of notes required up to six months. However this strategy got bombed on 1st day of cash exchanging in the absence of supporting lower denomination notes. Thus monetary system got destroyed. Adamant in neither revoking nor suspension of demonetization, Modi opted for immediate printing of Rs.500 & Rs.100 notes which would take 6 months for completion. Thus his hidden objective is very clear. His eyes are on UP & Punjab elections and the fact that November is overlap month for agriculture --kharif produce marketing & rabi season's seeding at its brisk, safeguarding farmer's interests was was given a go by for his perceived political gains. Farmers and informal sector are unorganized and supports 90% of employment and contributes 65% of GDP with no protection and financially very weak and compromising their interests is an unpardonable offence on society and is impeachable.


Terrorists fake money is quite dangerous but its quantity never exceeded Rs.500 crores in any year as per RBI data which amounts to 0.028 percent of cash in circulation of Rs.17.65 lakh crores and being a minuscule quantity doesn't justify demonetization with huge expenses and complex effects on economy. USD & EURO etc has all types of money in their monetary system but they never ever demonetized.


Except printing part requirement of Rs. 2000 currency notes as replacement for demonetized Rs.1000 & Rs.500 notes, no other preparations were under taken only to maintain utmost secrecy within two months time frame. Rs.2000 notes faced instant rejection in market due to shortage of lower denomination notes of Rs.100. Printing whole currency replacement in Rs.500 & Rs.100 was started immediately from Nov 10, 2016 and is likely to take 6 months for completion. Machinery problems compounded woes. ATMs dispensing capacity got limited to Rs.100 notes only with capability reduced to less than 10% by value since new notes are of different dimensions. Re-calibration ATMs is estimated to take 2-3 months. No other effort was made to assess voluminous activity of logistics, storage, methodology for exchanging, checks & balance, audit and vigilance were given a go by. India being predominantly cash market and with shortage of cash all sectors of economy came to a grinding halt. Cashless transactions were less than 2% overall and about 10% in urban and elite segments. The result is end less queues at ATMs & Bank branches for several hours only to exchange Rs.4000. This is the result of mindless compression of an demonetization activity from 12 months to just 2 months. There is no sector which is not abruptly hit. Agriculture & informal sector suffered most. Markets closed, trucks stranded on highways. By third day situation has gone out of control and government remained mute spectator except issuing procedure amendments 14 times in 10 days indicating panicky situation. Printing Rs.500 & Rs.100 notes of required quantities which started on Nov 10, 2016 and its distribution is likely to get completed in next six months.


By end of first day of cash exchanging it was very clear about the holes in implementation and gross underestimation of its wide ranging impact made Delhi bosses realize that situation is out of control and they have no remedies on hand and can't suspend the scheme nor revoke it. In both cases it would be a bigger mistake. An empathetic people's leader would do anything even sacrifice his life for mitigating poor people's hardships. But expecting such things from Modi and his gang is too much to expect. Modi quickly ordered 6 months time frame printing of Rs.500 & Rs.100 notes. While Jaitley stated the situation would ease in about 20 days, Modi announced in a public meeting that it would take 50 more days. Panicky management started at MoF, and demonetization managers amended the procedure  14 times in 10 days exposing themselves that they didn't have any pre-decided plans to face eventualities. RBI Governor appeared on TV after Modi's TV announcement on first day and thereafter disappeared making it clear that he is not in-charge of these operations which is his legitimate duty.


By  end of 3 weeks, 75 people died while standing long hours in queues. About 13 bank employees died while on duty due to stress and heart attacks so far. Modi hasn't uttered any consolation to their families.


Rural India & agriculture supports 65% of nations population and together with informal sector provides livelihood for 90% people of the country and rest 10% is organised sector. Cash is the dominant medium exchange in rural, agriculture & informal sector with over 95% transactions. Demonetization has brought this segment to a grinding halt with little exchange availability and meager exchange arrangements especially during kharif & rabi overlap busy time. Govt started focusing exchange facilities to this segment only after 15 days by which time damage is done. Banning co-operative banks and restricts on exchange & withdrawals compounded  the problem.


While urban elite were saved of these troubles due to cash less transactions using debit/credit cards, on line payment & shopping systems. Urban people depending on cash were hard hit & were helpless except patiently waiting their in ATM/Bank queues for exchanging cash. Modi & others talking of promoting cashless payment systems for tracking transactions in future is seen as diversionary tactics knowing fully well that banks & internet reach is very limited in rural segment and also small traders cant set up PoS machines for reasons of economy & viability. Other important factors are education levels, unfamiliarity, low level of privacy, legal protection from cyber criminals etc which indicate cashless society is a distant dream. Even in developed countries like US & Europe cash exists in high denominations of USD 100 and EURO 100. The economy is very complex, and money is the medium of exchange that allows the economy to function. Doing without cash overnight is very costly. The highest cash less transactions in any country is 60% and in India it is just 2%. With very low level of connectivity and bank's reach in rural segment, low educational levels, low awareness, poor privacy & cyber laws, cashless society is only a matter of academics & publicity and is a distant dream. Cashless transactions cannot be imposed on society which will construed as favoring some equipment maker or service provider. Its costs should be brought down and promoted highlighting that these transactions are safe and guaranteed and overtime they would increase significantly. Once people see benefits, affordability & safety, they will have it and use it. Otherwise never.


Banks reach in villages is limited to just 17% while 83% were serviced by rural co-operative banks. For unjust reasons Central Govt has banned usage of these banks for currency exchanging operations. With scheduled banks and post offices only the progress of currency exchanging is going at snail's pace in villages. This has resulted in most rural population not provided with new currency for exchanging for first 15-20 days. After that priority was accorded in view of brisk agriculture operations. But damage was already done to them.


Now, two weeks later, the situation is getting much worse, and more desperate. It is obvious that Modi single handedly took the decision to ban the banknotes, with most people in his cabinet and virtually all in the central bank oblivious to his plan. There is virtually no visible opposition to the enforced ban, for any politician who opposes the ban risks having his own misdeeds and they are all corrupt brought to the public space by Modi. A true demagogue, Modi, has already convinced the gullible, salaried middle class that anyone who opposes the ban is hiding corrupt money and is anti-national. With every passing day, it has not only  become clearer that the ban was of no use to eradicate hidden cash, but has also inflicted deep, wide and irreparable damage to the society.  The economy is rapidly moving toward stagnation.  The lives of literally hundreds of millions are in deep chaos. But so far most people seem to still carry a favorable opinion of Modi, backed by cult-like “intellectual” climate created by the salaried middle class (who lack critical thinking and reasoning capability), and supported by the international media and institutions, people who are sitting in western cities have no clue about the realities on the ground. But all this will change as the stories of personal suffering should eventually start to dominate over the propaganda reality does have a way of catching up. Even if Modi eventually goes, a new demagogue will take his place.

  • The biggest beneficiaries of this move are going to be Indian Banks. The increased liquidity will lead to increased credit lending and most of this won't necessarily go to to the common man but to big corporate's who are starved for cash. 
  • The black money hoarders from hereon will start converting their Indian currency into USD’s and Euro’s (via hawala) thereby, causing fiscal implications and making 'hawala' market flourish.
  • Agriulture and informal sector, hitherto being funded by cash with public will now be starved of cash and with little access to bank funding will shrink its operations.
  • Any gains to central government will to for banks capitalization, which are saddled with huge NPAs. 
  • Losses to centre & states due to lower revenues due to consumption shrinkage are permanent and will adversely effect development & welfare activities. Consumption based industries and services will have big impact on their revenues and survival.
  • The Rs.2,000 new notes will make future black money operations easier and aid corruption easy to manage.
  • All bank mortgages are mostly real estate which are value inflated as well. Now with fall in real estate prices to 50-60% levels, NPAs will rise and banks will see under recoveries and mortgage liquidation will entail huge losses to be written off.
  • This move will definitely increase funds into banking system but will drain available funds from informal sector and will adversely effect its operations.
  • By end of two weeks, GDP loss projected at 3 lakh crores, GDP growth -3%, 5 lakhs jobs gone, State govt revenue losses of Rs.2,000 crores per state  per month and many more.
  • Turbulence in economy could impact imports & exports and result in diminishing foreign exchange reserves.


