Connect with us
Demonetisation Death Demonetisation Death

Analysis

Demonetisation: Most reactionary and illogical policy ever

Published

on

(‘Note-Bandi: Demonetisation and India’s Elusive Chase for Black Money’ is an upcoming book from Oxford University Press dedicated to the “memory of Indian citizens who lost their lives due to demonetisation”). Excerpts from the preface by R. Ramakumar.

‘Demonetisation’– the withdrawal of legal tender status of notes of denomination Rs 500 and Rs 1,000 — announced by India’s Prime Minister Narendra Modi over a televised address on 8 November 2016 will go down in history as one of the most reactionary and illogical economic policies ever attempted in independent India.

It crippled an economy that ran on cash and was plagued by a slowdown; it destroyed the livelihoods of millions of farmers, workers, traders, women and the elderly; and it violated the dignity and liberty of law-abiding citizens.

Yet, in a post-truth world, demonetisation also left public opinion in India deeply polarised. The language of the state had a deceptive appeal. In a society marked by abject poverty and inequality, and where everyday lives of citizens are marred by myriad forms of corruption, it came as no surprise that Modi’s misadventure was received as a decisive measure.

Economists like me knew of the earlier demonetisation of 1978. But we also knew that it had failed to unearth any significant amount of black money. We were also aware of quack ideologues of the right-wing who demanded measures like demonetisation and the substitution of income tax with a blanket transactions tax. But we had also dismissed them as obscurantist drivel.

Never did one imagine that one among these irrational ideas would actually find a place in economic policy. Of course, many aspects of neoliberal economics are intrinsically inverted on logic. But the demonetisation of 2016 beat them all.

***
In his address to the nation, Modi made two major claims in defence of demonetisation: on the one hand, it would stamp out counterfeit currency that was aiding terrorism; on the other, it would help the government unearth ‘black money’. Soon after the address, one also heard television commentators waxing eloquent on India’s imminent embrace of a cashless economy.

***
First, the claim that demonetisation would hit terror financing was overstretched because the total circulation of counterfeit currency did not exceed 0.002 per cent of the total notes in circulation. Second, no significant mobilisation of black money may be expected, as about 94 per cent of the unaccounted wealth was stored in the form of non-cash assets. Third, a cashless economy can never be created over diktats, as the persistence of cash was a structural feature of the economy.

What India needed was a structural transformation of its informal economy into a modern and productive sphere, which would systemically reduce the dependence on cash. A ‘war on cash’ would thus be ineffective and premature. Sycophants apart, these views were also shared by economists across the Left-Right spectrum.

***
First, according to the Reserve Bank of India’s (RBI) Annual Report for 2016-17, the total value of counterfeit notes of denomination Rs 500 and Rs 1,000 detected by banks rose from Rs 27.4 crore in 2015-16 to Rs 40.8 crore in 2016-17: an increase by just about Rs 14 crore. As a share of the value of Rs 500 and Rs 1,000 notes in circulation in November 2016, the value of counterfeit notes detected in 2016-17 amounted to just 0.0027 per cent. The critics were right; the extent of circulation of counterfeit notes did not, in any way, justify a drastic action like demonetisation.

Second, the RBI also released estimates of the value of old notes returned to the banks between 10 November 2016 and 30 June 2017. Out of the Rs 15.44 lakh crore worth notes of Rs 500 and Rs 1,000 in circulation as on 8 November 2016, about Rs 15.28 lakh crore had returned to the banks. In other words, 98.96 per cent of the demonetised notes were back in the banks and only 1.04 per cent remained outside. The return of about 99 per cent of the demonetised notes is the most important indicator of the failure of demonetisation.

In December 2016, the Attorney-General of India, Mukul Rohatgi, had informed the Supreme Court that the government did not expect more than Rs 12 lakh crore to be back in the banks. The remaining Rs 3 lakh crore was black money, which would not return to the banks and could be ‘extinguished’ and passed on by the RBI to the government as dividend.

