How could the leader of a rising superpower not see the chaos that would follow demonetisation?
This is the first part of the five-part series on demonetisation.
“And in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.”
— John Steinbeck, The Grapes of Wrath
Trust, but verify. The first half of this quote, mistakenly attributed to Ronald Reagan, explains India’s success; the second, its failure. This nation trusts. It is too poor and disenfranchised – culturally, socially, politically – to do otherwise. This nation does not verify. It is too preoccupied in eking out an existence – weekly, daily, hourly – to do otherwise. And so it suffers; suffers for five years every five years.
It is written in our stars; we cannot change it. Next sunrise on, from the day whom you voted for comes to power and it is downhill. Broken promises, wasted opportunities, false assurances – the rest of the eighteen hundred and twenty-five days pass by in rueful laments of unverified trust. The line grows and all one can do is to wait for a domino to suck momentum off the one previous, to share the pain through mere touch. That, in short, is our story, the story of modern India.
India trusted Narendra Modi. He has failed.
Failure lies not in the absence of great ideas but, rather, in their execution. It is not an intangible, or a whim that can be dismissed, like it is so often, as a stepping stone to wisdom and success. Failure borne out of good intentions and risk, is not the same as one resulting from ill-preparedness and weakness. Make no mistake, Modi’s failure belongs to the latter.
First the ill-preparedness.
Demonetisation, announced by Modi on November 8, that made currency denominations of Rs 500 and 1,000 – Rs 14.1 lakh crore, or USD 211 billion, in circulating cash – illegal tender overnight, is undeniably a good idea, if one believes that citizens and their transactions must incur tax, that is. Only one per cent of Indians pay tax. Black economy makes up as much as 20 per cent of India’s total GDP, amounting to USD 1.74 trillion in PPP terms.
This is not to say that all the black money that is hoarded in India is in Indian currency now made useless; gold, realty, and foreign currency remain the preferred choice of seasoned enthusiasts. While the economists squabble over its benefits – some say it is a damp squib even as others point to a paradigm shift – it cannot be denied that demonetisation is a body blow to black money, both hoarded and transacted. It is a welcome idea, a brave idea. It is an idea whose time had come and gone so many times in the recent past that no one thought a leader would have the courage or gumption to pull it by the wrists and bring it to the table again. So what’s the problem?
It is this. Demonetisation might not be new to India but the circumstances are. Jaw-droppingly. The denomination made illegal tender in 1978 by Morarji Desai made up just 0.6 per cent of India’s circulating cash. What Narendra Modi has made illegal, on the other hand, is 86 per cent of India’s circulating cash. Yes, it is a no contest – 0.6 per cent versus 86 per cent. Modi says this is his war on corruption. Well, if this is how we fight wars, god save this country.
Did he not see this coming? The impossibly long queues, the futile vigils, the empty ATMs, the exhausted bank employees, the abject misery of millions who live on less than a dollar a day and have to make a choice whether to stand in line for currency or to spend that time earning it instead?
How could the leader of a rising superpower, and in whose hands rests the fate of her 1.2 billion people (so patently it is now obvious); how could a leader miss the obvious – that this was going to be nothing short of a real war, that it required the Army and the police reserves and hundreds and thousands of mobile cash vans they would guard and make sure reached the remotest parts of this country?
How? Was it hubris or plain and simple ignorance? What was it? Whatever it was, it managed to unsettle him into resorting to emotional blackmail worthy of fragile men and charlatans. “My life is in danger. They can burn me alive…”.
Demonetisation is the single greatest disruptive move made by an Indian leader since Independence, and for it to be implemented so shambolically, so chaotically, describes us so shamefully and so completely. That we trust but never verify. What should have been charted out on Day Zero with military precision now emerges piecemeal every other day – indelible ink is to be used; withdrawals are to be increased; banks will remain open on Sundays; senior citizens can stand in separate lines; photocopies of ID cards need not be submitted.
Well, it is too late. The war has been lost. Half of the ATMs are out of cash; less than a tenth of them have been recalibrated; proxies are being made to queue up; nowhere near enough of the new currency has been uploaded; and millions are suffering, millions are scared, millions will be jobless in the short-term. What was to be a Six-Day War has now been reclassified as a Fifty-Day War. But remarkably, those who stand in long lines still trust him. They are suffering but they don’t mind. From underwear to railway berths, we have been conditioned to adjust. We survive now, on the promise that we will thrive later. But will Modi hold true to their trust? The answer is a resounding no.
To the weakness, then.
Half his term has flown past and all his government has done is to be in business – the business of running hotels, airlines, insurance companies, coal fields, drug companies, power plants, steel smelters, and banks. Every waking day these businesses make losses, and every waking day Modi throws more money at them. It would be funny if it wasn’t so cruel. But no one can do or say anything, no one can take him to task for reneging on his promise, or on the trust Indians put in him. No political party will challenge him because they want the exact same – for governments to be in business. Modi has history on his side.
On the midnight of July 19, 1969, a few hours before Armstrong took that small step for man, Indira Gandhi made a giant leap for Socialism. Through a single, hurried stroke of her pen, fourteen of India’s largest private banks were nationalised. One man, Rustom Cavasjee Cooper, the founder member of Rajaji’s Swatantra Party, stood alone and fought her tooth and nail. The Supreme Court sided with him. But Mrs Gandhi overturned the historic judgement through the twenty-fifth amendment. Cooper lost. We lost. To this day, it remains one of the most tragic events in Indian history. We haven’t recovered since and Modi will make sure we never do.
To nationalise the banks was to nationalise corruption. Public sector banks are the fountainhead through which gushes untamed wealth, our wealth, on the finger-click of a politician. From slick poonjipatis to sick PSUs everyone loves a public sector bank. In the last four years, these banks have lost as much as Rs 30,000 crore to fraud.
As of May this year, India’s top five public sector banks have gross bad loans equalling Rs 2.68 lakh crore. This amounts to around half of India’s current fiscal deficit. While the private banks maintained their gross bad loans (as a percentage of total advance) this past year, the public sector banks doubled them. Gross non-performing assets, NPAs, of India’s public sector banks now stand at Rs 5.83 lakh crore, or USD 85 billion. It is not a catastrophe waiting to happen but one that already has.
Enter demonetisation. According to one estimate, with so much cash pouring into public sector banks (that is, being deposited and not just exchanged), they could see a rise of 20-25 per cent in their quarterly profits, not to mention a helpful restructuring of their loan portfolios. The other windfall from demonetisation – that a huge chunk of black money is simply not returned for want of fear and retribution – would mean that the Central Bank could write off its liability towards it. This would make the bank richer by as much as USD 45 billion. By law the RBI has to transfer this money to the government coffers, although one former Chairman of the RBI cautions the bank against this move. Be that as it may, there is no denying that demonetisation is destined to make the government extremely rich.
But what good would being rich do when it continues to run loss-making businesses – hotels, airlines, banks? One man knows the answer but he is afraid to provide it. Because he is weak. And he knows that in him we will continue to trust, but not verify. That man is Modi, a failure.