Most people particularly the salaried middle class still seem to have a favorable opinion of Mr. Modi. They have been indoctrinated in India’s extremely irrational and superstitious society to believe that this demonetization will somehow alleviate corruption and that anything but support of Modi’s actions is anti-national and unpatriotic. Public education and the mass-media have become instruments of propaganda. Complexity and the diversity of options that technology brings make an irrational thinker extremely confused, forcing him to seek sanity in ritualistic religion. This has happened despite the explosion in information technology. The cult-like status Modi enjoys in India is the result of a lack of self-responsibility among Indians, their hope that despite massive inherent contradictions, the pain that corruption imposes on Indians can be got rid of through a magic wand without self-reflection, or without them giving up corruption themselves. Modi’s biggest support comes from the salaried middle class, whose members are mostly unaffected by the ban and who can't see anything beyond self comfort, self glory and self enrichment. Hence the middle class can claim to occupy the moral high-ground, albeit on the back of other people’s suffering.


Modi suffers from worst possible type of corruption; an insatiable desire for personal glory at any cost; an extremely deep moral and spiritual corruption. Modi belongs to the line of autocratic ideologues rather than the western tradition of revolutionary neo liberalism, or marxist rationalism. 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. He might not have taken any bribes in recent years but there is no way he could have risen to his position without having made massive and horrendous economic & moral compromises. No account has been disclosed for his 2014 election expenses which are believed to be over Rs.5,000 crores. Most of the people Modi hobnobs are Gujarati businessmen who are notorious for corruption and black money. Common man is unseen in his proximity, never.


Cash is the thread that weaves relationships, transactions and commitments. For the proper functioning of society, it is absolutely crucial that people have a liquid medium of exchange, the essential lubricant to effect trade in today’s complex economy. All transactions except for barter, which has emerged in many parts of India, can no longer take place, for the monopolistic money instrument, India’s fiat currency, has been paralyzed by Modi. Should a single person have the authority to flip a switch and bring all trade, transactions, indeed the entire economy to a halt? As it stands, money is now dead in India. The death of money amid a lack of respect for property rights has been sudden and will very likely be catastrophic. Both at home and abroad the only topic of conversation for Indians is the currency ban. Should this be all people are communicating about? Human beings were destined for higher things in life, not merely for the task of protecting themselves against the State.


Corruption in the Indian society has prevailed from time immemorial in one form or the other. Earlier, bribes were paid for getting wrong things done, but now bribe is paid for getting right things done at right time. Further, corruption has become something respectable in India. Social corruption like less weighing of products, adulteration in edible items, and bribery of various kind have incessantly prevailed in the society. Corruption started with our opportunistic leaders who have already done great damage to our nation. Today there is no body in India who hasn't done corruption or dealt with black money in some form or other.


In India there is extreme fundamental reluctance to pay taxes and avoid at any cost is practiced by all classes, wealthy & poor, educated & illiterate, irrespective of individual ethics, culture and morality. This tax avoidance is a habit & culture and is a result of past kings and rulers unjustly taxing public, ruthlessly collecting levies & taxes and spending nothing for their well being and even today the same feelings prevail with rural people and urban poor grossly neglected. Now a days, the wide spread corruption in politics, administration & businesses justifies their thinking and continuing habits. The unfair taxing by government especially on petrol/diesel and liquor is another aberration. With complexity of problem it is long way to go for voluntary compliance of tax obligations by its citizens in India. Tax reforms, toning up tax administration and awareness creation even though time consuming are the keys. Any other way will be futile. With corruption and black money in all walks of life like cancer in the entire spectrum of economic activities, is it possible for (1) changing the people's outlook, (2) elimination of corruption and black money and (3) make people pay up all taxes, over night, is the question to ponder? Today's exercise aimed at tax compliance alone might get boomeranged.


Modi instead of accepting mistakes and regretting wrong decision with gross mismanagement of implementation, he should have retracted and restored status quo ante Nov 8th to save crores of people from facing disaster. Instead he exhibited helplessness and asked people for bearing the pain for 50 more days but failed to say why they should bear pain for no fault of theirs. He did not see reason when Manmohan Singh pointed out that 50 days is a small period for strong people but for deprived and suffering masses 50 days could mean disaster. He tried evoke patriotism which makes sense only during war times and postwar reconstruction periods. Apart from these, threatening public that many more stringent actions will be taken for black property owners, benami holders and bullion hoarders etc doesn't auger well with his stature as PM. He forgot the fundamental rule of any democracy is that any policy should never hurt honest man at all. Instead he declared all Indians as suspected crooks and to prove that they are not. While almost all Indians are involved in tax evasion and black money but real hoarders of black money & wealth may not exceed a million worth catching and troubling. Unable to go behind them he had carpet bombed whole nation troubling 130 crore people. He conveniently forgot about his election promise and commitment to bring back entire black money from Swiss and other foreign banks with in 100 days, which is estimated at Rs. 28 lakh crores. His revengeful attitude is not in nation's interest or public interest but only indicates his anger for failure of IDS scheme few months ago. This kind of revengeful attitude leads him to nowhere. He shamefully says that in long run this demonetization would be beneficial but none bought his argument. This was countered by Manmohan Singh "in long run we are all dead". Lacking humility and empathy for suffering masses, he is unfit to be PM.


Despite colossal failure of Modi's demonetization media was soft on Modi rather afraid of Modi and used toned down story lines. There are no Ramnath Goenka's and Arun Shourie's left in media. Media barons are primarily businessmen with profits first anything next. The direct feed back through an App which gave him 93% marks was manipulated by framing questions which has only one answer. Also salaried middle class wielding credit cards, smart phones and cars etc which are blindfolded by Modinomics and responded to most for this feedback failed to reflect either factual situation or pulse of the people. Western media initially rallied behind Modi's surprise decision but as public miseries become prominent started criticizing Modi & Co for inept planning, implementing and causing avoidable miseries to public.


The essence of democracy is its transparency and accountability. Had it been by an ordinance followed by a bill, there would have been debate & voting in parliament. Modi avoided this by an executive order. Consequent debates on adjournment motions in parliament, PM is under no compulsion to reply. His ministers replied without substance. Modi is not attending parliament this session at all. Under pressure, he attended Rajya Sabha on one day just for 2 hours and without uttering a word he went away. But he went on addressing public meetings highlighting black money & fake money are demons about to swallow the nation and he averted the disaster.


Excepting few, none were aware of brewing of this demonetization move. Some days before pictures of Rs.2,000 notes bundles were seen in social media but demonetization was not expected at all. On Nov 8, 2016 cabinet meeting was summoned an hour before Modi's announcement, all were asked to deposit mobiles at security and Modi informed them about the decision and proceeded to make announcement on TV. After an hour after TV broadcast was completed, the cabinet meeting was concluded. Same thing at RBI HQ between RBI Governor and CEO's of all Banks. Thus demonetization has neither Parliament approval, nor ordinance promulgated nor cabinet's prior approval. It was singularly Modi's decision in violation of constitution, laws, usurping powers and spirits of democracy thrown to winds and indicates eruption of autocracy.  RBI Governor's brief appearance on TV only once and subsequently all PR was handled by MoF officials makes RBI irrelevant confirming fears of destruction of Indian institutions the cornerstones of Indian democracy. Modinomics replaces economics in India.


Within few days of announcement by Modi, BJP president Amit Shah asked BJP MPs from UP to initiate high pitch campaign in UP about benefits of demonetization and received shocking replies from MPs. Where is the money to erect hoardings? Public are suffering and if they go there they would be chased like mad dogs. How to reach public? Calling a public meeting will entail lots of expenditure? Who would bear that? He was told bluntly that at the moment BJP is zero in UP. In next few months if some good happens they can hope to deposits and nothing more. Only Lord Ram can save BJP in UP. When Amit Shah reported this to Modi, his arrogant reply was that I have lots of Astras with me. In 2014 did these MPs won on their own? I only made them win? Later BJP MPs in RS stopped attending house and BJP was compelled to issue whip to maintain quorum. See the pathetic condition of ruling party post demonetization.


In the last week's bye polls in several states, while the results were not much different, what is significant is that BJP's loss of its its vote share of over 10%, especially in the backdrop of Modi's demonetization resulting in utter chaos in the entire nation. As things unfold in coming weeks BJP's losses could be much higher and game changing.