Red-faced, the government tried to contain the damage by claiming that demonetisation was intended to bring back all cash into the formal banking system. But in the public eye, the jury was no more out. There was no black money left to be ‘extinguished’.

Third, the Central Statistics Office (CSO) releases quarterly estimates of gross value added (GVA). As chapters in this volume would argue, these estimates typically underestimate changes in the informal sector. Yet, despite methodological infirmities, on a year-to-year basis, the growth rate of GVA showed a decline from 7.6 per cent in the first quarter (Q1) of 2016-17 to 5.6 per cent in the Q1 of 2017-18. This decline was in continuation of a similar decline reported for the fourth quarter (Q4) of 2016-17. The CSO estimates have officially signalled that demonetisation was instrumental in intensifying recessionary tendencies in the Indian economy.

* * *
Stung by the estimates released by the RBI and the CSO, the Modi government tried to initiate a campaign to celebrate the ‘success’ of demonetisation in August-September 2017. This campaign made three major claims. First, demonetisation resulted in the ‘highest ever black money detection’. Black money worth Rs 16,000 crore (i.e., the remaining 1.04 per cent of Rs 15.44 lakh crore) did not return to the banking system.

Second, there was an ‘unprecedented increase in tax compliance’ after demonetisation. About 56 lakh taxpayers were newly added and the number of tax returns filed rose by 24.7 per cent in 2017-18 over 2016-17. Third, digital banking grew rapidly after November 2016. The number of digital transactions rose by 56 per cent between October 2016 and May 2017.

All the three claims were false. Papers in this volume provide a comprehensive coverage in this regard.

First, the claim of detection of Rs 16,000 crore was actually an admission of failure, because the very premise of demonetisation was the existence of at least Rs 3 lakh crore as black money. In fact, the costs of demonetisation hugely outrun its benefits.

One, even if we assume, conservatively, that India’s GVA shrank by 1 per cent after November 2016, the resulting economic loss would be about Rs 1.5 lakh crore.

Two, due to demonetisation, banks were inundated with new deposits worth lakhs of crores while credit outflows largely stagnated. As a result, the RBI had to mop up excess liquidity worth Rs 10.1 lakh crore from banks under the Market Stabilisation Scheme (MSS). The total interest outgo of the RBI on this count alone was Rs 5,700 crore.

Three, the RBI’s costs incurred for printing new notes rose from Rs 3,420 crore in 2015-16 to Rs 7,965 crore in 2016-17: a rise by Rs 4,545 crore. These costs did not include intangibles, such as the time spent by bank staff on consumer interface and paperwork over many months.

Four, due to the higher costs incurred by the RBI under different heads, the total surplus transferred by the RBI to the government fell from Rs 65,876 crore in 2015-16 to Rs 30,659 crore in 2016-17: i.e., a decline of Rs 35,217 crore.

In sum, demonetisation was an extraordinarily loss-making proposition for the exchequer.

Second, the claim of rise in tax compliance after demonetisation is simply unimpressive.

One, there is nothing remarkable about the rise in the number of tax returns filed in 2017-18 compared to earlier years. Compared to the corresponding previous year, the rise in the number of tax returns filed was 51 per cent in 2013-14; 12.2 per cent in 2014-15; 29.9 per cent in 2015-16; and 24.3 per cent in 2016-17.3

Two, even among the 56 lakh assessees newly added, about 38.8 lakh assessees (or about 69.4 per cent) reported an annual income of less than Rs 5 lakh. The average annual income of these new taxpayers was only Rs 2.7 lakh. In sum, the increase in tax revenue from the new assessees would be insignificant.

Three, the claims of the government on the extent of spread of digital banking defy basic statistical logic. Analysis shows that, one, the percentage rise in the number of digital transactions were primarily owing to low base effects. Two, the total value of non-cash transactions rose by only 18.8 per cent between November 2016 and August 2017. Despite efforts to popularise mobile banking, the value and volume of mobile-based transactions recorded negative growth rates between November 2016 and August 2017.