The sucking out 86% of cash from the system and replacement going on at snail's pace, and normalization is about 6 months away, the consumption and luxury spending has shrunk and effecting informal sector badly. Rs.2,000 notes simply proved worthless without supporting Rs.500 and Rs.100 notes adequately. Millions of people are without work since 3 weeks, The fears are that not every body will be able to get back their jobs. At least a million jobs will vanish. Agriculture sector is stunned and deprived of cash all their operations standstill despite good monsoon. With no help forthcoming they are bound to suffer economically. Violent fluctuations in inflation, consumption and demand patterns will effect financial sector and government revenues badly. Restoration of supply chain systems, especially of perishable commodities is an uphill task. The initial gains by Banks and govt agencies will not last long. The only plus point noticeable is that Municipalities, Water Boards, Electricity companies etc could recover their most of their outstanding amounts from people effortlessly.


Printing costs are: Rs.2,000 note Rs.5.00  | Rs 1,000 note Rs 3.00 | Rs 100 note Rs 1.20 apiece. Demonetization replacement currency printing costs are expected to be about Rs.12,000 crores for printing Rs.2,000 notes alone. Logistics, warehousing, handling, disposing old notes, incidental expenses extra. Such a huge expenditure requires prior parliament approval unless an emergency situation arises, executive doesn't have authority. PM at centre and CM at state levels are simply monarchs and doesn't care for the values or rules. Height of insanity to entail such a huge expenditure and massive work with huge risks with uncertain results, especially in a good going economic scenario.


Contrary to government expectations none of the black money hoarders turned up to surrender their black cash which would attract total tax of 90% at prevailing rates. Instead it is being broken into pieces and converted into future white money by loaning workers or poor people with up to 30% commissions apart from bullion and foreign currency. Alarmed with this government came out with income tax amendment bill with 50% tax and 25% 4 year interest free bank deposit leaving just 25% cash with the hoarder. None will be impressed with 25% cash on hand and another 25% cash back after 4 years. Instead govt should have made it flat 50% tax and 50% cash left for the hoarder for voluntary compliance. Extinguished cash may at best touch Rs.1 lakh crores while initial estimates stood at Rs.4 lakh crores.

  1. Only insufficient Rs.2,000 notes were printed without supporting Rs.500 & Rs.100 notes.
  2. No additional security features
  3. ATMs recalibration for dispensing different size new notes was forgotten.
  4. Co-operative banks banned and rural sector left with no cash for over 3 weeks.
  5. No arrangements were made in rural side.
  6. No additional arrangements at Banks and Post offices resulted in mile long queues.
  7. No foolproof accounting mechanism for cash exchanges.
  8. Lack of vigilance.
  9. No arrangements for storage & disposal for old cash at banks.
  10. Many more...


Demonetization of 14 lakh crores of cash spread across entire nation and among 50-60 crore people is a gigantic task and required time frame is at least 12 months. Only secrecy and printing of insufficient Rs.2,000 notes, nothing else has been taken care of. Apart from the above mentioned loop holes, busy agriculture season was not given any thought and timing was worst and rural & informal sector took severe beating. Black money hoarders exchanging with the help of agents for a cut had heyday resulting in unabated illegal exchange of old notes with new notes for 30% cut. The result, financial benefit to government in the form of extinguished black cash is likely to get reduced to less than 25%, thus wiping out the entire benefit to nation and stunning Modi. These are the results of compressing 12 months schedule to 2 months by Modi. Absence of additional security features in new Rs.2,000 notes didn't make fake currency printing very difficult and fake currency is likely to resurface in next few months.


Well thought over, well planned and well implemented demonetization itself is unlikely to get desired results simply because of its effects in complex economy is hard to understand. This demonetization with numerous defects in all fronts got bombed on the first day of exchanging cash and the hope of government to get financial benefit of Rs.4 lakh crores of extinguished cash by Dec 30, 2016 is is fast receding. At the end the maximum benefit may not exceed 25%, making it a worst exercise with huge expenses with minimum gains but impacting economy very hard.


“A man is known by the company he keeps” -- Aesop
Modi's best friend is the Great Indian Gas Robber, Mr. Mukesh Ambani, who robbed natural gas from adjacent ONGC gas fields to the tune of more than  of Rs.11,000 between 2009-2011 and liable to pay nearly Rs.30,000 crores. Reliance Industries Ltd maintains that all its operations had been undertaken in accordance with the development plan approved by the management committee which had government representatives holding veto powers. ONGC Chairman Dinesh K Sarraf under pressure from ONGC independent directors  moved the court against RIL as A1 and MoPNG (Ministry of Petroleum & Natural Gas) as A2. Curiously MoPNG is 70% shareholder in ONGC. Now our Modi passed orders recently asking RIL to pay up just Rs.10,000 crores with out mentioning compounding amount, penalties, interest etc., where as joint USA consultant appointed by RIL & ONGC earlier confirmed the robbery and advised ONGC to make a claim of at least Rs.30,000 crores, 3 years ago during UPA regime. Incidentally, Mukesh Ambani is the largest borrower from consortium of banks to the tune of Rs.187,000 crores out of which about Rs.150,000 crores invested in Reliance Jio and is threatening the viability of operations of BSNL, AIRTEL, IDEA, VODAFONE & AIRCEL which has together invested Rs.300,000 crores. While TRAI should have clipped wings of Jio & Ambani for violation of fair trade practices, remained a mute spectator. Another friend, Gautam Adani is the sponsorer of Modi's PM candidature expenses of over Rs.5,000 crores in 2014. Modi has many more friends like this.


Manik Sarkar, Tripura CM has rejected to be part of a committee of Chief Ministers to examine the impact of demonetization and suggest transition to a cashless economy saying that he does not support the demonetization and accused the central government of having announced the notes ban "without making alternative arrangements" and putting "crores of people, especially the poor, in a serious awkward condition". Nitish Kumar, Bihar CM, despite his initial welcome for demonetization, is not among those chief ministers who are slated to be part of the on demonetization effects and cashless economy. Curiously, Sharad Yadav opposed demonetization. This is a game plan to fizzle out political opposition for demonetization, while people are suffering.

  • Demonetisation move declares all Indians as possible crooks, unless they can establish otherwise, says Amartya Sen. Both, the idea and the way it was implemented, was akin to a “despotic action” and betrayed the “authoritarian nature of the government”. Reacting to the government’s claim “Good policies sometimes cause pain, but whatever causes pain – no matter how intense – is not necessarily good policy.”
  • Arun Shourie mocked the claim of demonetization of high-value currencies being a radical measure, stating that jumping into well or committing suicide is also radical. It was not a "thought-through" exercise. This is a strike not on black money but on legal tender of India, its currency. This is a strike on cash transactions, he told a news channel in an interview.


India faces a highly uncertain future. A vicious cycle has been set into motion by Modi and it may not end well. Unpredictable problems and unintended consequences are bound to surface incessantly. Modi, in his permanent search for personal glorification would do anything. His adventures might as well end up in a war with Pakistan and will be disastrous for our fragile economy. This demonetization will go down in the history as one of the most naive, least thought through policy decisions ever, a massive man-made disaster. Anything worth talking about our economy is at least two years away.

In a good democracy, any new policy or action by government has no right to trouble or harm even a single honest man. The larger good of the nation concept is always followed by compensatory payments usually severally times the inflicted loss but in this case it is one sided deprivation of individual rights, harassment and humiliation.

My View:
The beauty of democracy is its respect for individual privacy and property rights. The need of the hour is to strengthen our independent institutions and anti corruption agencies. Corruption and black money are thriving in India because of low risk and high profit. The systems should be modified to make corruption a high risk and low profit activity. Promoting system of incentives and disincentives for tax compliance and eliminating high value cash transactions and reforming tax administration even though a slow process, but over years produces lasting results. 

Inflicting harassment on crores of Indians to catch few lakhs of black money hoarders is not only insanity but also subverting the individual rights guaranteed by constitution.

In India or else where, the higher the social status the bigger crime one can commit with impunity. If a ordinary person resorts to even jaywalk on the street he would be caught and fined instantly. But Modi destroying economy just for whims and fancies no body will be able touch him, not to talk about criticizing & impeaching him. Modi with near zero democratic attitudes and visible dictator tendencies is dangerous to our society. The earlier the country gets rid of him, the better. Modi and Jaitley have know no knowledge of finance & economics and not taking guidance of experts prior to taking such a major decision is unpardonable and dumping India in chaos. My sense is that this could be the end of aggression by Modi and lose his grip on political India similar to that of Rajeev Gandhi's decline after Bofors scandal leading to his defeat in the next general election.

Monday, 21 November 2016

Demonetization: A bad idea even badly implemented

In the past, the Soviet Union, North Korea and Zimbabwe and other nations also took draconian steps to retire large bills, but most were responding to crises marked by hyperinflation, and were ruled by dictators. India may be the first democracy to attempt this kind of purge in stable economic times.

Prime Minister Modi in his televised address to nation on Nov 8, 2016 announced demonetization of Rs.1000 & Rs.500 currency notes to eliminate (1) black money (2) corruption (3) fake currency and (4) Terrorists operating cross border but failed to give any justification how these complex things will be achieved by a single step with devastating effects on states revenues, agriculture, real estate, retail, informal sector, cine industry and many more effecting 850 million people very badly.

On some simple analysis it would be clear that the stated objectives i.e. four objectives will not be achieved by this step but this action has political undertones with eyes on forthcoming UP elections, then RS elections, followed by President and Vice President elections.
  • Black money which is over 20% GDP ($2.25 trillion or Rs.150 lakh crores pa) amounts to Rs.30 lakh crores pa. Out of which is it is in the form of cash by only 6% of cash in circulation (Rs.17 lakh crores) and i.e. lakh crores.
  • With Rs.2000 and Rs.500 new notes replacing existing Rs.1000 & Rs.500 only black money stocked in cash gets emptied but corruption & black money generation will remain unaffected.
  • Fake currency is just 0.028% of cash in circulation (Rs.17 lakh crores) i.e. 476 crores only, a minuscule component. Printing Rs.2,000 notes alone costed Rs.12,000 crores apart from logistics & exchanging expenditure. 
  • Terrorist fake money mainly printed by ISI from Pakistan will only get effected and the existing stocks held in Pakistan will be effected. With respite of few months it will come back to normal state. Needless to stay 1,400 km border mostly on plains is impossible to seal. Only active vigilance can control this menace.
  • Bulk of the terrorist money is routed through normal banking channels reaches sleeper cells in various cities. The demonetization have no effect on them.
Demonetization might give some instantaneous benefits - cash profits to central government due to unchanged cash (estimated at 20% i.e. Rs.3.5 lakh crores) for reducing its deficit, strengthening banks base and still have surplus cash hand during the year of demonetization. But taking into consideration significant reduction of states revenues, GDP growth reduction and its devastating effects like impact on cash sectors like agriculture, retail, informal sector, real estate, cinema industry and almost all aspects of economy and more importantly enormous difficulties faced by 30 crore people in exchanging notes and disruption of services, the losses far out weigh benefits and it is nothing but insanity to resort to this unscientific political step during stable economic times eyeing only on political benefits, which may or may not accrue. Immediate deflation followed by inflation violent volatility pushing the economy to brink of collapse, is another aspect. This is like jumping into well and committing suicide, in the name of radical measures.

Almost all the bank loans have real estate as mortgage which is over valued by at least 4 times. With real estate values plunging to below 50% mark, the willful loan defaults will increase and banks viability gets threatened.

Scrapping large currency notes may destroy some hidden wealth today, but the black economy will start regenerating itself tomorrow. Only as a nation gets less poor do corruption, black money and the role of cash decline. There is no shortcut. The least corrupt countries tend to be richest countries from Singapore (Per capita $85,382) and Norway (Per capita $68,591). They are small too 5.40 & 5.16 million. In contrast, India is country with 130 crores population, per capita income of $1,718 (Rs. 114,000), 26% illiterate, 29.5% below poverty line of Rs.32/47(Rural/Urban) etc. corruption and black money will exist in some form of other. The prudent way is to keep them under control with strict processes and vigilance.

  • GDP of India is $2.25 trillion (Rs. 150 lakh crores) and per capita income of $1,718 (Rs. 114,000).
  • India ranks 7th and contributes 2.65% of total world's GDP.
  • India shares 17.5 percent of the total world population and 2.4 percent of the world surface area.
  • Cash in circulation amounts to 12% of GDP.
  • The black economy is about 20% of the formal economy.
  • Tax collections amount to 16% of GDP, at least 5 points less.
  • Bank deposits amount to 60% of GDP, strong for a poor country.
  • India currently ranks 76th in corruption.
  • Rs.1000 & Rs.500 notes constitute 86% of Rs.17 lakh crores currency in circulation.
  • 20% i.e. Rs. 3.5 lakh crores is unlikely to return to banks for exchange leaving windfall to RBI & Central Government.
  • Black money in the form of cash is 6% of cash in circulation i.e. Rs.1.02 lakh cores.
  • 90% of transactions takes place in cash. Remaining in credit/debit cards and other modes.
  • Fake currency is just 0.028% of cash in circulation of Rs.17 lakh crores is just Rs.476 crores.
  • Cash stocked with naxalites extortion is of Rs.5,000 crores.
  • Printing new currency alone costs Rs.12,000 crores apart from logistic and exchanging expenses.


Demonetization of  Rs.500 and  Rs.1,000 currency notes, it seems to have dealt a body blow to nascent Telangana State, pushing its finances deeper into turmoil. The sectors or schemes expected to be severely affected are major and medium irrigation, Mission Kakatiya, Mission Bhagiratha, roads and buildings, housing, social welfare schemes such as Aasara pensions, Shaadi Mubarak and Kalyana Lakshmi, pre and post-matric scholarships and fees reimbursement, partial waiver of farm loans, power subsidy for farm sector, release of funds for panchayat raj and urban local bodies, interest payments and servicing of debts, etc.

The revenue will be just enough to pay salaries, allowances and pensions of government employees. Drought in the previous two years and flash floods in the current year have impacted the state's economy. Demonetization has compounded the woes.

Modinomics is literally bleeding the Telangana State red!
KCR is flabbergasted with all his next election winning strategies blasted and in rubble, apart from he, his family and his party's accumulated black money gone.


Replacing Rs.500 notes, printing of which started on Nov 10, 2016 is likely to take at least 6 months with all four security printing presses going on 3 shift basis with 80% load factor. That means currency woes will ease by May 2017 only. Economy with acute shortage of cash for 6 months is likely to undergo violent volatility of deflation and inflation and collapse is not ruled out. Coming back to pre Nov 08, 2016 level is at least two years away.


Anil Bokil a member of the Pune-based ArthaKranti Sansthan, has propounded the concept of Artha Kranti – an economic solution designed to end the vicious cycle of corruption with specific focus on black money. It seems Prime Minister Modi granted 9 minutes and extended to 2 hours audience and and made up his mind for the proposed the demonetization of high value currency notes.

Making payment systems miserable for transactions leads to bartering or using gold as medium of exchange or a combination.  As long as corruption is a low risk and high profit activity it will flourish. Systemic modifications should result in increasing the risk and minimizing profits apart from ethical education and convincing the people that paying taxes is for their well being. Today, no Indian believes this.

It is so much easy to design variety of mathematical models ignoring people's psychology. Modi himself escalated to throne with the help of corruption money, rogue politicians and greedy businessmen. Today talking scriptures is no use. What is important is to modify system with built in incentives for tax compliance and at the same time increasing the chances of getting caught and penalized to bring corruption to unprofitable levels.

  • In a democracy, not consulting economic institutions and legal experts and driving the nation to this type of brink of collapse is nothing but madness and committing suicide. 
  • Where is the detailed plan with risks and its mitigation? 
  • The procedure has been modified 13 times in 6 days of panicky management. 
  • RBI Governor is hiding. 
  • PM cries and invokes patriotism and begs for 50 days patience.
    Patriotism is to be invoked during emergency situations only.
    On Nov 8th situation was very much normal.
  • PM evades his presence in Parliament. 
  • PM announces his life is at threat but doesn't let us know why the matter is not handed over for investigation? 
  • FM & others simply says people need to make short term sacrifices for long term benefits. Does they mean to say that in short term poor & peasants have to sacrifice and in long term rich, educated, rogues and loafers will garner benefits for themselves? Why no body is taking responsibility for the situation which landed 90 crores of people standing in streets under hot sun for several hours for nothing.
  • Today, after 13 days of demonetization, cash and economic activity situation is totally out of control and fortunately rites haven't erupted. Despite 55 deaths, Government has not announced any mitigation steps except making some speeches of patriotism and patience and long term benefits after 2 years. 
  • Poor and peasants are left to the mercy of God.
    Shamelessly they say easing would take 50 more days.