All available evidence till August 2017 points to the return of cash in everyday transactions. The government’s aim of forcing citizens to shun cash had failed.

By : R. Ramakumar

DISCLAIMER : Views expressed above are the author’s own.

(R. Ramakumar is Dean, Centre for Study of Developing Economies, School of Development Studies, Tata Institute of Social Sciences, Mumbai. He can be reached at [email protected])

Analysis

Over 4.5 lakh entries in ‘sexual offenders’ database, NCRB to maintain record

Published

on

National Database Sexual Offenders

New Delhi, Sep 20 : In a first, the government on Thursday came out with a National Database on Sexual Offenders (NDSO), containing a list of 4.5 lakh convicts with photos of about 3.5 lakh of them available.

The offenders face charges of rape, gangrape and eve-teasing.

The database, which was rolled out by the Ministry of Home Affairs (MHA) along with Women and Child Development Ministry (WCD) here, will be maintained by the National Crime Records Bureau (NCRB).

The NDSO which is accessible only to law enforcement agencies will assist in effectively tracking and investigating cases of sexual offences and employee verification.

The registry which was approved by the Cabinet in April 2018 makes India the ninth country in the world to set up and maintain a national database of sexual offenders.

According to MHA, the state police have been requested to regularly update the database from 2005 onwards. The database includes name, address, photograph and fingerprint details for each entry. However, the database will not compromise any individual’s privacy.

MHA has already released a grant of Rs. 94.5 crore to states/UTs for establishing cyber forensic-cum-training laboratories to strengthen cybercrime investigation and conduct training programmes to enhance capabilities of police officers, public prosecutors and judicial officers.

According to the WCD ministry, the sex offenders listed in the database will be classified on the basis of criminal history to ascertain if they pose a serious danger to the community.

“It is a matter of great pride and joy as two initiatives that my Ministry (WCD) and I had been pursuing for three years have been executed. The launch of National Registry of Sexual Offenders and Cybercrime Reporting Portal is one more step taken by our government for the safety of our women and children,” Union WCD Minister Maneka Gandhi said.

Another web portal, “Cyber Crime Prevention Against Women and Children (CCPWC)”, an initiative under the Nirbhaya Fund was also launched which will enable complainants in reporting cases without disclosing their identity.

“Government has taken several measures to check crime against Women and Children, including provision of stringent punishment and creation of modern forensics facilities to improve investigation, creation of the Women’s Safety Division in the MHA and launching of Safe City projects for Women’s Safety,” Union MHA minister Rajnath Singh said.

The complaints registered through this portal will be handled by police authorities of respective State/UTs and complainants can also upload the objectionable content and URL to assist in the investigation by the state police.

The NCRB will proactively identify such objectionable content and take up with intermediaries for its removal. For this NCRB has already been notified as the Government of India agency to issue notices under the IT Act.

“A positive aspect of this portal is the provision for anonymous reporting, which will encourage more people to come forward with such complaints. This portal comes as a relief by providing time-bound solutions to a huge number of women and children who are being exploited in cyber space,” Gandhi added.

Continue Reading

Analysis

Saab is interested in Indian fighter jet deal: Swedish official

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

Published

on

Rafale deal scam

Amid the raging controversy over the Defence Ministry’s procurement of the Rafale fighter aircraft from French firm Dassault Aviation, a senior Swedish official has said that his country’s firm Saab, in its Gripen aircraft, has the requisite experience to contest for the upcoming Indian deal for manufacturing 110 new fighter jets under the Make in India programme.

“I know that Saab is interested, they want to be a part of this procurement,” Teppo Tauriainen, Director General for Trade in the Swedish Foreign Ministry, told IANS in an interview here.

“They think they have something good to offer that will be of interest to India,” Tauriainen said.

“They, of course, know what the expectations of the government is in terms of local production and cooperation with a local partner.”