It is worthwhile to recollect how much caution Israel Prime Minister Yitzahak Rabin exercised before approving "Operation Thunderbolt" a daring military rescue operation of hijacked hostages of Air France plane and held about 100 Israeli passengers & French crew at Entebbe airport in Uganda in 1976.

On the contrary, on Nov 8, 2016 our flamboyant "chaiwala" Prime Minister Narendra Modi announced "Demonetization of Rs.500 & Rs.1000 notes" based on some body's presentation about structural changes in economy without any deep study and understanding repercussions plunged the nation into economic chaos and mitigation would require about six months and recovery is at least two years away. It is just like jumping into a well and committing suicide.

Finally, the currency is an instrument issued by RBI and Government has no role in managing that except by an Ordinance followed by an Act of Parliament. Modi announced demonetization by an executive decision which is grossly illegal and its legality will be scrutinized in courts.

Saturday, 19 November 2016

Demonetization: An Economic & Political Disaster

PM Modi announces demonetization of Rs 500 and Rs 1000 currency notes

PM Narendra Modi on his televised address to nation on Tue Nov 08, 2016 at 8PM on announced the demonetization of Rs 500 and Rs 1000 currency notes and said the move was aimed at curbing the negative impact of fake currency, black money, corruption and terrorism on the nation's economy. Pakistani spy agency ISI was pumping fake notes of Rs 500 and Rs 1,000 to finance terror activities within, even earning a handsome profit of around Rs 500 crore per annum in the process.

The immediate impact was that citizens were stunned and dismayed, who never experienced demonetization in the past, found themselves with all their cash worthless, transactions in pipe line stalled or aborted, property values eroded with only few hundreds of rupees left. Small business owners & daily wage earners surviving on day to day work for making living are so much helpless today with no activity and income, how to pay monthly bills at the beginning of next month. Not many have any reserve cash.

Demonetization is not new invention by Modi & Co. In the past many countries did it but none achieved even 10% of the targeted benefit. Morarji Desai's 1978 demonetization was a utter flop then. What made Modi to believe this would do would do wonders for him, despite inherent risks and with no proper plan for mitigation & implementation? The guy who advised Modi and influenced him must be sacked at once for his irresponsible projections.

While the told reasons are impressive and in the interest of the nation the untold reasons are purely political for the following reasons:
  1. All economic parameters are well within limits.
  2. Annual economic growth rate at over 7% is impressive.
  3. UP Elections are slated for early 2017. 
  4. BJP is desperate to win UP elections. Otherwise their numbers in Rajya Sabha will remain minority for reminder of Modi's term. BJP candidate will have uphill task in winning President & Vice President elections next.
  5. Fake currency below Rs.1,000 crores is less than 0.01% in the economy size of our country.
  6. Black money is nothing new. There are many ways of dealing with it seamlessly.
  7. Terrorism control can't be achieved with demonetization alone. 
Demonetization involves printing of currency in large quantities with additional security features, logistics for quick exchanging, disposal of withdrawn currency, toning up Post offices, Banks & ATMs for handling new currency, and above all secrecy of operation until announcement and is a year long activity to ensure minimal impact on common man as well as on economic activity. Modi's hasty announcement within 2 months of Present RBI Governor Urjit Patel, with no proper arrangements -- points needle towards politics rather than any economic expediency or nation's well being. Needless to say the previous Governor Raghu Ram Rajan was never blindly obliging MoF/Govt but used to make decisions focused on primarily inflation control and anything else next.

See what Raghu Ram Rajan thinks on the current Demonetization.


Demonetization by an executive order is improper. Govt should have proclaimed an ordinance and immediately enacted law. Misuse of authority without proper constitutional authorization indicates highhandedness of the Prime Minister Modi and his dictatorial tendencies.

Article 21 which reads as follows:-
Protection Of Life And Personal Liberty: No person shall be deprived of his life or personal liberty except according to procedure established by law.

The demonetization had thrown out millions of people in "informal sector" etc without livelihood. There was no process of law which has been followed. Depriving livelihood tantamount to depriving life and personal liberty, Supreme Court ruled in the past.

Our Jurisprudence is based on the Blackstone's formulation is that: "It is better that ten guilty persons escape than that one innocent suffer".


Modi’s startling and sudden move to withdraw 500 and 1,000 rupee notes a week ago has left India with 14% of its currency in circulation. Small businesses, real estate, gold and the informal sectors -- which see a high component of cash transactions -- have been affected as hundreds of thousands of people spend time in long queues to exchange currency rather than working. The informal sector (which is 40% of economy & provides 65% jobs and livelihood to 850 millions) has come to grinding halt and revival is estimated between 6 months to two years.
  1. Printing of new currency notes Rs.12,000 crores.
  2. Improper arrangements derailed economy and recovery would take at least 2 months.
  3. GDP lost Rs. 2-3 lakh crores.
  4. Growth rate is likely to be reduced by 2%.
  5. RBI's likely to gain Rs.3 lakh crores of black currency not deposited.
  6. Naxalites lost their extorted and concealed amount of Rs.5,000 crores.
  7. Fake currency made redundant about Rs.1,000 crores.
  8. Informal sector, Agriculture etc effected people over 850 million.
  9. Enormous stress borne by bank employees dealing with unending queues, fear of giving away more money, extended work hours for several days in a row, petty quarrels with customers leading to stress.
  10. Public standing in serpentine queues for several hours only to get exchange worth Rs.4,000.
  11. At least 50 deaths reported standing in long queues for currency exchange.
Demonetization inflicts some losses but black economy is likely to remain


First two days were bank holidays the truth that Rs.500 & Rs.1000 notes are worthless sunk into brains of people. From Nov 11, 2014 long serpentine queues were common scene before every bank with ATMs derated to just 10% of its capacity dispensing only Rs.100 notes. Only 50% ATMs are operational due to poor maintenance. The new Rs.2,000 notes were as good as worthless since none in the market accepted for payment with very little change available with them. With less than 14% currency left in the economy retail took immediate beating with retail sales less than 30% and informal sector grinding halt with no cash.

Modi should remember that the people standing in long queues certainly don’t have the mindset of a soldier fighting a national cause but only have curse words for the government for turning their lives into a nightmare. Modi must have acknowledged this state of affairs, the failure of the government on execution front and promised to resolve the issue as early as possible. Instead, he warned about further measures post December 30, 2016, when the deadline expires. This will only add to the panic since people would start speculating that what the next blow is going to be.

Common man would need to pay to his vendors, a majority of whom still live in the cash economy, for whom PoS terminals, plastic money, PayTm are all still fancy words. While in metros like Mumbai and Delhi, people still have the possibility to use plastic money to meet most of the daily needs, in the semi-urban areas and villages, life will turn hell when ATMs dry out of money, daily labourers are denied wages because their employer doesn't have cash and kirana wallah frowns when asks for credit yet another day.

The mob psychology works in full swing on such occasions. And that psychology would drive the common man into a panic mode, telling him to run fast to the nearest bank branches and ATMs to withdraw maximum possible amount permissible (as of now Rs 2,000 per day), even if he doesn’t need that amount. It is getting clearer that economy is heading to politically motivated & fast reaching point of disaster. While many are still hopeful that this landmark initiative will reap dividends eventually, deeper analysis concludes it is not only poor politics but also an unmitigated disaster.

With commodities supply-chain-retailing systems crashed, shortages will be come order of the day in coming days.

Armed with shots to fire, opposition parties have common cause to conduct street agitations and Modi is helpless in dealing with them. Politics without principles leads BJP to nowhere. BJP leaders are now arguing that in long term demonetization benefits nation, in low voice. Despite demands and obligation, Modi hasn't attended Parliament last two days.


The idea of a cashless economy sounds great. But it is viable only at high-end convenience stores, shopping centers, malls etc along with the online shopping industry. The transaction overheads is an added cost to consumer indirectly or directly. Not all commodities have that much margins for seller to pay these costs. Also high cost items like cars etc, it makes sense to avoid cashless payment and save some bucks.

The fear of unfamiliarity is very fundamental and money matters are serious; hence the reluctance of consumers to shift from cash to plastic, even for across the counter transactions. As for online transactions horror stories of cyber-crime and sheer unfamiliarity with online payment systems is the basis of this reluctance.

Cashless economy will become reality slowly with higher income levels, awareness, education levels and transaction costs coming down to affordable levels.


Modi's demonetization flight took off without flight plan and not knowing how to and where to land. In crash landing, who knows how many will perish and how many will survive. 
  1. The government was ill prepared to deal with what was going to follow and completely miscalculated the enormity of the move it was making. Every honest citizen wants his country to be free of the evil of fake currencies and black money. The miserable failure of Modi government to design the implementation in the days after the demonetization announcement, though no one is questioning the intention.
  2. The situation is not likely to change soon. Finance Minister Arun Jaitley has said it will take about three weeks to replace the old notes. By then, the problem can go totally out of hand for the government. Printing Rs. 500 and  Rs.100 notes now and making available for exchanging is at least a month away. 
  3. PM Modi made a bad analogy comparing the cash drought prevailing in India now, to the chaos prevailed in Japan in the aftermath of the 2011 earthquake. "People stood in line for four hours, six hours but accepted the decision in national interest the way people of Japan tackled the aftermath of the 2011 disaster," Modi said speaking in Japan. The chaos that follows a natural disaster and the will power of a society to withstand the difficult days is one thing while the chaos and disruption of normal life in a society post a “well-thought-out decision” planned months in advance by the government is another. 
  4. Modi-government thought of an ideal situation where people will laud the government and put their personal miseries behind the larger cause of patriotism. "Don’t preach the scriptures to someone who is hungry" – was forgotten.
  5. Over the weekend, Modi made an impassioned plea to the nation to give him 50 days to weed out ill-gotten wealth in the country. 
  6. Today i.e. on Fri Nov 18, 2016,  Supreme Court refused to restrain various high courts and subordinate courts from hearing petitions against the Union government's demonetization notification, saying "people are facing real problems and we cannot shut them from moving courts to register their grievances." 
  7. The ill-thought of idea to use indelible ink during withdrawal at banks will not just take more time in dealing with a customer but also, it can be easily removed. 
  8. Unless the RBI & Govt increases Rs.100 notes to overcome shortage, there's a high chance that fake notes of this denomination will soon be circulated.
  9. Worst is 50+ people so far died across India standing in queues for cash exchanging or stress related issues, in first 10 days.
  10. Panic is reflected in unstable govt guidelines modifying every day creating confusion for the bank staff.
  11. Software modifications in ATMs can't be done in hurry. Modifications are to be designed, planed for implementation. With changing procedures several ATMs are out of service and many ATMs not upto date with govt directives. In any case ATMs exhausts cash within an hour.
  12. With short cash chasing too many goods - undesirable deflation is a certainty. Later improved cash position - inflation will impact economy.
Presently, the situation is not in control of the government. The long queues before ATMs and bank branches can soon take the shape of street protests. Delhi CM Arvind Kejriwal has already entered the ring, Congress vice-president Rahul Gandhi has already joined the ATM queues. It is not long before regional satraps smell an opportunity.

"In the name of demonetization, the common people are being made to suffer. Modi ji has brought miseries and pain for the poor which is extremely wrong. I would like to ask why people of the nation are being troubled like this," said Mayawati.

Former Union Minister Arun Shourie mocked the claim of demonetization of high-value currencies being a radical measure, stating that jumping into well or committing suicide is also radical.

Why hasn't the BJP-led government first targeted the black money deposited in Swiss banks as it was promised during the election campaign? The situation of crisis, in the name of "fight against black money", has affected the poorest the most. The good intention behind the currency ban and the long-term benefits it will bring to the economy will then be forgotten and Modi will run the risk a strong the anti-incumbency wave, if the cash drought continues and remedial measures are not brought into place. Better watch out for a bigger storm than the 2011 Japan earthquake, Mr. Narendra Modi.

Demonetization is bound to leave indelible impact on the nation. Shrinking economy leaves many jobless and recovery will never be the same again. Needless to say we may find ourselves pushed backwards by about 10+ years paying bitter price for Modi's adventures.

Modi's decision seemingly was in his & BJP's political interest rather than in national interest and he will go down in history as India's greatest wealth destroyer.

BJP leaders of UP felt that post demonetization blues, they have no face to show up in UP and were reluctant to either for campaigning or for erecting hoardings. They opine that Modi has effectively reduced BJP to ZERO.

"Without proper design and detailed plan, collapse is certainty"

My View:
It doesn't require an expert to say that corruption and black money is an evil that has crept into every segment of society like cancer and bulk of the blame is to be borne by Politicians from all parties. Even a clerk will tell you that there is no single medicine or surgery that can eliminate corruption and black money, instantly. The only way is awareness, leveraging technology, vigilance, creating accountability, eliminating discretionary power at all levels, reducing/eliminating cash flow in all public domain payments/transactions, emphasizing merit, etc and society would become cleaner gradually.

Keeping eye on UP Assembly elections and subsequent President & Vice President elections, Modi abruptly demonetizing currency and its inept handling has thrown the nation into chaos effecting 850 million people starving for cash & change and threatening their livelihoods.

Now that demonetizing has boomeranged, Modi has no face to show up in either Parliament or public. If any shame is left in him, he must own up responsibility for the fiasco, apologize nation and step down so that his successor would do better damage control and rehabilitation without the burden of the past. Also FM Jaitley and RBI Governor Urjit Patel should be eased out along with those who recommended this failed operation.

Had Modi followed Gandhi Talisman while making decisions, I am sure he would have made correct decisions in national interest and this chaotic situation averted. 

Gandhi's Talisman:
Whenever you are in doubt, or when the self becomes too much with you, 
apply the following test. Recall the face of the poorest and the weakest man [woman] 
whom you may have seen, and ask yourself if the step you contemplate is going 
to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] 
to a control over his [her] own life and destiny? In other words, will it lead 
to Swaraj [freedom] for the hungry and spiritually starving millions? 
Then you will find your doubts and your self melt away.

Wednesday, 16 November 2016

Cultured Person

A study of 2,000 people found seven in 10 believed themselves 'cultured'. Other defining characteristics included watching Antiques Roadshow. Almost a third admitted to 'faking' cultural credentials to impress friends.

  • Owning a library card, watching sub-titled films and being skilled in the use of chopsticks are among the traits which make us cultured, according to a survey.
  • Drinking 'proper' coffee, knowing the difference between cuts of meat and watching the Antiques Roadshow also set you apart from your less refined friends.
  • However, it seems you probably don't have many of those: seven in 10 consider themselves to be 'cultured', although the majority admit to not knowing exactly what the term means. 
  • The Oxford English Dictionary defines 'cultured' as 'improved by education and training; possessed of or characterized by culture, especially with reference to the arts and intellectual pursuits; refined, cultivated'.
  • But a study of 2,000 people found they considered someone cultured if they simply chose city breaks over beach holidays, read a book in bed and collected music on vinyl.
  • What's more, three in four believe you can be cultured despite having never left the country.
  • The study also found that Brits are at their most cultured at age 38, according to the poll, and feel the most need to project a cultured persona at dinner parties, high-end restaurants and job interviews.
  • Going to the theatre was named the top sign of being cultured - along with listening to classical music, having an interest in politics and the ability to recognise art.
  • Simply having a library card means you're cultured said one in ten, while almost a fifth said a classy Brit would read the book first before watching a film adaptation. 


  1. Go to the theatre
  2. Can recognise paintings/art
  3. Visit local heritage sites
  4. Listen to classical music
  5. Go to the ballet
  6. Know what wine goes with what
  7. Don’t skip the news when it’s on TV
  8. Watch documentaries
  9. Can read music
10. Take an avid interest in politics
11. Read daily newspapers
12. Take countryside walks
13. Read a book before bed
14. Choose city breaks over beach holidays
15. Watch Question Time
16. Host dinner parties
17. Know about cheese
18. Enjoy crosswords or Sudoku
19. Go to vintage markets
20. Know about cuts of meat 
21. Watch tennis or cricket 
22. Read a book before the film comes out
23. Watch Antiques Road Show
24. Own a library card
25. Watch films with subtitles
26. Visit farm shops
27. Use chopsticks over a knife and fork
28. Drink 'proper' coffee - not instant
29. Know how to pronounce ''quinoa'
30. Grow your own fruit and vegetables on an allotment
31. Go to music festivals
32. Collect music on vinyl
33. Read Wikipedia articles
34. Only eat local produce
35. Get the conundrum on Countdown
36. Wear bow-ties or brooches
37. Get food from supermarket 'finer' ranges
38. Drink herbal tea
39. Put on an accent to pronounce foreign words
40. Avoid generic superstore furniture

In light of the cultural check-list, seven in ten confessed they wish they were more cultured - with 31 per cent even admitting they sometimes 'fake it' to impress others. Brits named science centres, historic houses and castles among the sites they'd be open to visiting - but 54 per cent admitted the cost holds them back.