India is expected to select by the end of this year one fighter aircraft that will be manufactured by the private sector under the Make in India programme for supply to the Indian Air Force.

The Saab Gripen will be contesting with the likes of the Russian MiG 35, Dassault Rafale, Eurofighter Typhoon, Boeing F/A 18 and Lockheed Martin F-16 for the upcoming deal.

While MiG has already said that it will have state-owned Hindustan Aeronautic Limited (HAL) as its local partner, Indian companies like Tata, Reliance Defence, Mahindra and Adani are in the fray for local partners in the project that is expected to be worth over $20 billion (Rs 1.44 lakh crore).

Tauriainen said that for Saab, contesting for the deal will be nothing new as it has signed a similar deal for Gripen with the Brazilian government with Embraer as its local partner.

“I have myself visited the Brazilian partner, Embraer, and seen there are a lot of spin-offs locally in the Brazilian economy from this fighter jet deal,” he said.

“So, I think for Saab, as a company, it won’t be unusual to do it the way the Indian government wants it to happen.”

During his visit to Sweden in April this year, Prime Minister Narendra Modi had said that defence and security have emerged as an important pillar of the India-Sweden bilateral partnership.

“Sweden has been a partner of India in the defence sector for a long time. I am confident new opportunities for cooperation in this sector will arise in the future, especially in defence production,” Modi said.

During that visit, an India-Sweden Partnership was also announced with a fund of 50 million Swedish kronor (around $5.6 million) for innovation cooperation in the fields of smart cities and sustainability.

Asked what steps have been taken in this connection, Tauriainen said that the dialogue for these projects has started though none of these projects have started operating.

“But we have come quite far to identify areas where we think there is a potential to do cooperation,” he said.

He said that sustainable technology is a broad area and is very much related to how cities are built in terms of transport, energy, waste and waste water.

“There we have some interesting experiences and I hope that is of relevance to India,” Tauriainen said.

“Some technologies we have already tested in Sweden. Other technologies will have to be adapted to Indian conditions,” he added.

In Sweden, waste is actually used to generate power and only one per cent of the waste goes to the landfill.

Asked about the presence of around 180 Swedish companies in India and their role in the Indian economy, Tauriainen said these are doing good business despite “some limitations”.

“They wouldn’t mind if those limitations are taken away. But they are interested in the Indian market and most of them are interested in expanding,” he said.

(Aroonim Bhuyan can be contacted at [email protected])

Continue Reading

Analysis

Chicago Congress: Paeans to Hindu unity in shadow of ‘nemesis’ long deceased

Published

on

Mohan Bhagwat

At its best, speeches at the recently concluded World Hindu Congress echoed the soaring spiritual ideals evoked by Swami Vivekananda in Chicago 125 years ago.

Even Mohan Bhagwat, Sarsangchanalak of the Rashtriya Swayamsevak Sangh (RSS), focused essentially on the need for unity and patience among Hindus while fighting obstacles, of which, he said, there would be many. The burden of excavating implied accusations in Bhagwat’s speech fell to his critics.

At the plenary session, the moderator requested speakers to address issues of conflict without naming the speakers or their organisations in the interest of harmony. Other speakers sought to unite the followers of all the great religions that took birth in India — Hinduism, Sikhism, Buddhism and Jainism.

Some of the speakers from Bhagwat to Swami Swaroopananda of the Chinmaya Mission, framed the issues before Hinduism in a moral paradigm. Ashwin Adhin, the Vice President of the Republic of Suriname, began his speech in chaste Hindi, later quoting cognitive scientist George Lakoff: “Facts matter immensely. But to be meaningful they have to be framed in terms of their moral importance.”

The dissonances, between the spiritual and the mundane, were to emerge later on the fringes of the seminars which were part of the Congress. Many of the delegates appropriated to themselves the mantle of a culture besieged by proselytising faiths. There were speakers who urged Hindus to have more children to combat their ‘dwindling population’. Posters warned Hindus of the dangers from ‘love jihad’ (Muslim men ‘enticing’ Hindu women).