Monday, 14 November 2016

Honesty in India

Honesty is defined as 'fairness and straightforwardness of conduct' and 'steadfast adherence to the facts'.
Tact is defined as 'the ability to do or say things without offending or upsetting other people'.
Corruption  is defined as dishonest or illegal behavior especially by powerful people, inducement to wrong by improper or unlawful means (as bribery) or departure from the original or from what is pure or correct.

In the present day world honesty is virtually despised and such person gets socially isolated while tact is well appreciated. Tact involves seemingly honest and telling white lies which are as bad as lies. In fact there is no such thing as 'white lies'. What ever is not truth, is a lie only.

In the context of black money and demonetization, the reality is that today, every Indian talks bad about black money and tax evasion but there is no Indian who does not evade taxes and deal with black money. Ironically, every Indian is corrupt with reference to its true meaning. Our constitution and laws differentiate between 'guilty' and 'not guilty' and punishments are same for less guilty or more guilty.

All these Modi adventures are aimed at political supremacy of his party in winning elections and of course dumping money into Gujarat and for Jaitley to reduce budget deficit to please world bank and international credit rating agencies but definitely have little concern for the rights and privileges of common man on street and peasant in the fields.

Present day politicians (read Modi) talking about honesty, truth, morality etc is unbearable. They should confine to at best to talk about law adherence and law compliance. Nothing more.

Honesty is incompatible with amassing a large fortune - Mahatma Gandhi

Gandhi's seven deadly sins are: Wealth without work; Pleasure without conscience; 
Knowledge without character; Commerce without morality; Science without humanity; 
Politics without principles; Worship without sacrifice.

Bangladesh Liberation War 1971

  • 3,000,000 people were  killed by Pakistan military, as per Bangladesh authorities. Pakistan Government put the figure as low as 26,000 civilian casualties. The number of dead in Bangladesh in 1971 was almost certainly well over a million. Independent researchers put the figure at 500,000.
  • 400,000 Bangladeshi women were raped by the Pakistani Army in rape camps. After being assaulted and impregnated by Pakistani soldiers, the Bangladeshi women were completely ostracized by society. Many were killed by their husbands, committed suicide, or murdered their half-Pakistani babies themselves.
  • 10 million Bengali refugees fled to neighbouring India.
  • 30 million were internally displaced.
  • Hindus of East Bengal-who constitute about 10 per cent of the 75 million population.
  • 176,000 Bengali military men and police who mutinied on March 26 in a spectacular, though untimely and ill-starred bid, to create an independent Republic of Bangla Desh.

Sunday, 13 November 2016

Ethical corporate conduct flows from the top down

  • Culture flows top down from macro to meso, and then from meso to micro.
  • Similarly culture of a corporate unit will generally represent an adaptation to a particular environment of the institutional domain.
  • The spotlight on corporate corruption is more intense than it has ever been. Whether the activity under investigation is bribery, falsifying financial statements, policy breaches or money laundering, the general public is much more vocal in their demands for accountability, and governments continue to tighten laws pertaining to white collar crime.
  • The Occupy movement, student demonstrations and pipeline protests are making it clear companies face increased scrutiny on what companies are doing. In response, businesses must make sure they are conducting themselves ethically.
  • The bigger risks for many companies are not so much deliberate actions as grey zones. Our society has been complacent towards conduct that may not have been perceived as illegal, but has certainly been pushing the envelope.
  • A constant for all businesses is that corporate culture flows from the top down. If you have a culture of tolerance for this type of behaviour, employees, managers and even board members get accustomed to turning a blind eye and bending the rules.
  • The growing concern over white collar crime is putting increasing pressure on businesses of all sizes to put stringent compliance programs in place.
  • Officers and directors need to think about proactively reducing risks of white collar crime and taking swift and decisive action when issues arise. In that way, they can demonstrate to their employees and the outside world they have a strong culture of ethical conduct. This starts with a thorough review of their organizational policies and procedures.
  • Assessment comes down to looking at four basics: detection, prevention, investigation and remediation. In other words, it involves understanding what the problem is, how big it is, how to fix it and, most importantly, how to keep it from happening again.
  • A full-scale professional risk assessment is typically a one-time event, internal follow up is essential to ensuring that the organization’s processes are evolving and adapting to new risks that may arise.
  • Smaller organizations may not necessarily need a risk-mitigation strategy. There are simple and cost effective things you can do to cut risk, such as developing a clearly communicated code of conduct that outlines ethical business practices all the way from board members to warehouse employees, or providing a whistle blower line for employees to report unethical practices.
  • Experienced auditors can assess risk in terms of what kinds of payments are being made, the public officers involved and any history of fraud.
  • Whether looking to internal or external activities. Every board of directors or audit committee should be asking themselves: Have we done everything possible to identify any irregularities or illegal transactions an employee may have committed.
  • Engaging in an assessment is especially important for companies bidding on public contracts. Companies need to have a spotless reputation to be an official supplier to a government agency, so it pays to do your homework beforehand to identify weaknesses in controls.
  • Taking stock of your corporate culture is a matter of competitive survival and credibility. In the past, corporations may have swept situations under the carpet. Now, tolerance has moved to zero because there is much more of a public spotlight on these things. Boards are finally coming around to the idea that they have to be cleaner than clean.

Friday, 11 November 2016

India Pakistan war 1971: Reminiscences

The 1971 war is considered to be modern India’s finest hour, in military terms. The clinical professionalism of the Indian army, navy and air force; a charismatic brass led by the legendary Sam Maneckshaw; and ceaseless international lobbying by the political leadership worked brilliantly to set up a famous victory. After two weeks of vicious land, air and sea battles, nearly 100,000 Pakistani soldiers surrendered before India's rampaging army, the largest such capitulation since General Paulus' surrender at Stalingrad in 1943. However, it could all have come unstuck without help from veto-wielding Moscow, with which New Delhi had the foresight to sign a security treaty in 1970.

During the second week of July, 1971, Kissinger arrived in Beijing, where he heard the words by then Chinese Prime Minister Zhou Enlai: “In our opinion, if India continues on its present course in disregard of world opinion, it will continue to go on recklessly. We, however, support the stand of Pakistan. This is known to the world. If they [the Indians] are bent on provoking such a situation, then we cannot sit idly by.’

Pakistani Aircraft destined to East Pakistan flew taking a round of India via Sri Lanka, since they could not fly over Indian sky. This forced Pakistan to get its aircrafts refueled on the way. Sri Lanka eager to help Pakistan, allowed Pakistani aircrafts for refueling at the Bandaranaike airport.

As India had decided to go on with the war, and Indira Gandhi had failed to gain American support and sympathy for the Bengalis who were being tortured in East Pakistan, she finally took a hard move and on August 9, signed a treaty of peace, friendship and cooperation with Soviet Union. In the perspective of Washington, the crisis ratcheted up a dangerous notch, India and the Soviet Union have signed a treaty of peace, friendship and cooperation. It was a shock to America as this was what they feared, expansion of Soviet influence in South Asia. They feared that involvement of Soviet Union could sabotage their plan.

Prime Minister Indira Gandhi decided to tour most of the Western capitals to prove Indian stand and gain support and sympathy for the Bengalis of East Pakistan. On November 4th and 5th she met Nixon in Washington. Nixon straight forwardly told her that a new war in the subcontinent was out of the question. The next day, Nixon and Kissinger assessed the situation. Kissinger told Nixon: ‘The Indians are bastards anyway. They are plotting a war.’ The pressure increased in East Pakistan, which attracted Indian attention. Indians were preparing for war and were concentrated on the Eastern front. To divert the pressure, on December 3, in the dark of night, even before India could attack East Pakistan, Pakistan opened western front and air raided six Indian Airfields in Kashmir and Punjab and thus began the war.

India was reeling under  the refugee influx and yet it dared not attack East Bengal, because then  the world opinion would call it the aggressor. An excuse was necessary and Pakistan had now conveniently provided it. The war on the East Bengal front was weighed in favour of India. Though to start with some hard knocks were taken, it was a smooth march - the whole population of East Bengal was against Pakistan.

Indira Gandhi in her meeting with Kissinger in New Delhi in July 1971 explaining deteriorating situation in East Pakistan and warned if the US Government and US President cannot control the situation military action by India is imminent.

On December 4, just one day after Pakistan raided Indian airfields in Kashmir and Punjab declaring war on India, America’s proxy involvement in the war was becoming clear. Thinking that the Soviet Union might enter the war if they come to know this, which could cause a lot of destruction to Pakistan and American equipment given to Pakistan, US ambassador to the United Nations George H W Bush [later 41st president of the United States and father of George Bush] introduced a resolution in the UN Security Council, calling for a cease-fire and the withdrawal of armed forces by India and Pakistan. Believing India can win the war and Indira Gandhi being determined to protect the interest of Bengalis, Soviet Union vetoed out the resolution, thus letting India fight for the cause. Nixon and Kissinger pressurized Soviets to a very extent but luck did not support them.

US sympathized with Pakistan, because of various reasons. Among them two reasons were that: firstly, Pakistan belonged to American led military Pact, CENTO and SEATO; secondly, US believed any victory of India will be considered as the expansion of Soviet influence in the parts gained by India with the victory, as it was believed to be a pro Soviet nation, even though they were non aligned.

In a telegram sent to US Secretary of State Will Roger, on March 28, 1971, the staff of the US consulate in Dhaka complained, ‘Our government has failed to denounce the suppression of democracy. Our government has failed to denounce atrocities. Our government has failed to take forceful measures to protect its citizens while at the same time bending over backwards to placate the West Pakistan dominated government… We, as professional public servants express our dissent with current policy and fervently hope that our true and lasting interests here can be defined and our policies redirected in order to salvage our nation’s position as a moral leader of the free world.’

Less well known is Russia’s power play that prevented a joint British-American attack on India. But a lesser known fact is the Russian hand in this, when USA and UK had threatened to invade India to relieve pressure off East Pakistan (Now Bangladesh).

The CIA reported to the US President that Indian Prime Minister believes that the Chinese will never intervene militarily in North India, and thus, any action from China would be a surprise for India and Indian military might collapse in tensed situation caused by fighting in three different fronts (East, North and West). Hearing this, on December 9, Nixon decided to send the aircraft carrier USS Enterprise into the Bay of Bengal to threaten India. The plan was to Surround India from all four sides and force them to retreat and leave East Pakistan.

USA had moved its nuclear powered aircraft Carrier "Enterprise" into Indian Ocean with the explicit purpose of blackmailing and pressurising India so as to prevent collapse of Pakistan Army. UK's aircraft carrier "Eagle" had also joined Enterprise. While the British ships in the Arabian Sea would target India’s western coast, the Americans would make a dash into the Bay of Bengal in the east where 100,000 Pakistani troops were caught between the advancing Indian troops  and the sea. To counter this two-pronged British-American threat, Russia dispatched a nuclear-armed flotilla from Vladivostok on December 13. Russia’s entry thwarted a scenario that could have led to multiple pincer movements against India.

Besides moral support and help from USA, China and UK, the Pakistani military was being bolstered by aircraft from Jordan, Iran, Turkey and France.

Read Nixon Kissinger conversations during the course of war.

In fact, the myth of Chinese activity was also communicated to Pakistan’s army to boost their moral, to keep their will to fight and hope alive. Lieutenant General A A K Niazi, the Pakistani army commander in Dhaka, was informed: “NEFA front has been activated by Chinese, although the Indians, for obvious reasons, have not announced it.” But Beijing never did.

The Seventh Fleet, which was then stationed in the Gulf of Tonkin, was led by the 75,000 ton nuclear powered aircraft carrier, the USS Enterprise. The world’s largest warship, it carried more than 70 fighters and bombers. The Seventh Fleet also included the guided missile cruiser USS King, guided missile destroyers USS Decatur, Parsons and Tartar Sam, and a large amphibious assault ship USS Tripoli.

Standing between the Indian cities and the American ships was the Indian Navy’s Eastern Fleet led by the 20,000-ton aircraft carrier, Vikrant, with barely 20 light fighter aircraft. The Indian Air Force, has just wiped out the Pakistani Air Force within the first week of the war, was reported to be on alert for any possible intervention by aircraft from the Enterprise.

However, India did not panic. It quietly sent Moscow a request to activate a secret provision of the Indo-Soviet security treaty, under  which Russia was bound to defend India in case of any external aggression.

Russian Chief Commander’s order was that their submarines should surface when the Americans appear. It was done to demonstrate to them that they had nuclear submarines in the Indian Ocean. So when Rusiians subs surfaced, Americans recognised them. In the way of the American Navy stood the Soviet cruisers, destroyers and atomic submarines equipped with anti-ship missiles. They encircled and trained their missiles at the Enterprise. They blocked them and did not allow them to close in on Karachi, Chittagong or Dhaka. At this point, the commander of the British carrier battle group communicated to the Seventh Fleet commander: “Sir, we are too late. There are the Russian atomic submarines here, and a big collection of battleships.” The British ships fled towards Madagascar while the larger US task force stopped before entering the Bay of Bengal. Ultimately, the Soviets formed a ring around US naval forces thereby not allowing  the fleet to get close to Bangladesh hence helping India in securing the liberation of Bangladesh.

Indian Prime Minister went ahead with her plan to liberate Bangladesh despite inputs that the Americans had kept three battalions of Marines on standby to deter India, and that the American aircraft carrier USS Enterprise had orders to target the Indian Army, which had broken through the Pakistani Army’s defences and was thundering down the highway to the gates of Lahore, West Pakistan’s second largest city. The bomber force aboard the Enterprise had the US President's authority to undertake bombing of the Indian Army's communications, if necessary.

Despite Kissinger’s goading and desperate Pakistani calls for help, the Chinese did nothing. Soviets had factored in the possibility of Chinese intervention. The Chinese know that the Soviet Union would act in the Sinkiang region, if the Chinese were to become directly involved in the conflict. Soviet air support may also be made available to India at that time.

To make matters still easier the Indian Air Force had no  opposition and bombed General Niazi’s official bungalow. The panic and the utter helplessness at being bombed from above by enemy planes, it was inevitable that Niazi  surrendered without much time.

On December 14, General A.A.K. Niazi, Pakistan's military commander in East Pakistan, told the American consul-general in Dhaka that he was willing to surrender. The message was relayed to Washington, but it took the US 19 hours to relay it to New Delhi. Files suggest senior Indian diplomats suspected the delay was because Washington was possibly contemplating military action against India.

The violation of human rights on a massive scale as “selective genocide”—and the complete disregard for democracy were irrelevant to Nixon and Kissinger. In fact, the non-democratic aspects of Pakistani dictator Yahya Khan’s behaviour seemed to be what impressed them the most. As evidence mounted of military atrocities in East Pakistan, Nixon and Kissinger remained unmoved.

Nixon and Kissinger phoned Soviet President Leonid Brezhnev and asked for guarantees that India would not attack West Pakistan. Nixon was ready to link the future summit in Moscow to Soviet behaviour on this issue. The Soviets could not see why the White House supported Pakistan, who they believed had started the war against India. Brezhnev, puzzled at first, was soon enraged. Several years later, Brezhnev still reacted angrily and spoke spitefully about American behaviour.

A new country named Bangladesh was formed, which was recognized by the whole world and by Pakistan in the following year with Shimla Agreement.

The 1971 war victory is a tribute to India’s amazing plurality. The entire war planning was conducted by Field Marshal Sam Maneckshaw (a Zoroastrian); the Eastern Army that liberated Bangladesh was headed by Chief of Staff of the Indian Army's Eastern Command Jacob-Farj-Rafael Jacob (a Jew); the head of ground forces in the east was General Jagjit Singh Aurora (a Sikh); the man who set alight Karachi for a week was Chief of Staff of the Indian Navy, Admiral H.M. Nanda (a Hindu); and the  entire team was given ample freedom for their military operations by a Hindu Prime Minister.

Pakistan and India had put those sad memories behind  
since the past should not control the future of both the countries.