In one of the sessions on the media, filmmaker Amit Khanna noted that religion had always played a prominent part in Indian cinema, starting with the earliest mythologicals. “Raja Harishchandra”, the first silent film, he said, was made by Dadasaheb Phalke in 1913. He sought to reassure the audience on the future of Hinduism. “Over 80 percent of Indians are Hindus,” he said adding: “Hinduism has survived many upheavals for thousands of years. Hinduism has never been endangered.”

Other speakers, lacking spiritual and academic pedigrees, drew on an arsenal of simulated anguish and simmering indignation.

The nuances of history pass lightly over the ferociously devout and it took little effort to pander to an aggravated sense of historical aggrievement.

At one of the debates, the mere mention of Jawaharlal Nehru, India’s first Prime Minister, elicited sniggers and boos. The speaker hinted at ‘Nehruvian socialism’ which had made the Indian economy a non-starter. He concluded with a coup de grace, to a standing ovation: “Nehru did not like anything Indian.”

The poet Rabindranath Tagore, who composed the Indian national anthem, had spoken of his vision of a country where the “clear stream of reason had not lost its way”. At some of the discussions, even the most indulgent observer would have been hard put to discern the stream of reason.

The image of a once great civilisation suppressed by a century of British rule and repeated plunder by invaders captured the imagination of many in the audience. Hanging above it all, like a disembodied spirit, was the so-called malfeasance of Nehru, the leader who had won the trust of Hindus only to betray them in the vilest manner.

These tortured souls would have been well advised to adopt a more holistic approach to Hinduism, and history, looking no further than Swami Vivekananda, who once said: “The singleness of attachment (Nishtha) to a loved object, without which no genuine love can grow, is very often also the cause of denunciation of everything else.”

Historians have informed us that Nehru preferred his father’s intellect over his mother’s tradition but he was never contemptuous of religion. While he undoubtedly felt that organised religion had its flaws, he opined that it supplied a deeply felt inner need of human nature while also giving a set of values to human life.

In private conversations some delegates spoke of how their America-born children had helped persuade them to drop their pathological aversion to gays and lesbians. Despite their acute wariness of perceived cultural subjugation, the irony was obviously lost on them that Article 377 of the Indian Penal Code, (which criminalises gay sex) recently overturned by the Indian Supreme Court, is a hangover from the Victorian British era-embodied in the Buggery Act of 1533.

In the face of the upcoming elections in the US, Congressman Raja Krishnamoorthi’s decision to speak at the conference was a political risk. With a newly energised political Left, even the perception of being linked with “fascist” or sectarian forces could be political suicide in the critical November elections. Despite vociferous appeals to disassociate himself from the Congress, Krishnamoorthi chose to attend.

“I decided I had to be here because I wanted to reaffirm the highest and only form of Hinduism that I have ever known and been taught — namely one that welcomes all people, embraces all people, and accepts all people, regardless of their faith. I reject all other forms. In short, I reaffirm the teaching of Swami Vivekananda,” Krishnamoorthi said.

Given the almost pervasive abhorrence of anything remotely Nehruvian among a section of the delegates, it was a revelation to hear the opinion of Dattatrey Hosable, the joint general secretary and second-in-command in the RSS hierarchy. Speaking on the promise of a newly-resurgent India, Hosable said in an interview to Mayank Chhaya, a local journalist-author-filmmaker: “A moment comes, which comes but rarely in history, when we step out from the old to the new — when an age ends, and when the soul of a nation, long suppressed, finds utterance.”

The quote is from Nehru’s famous Tryst with Destiny speech delivered to the Indian Constituent Assembly on the midnight of August 14, 1947 — proof, if any is needed, that the force of Nehru’s ideas can transcend one’s disdain of him.

(Ashok Easwaran is an American journalist of Indian origin. The views expressed are personal. He can be contacted at [email protected])

Continue Reading
Advertisement

Most Popular