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Analysis

Demonetisation’s short-term costs were high, long-term benefit doubtful

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Raghuram Rajan

When Raghuram Rajan, former governor of the Reserve Bank of India (RBI), cautioned the government against demonetisation, saying short-term economic costs would outweigh long-term benefits, he was not trying to be prophetic. But a year after Prime Minister Narendra Modi made that fateful announcement in a nationwide broadcast on the evening of November 8, it would seem Rajan’s words had actually become so.

As economists and analysts, corporate honchos and statisticians struggle to gauge the beneficial impact of demonetisation, many of the objectives claimed by the government have fallen by the wayside. New claims and afterthoughts on the note ban by senior politicians in power have remained unconvincing. Demonetisation has raised more questions than it has answered.

The Prime Minister, in banning 1,000 and 500-rupee notes — or 86 per cent of total currency in circulation — had indicated that the decision would help remove black money from the system, rein in terrorism and take fake currency out of circulation. Have these objectives been met?

“Demonetisation was an utter failure. Theoretically it was known it cannot be successful. It could not remove black money, but in turn it has damaged the white economy and growth,” Arun Kumar, former professor of economics at the Jawaharlal Nehru University (JNU) told IANS.

The benefits of the decision are yet to percolate to the economy, but the disruption as well as pain that it caused to hundreds of millions was very real, whose lingering effects are seen to this day and, which, at that time, had shaken the country to its core, touching nearly every citizen and visitor.

The overnight serpentine queues for weeks in front of banks, the loss of over a hundred lives in the effort to withdraw one’s own money or change it, and the desperate desire to ensure that cash in hand did not turn to ash took its toll across the country. Was it worth it?

“The government made the elementary mistake of believing that black money is kept in cash. Black wealth can be transacted by non-cash means as well,” said Kumar, who is now Chair-Professor with the Institute of Social Sciences. “Only three per cent of Indians generate substantial black money. But for this, the other 97 per cent had to face the consequences of demonetisation.”

After months of vacillating, and being less than honest with citizens, RBI data in August 2017 said that 99 per cent of the banned currency in high denomination notes had returned to the banking system — Rs 15.28 lakh crore out of the Rs 15.44 lakh crore in circulation on November 8, 2016. The calculation does not take into account the money changed by people in Nepal, where it’s legal tender, or old notes held by many non-resident Indians who could not exchange it within the deadline.

“Indian demonetisation was remarkable, because unlike many countries that faced major economic and political problems after even less drastic measures, this passed off peacefully as most Indians accepted the (wrong) argument that this would end corruption,” Jayati Ghosh, Economics Professor at JNU, told IANS.

“The initial reasons the government had advanced for this move, of reducing terrorism and eliminating both black money and corruption, were rapidly abandoned for other supposed goals, which are also yet to be met. There was no planning before unleashing such a big decision,” she added.

The difficulty in making a cost-benefit analysis is that the move was not purely economic, given the fact that the currency issuer — the RBI — had no role in the decision, as testified by Rajan.

Demonetisation comes across more as a measure of political economy which may appear, on the face of it, to have paid immediate political dividend to the Prime Minister and his party in the Uttar Pradesh elections this year. But the medium-to long-term picture would take a while to clear up, though short-term impact has already taken its toll on growth.

At the end of May, the Central Statistics Office announced that the GDP during the fourth quarter ending in March this year, fell sharply to 6.1 per cent from seven per cent in the previous quarter, while growth for the year as a whole was also expected to decline correspondingly. India’s GDP during the past fiscal grew at 7.1 per cent — at a rate lower than the eight per cent achieved in 2015-16. In terms of gross value added, which excludes taxes but includes subsidies, the growth came in even lower at 5.6 percent over 2015-16.

“Demonetisation is a textbook example of what happens when you remove liquidity that is the basis of transactions. The immediate result was that people didn’t have money even for small transactions. This had a strong negative multiplier effect, most evident in the informal sector,” Ghosh said.

“Cash is the means of transaction in the unorganised sector, which contributes 45 per cent to the GDP. The unorganised sector got hit by 60-80 per cent,” Kumar said, adding that the country went through a negative rate of growth in November-December 2016.

In October, the International Monetary Fund said in its latest World Economic Outlook that India’s economic growth for 2017 and 2018 would be slower than earlier projections. The report cited the “lingering impact” of demonetisation and the Goods and Services Tax (GST) for the expected slowdown, projecting a growth of 6.7 per cent in 2017 and 7.4 per cent in 2018 — 0.5 and 0.3 percentage points less, respectively, than earlier projections.

Ghosh said that the steps on demonetisation, taken together, “generated a perfect recipe for slowdown in the economy. In fact the slowdown is likely to be much sharper than estimated because the quick GDP estimates are based on formal economic activity, and the adverse impact on informal activities have not really been taken into account”.

Ranen Banerjee, Partner & Leader, Public Finance and Economics, at PricewaterhouseCoopers (PwC) feels the country was already cooling down when the note ban came in, and it would take some time to evaluate its impact on the macro economy. “About three to four quarters prior to demonetisation growth rates were already on a sliding path. It could well be that the economy was cooling down and the trend has continued. Attributing the slowdown solely on demonetisation is not possible as we do not have sufficient data points,” Banerjee told IANS.

Economist Dipankar Dasgupta, former professor of economics at the Indian Statistical Institute, said that although GDP in India is not calculated in a very comprehensive manner, the trend growth rate continued to be “pretty robust”. However, despite the claim by the government of ending corruption through demonetisation, “day-to-day bribes are still being taken through cash”, Dasgupta told IANS.

The objectives of dealing a blow to militancy and curbing fake money too seems not to have been met, as can be seen in Jammu and Kashmir, where, ironically, more incidents of militancy have been seen after demonetisation. “Logistics like shelter, passage and cash are mostly routed through over-ground workers and sympathisers of militants and those who could arrange high value notes in the previous system are doing so at present as well”, a senior intelligence officer told IANS in Srinagar on condition of anonymity.

Similarly, about fake currency, officials said the notes carried by militants from across the border were sophisticated copies and those who made them earlier could easily make fakes of the new currencies.

Perhaps there has been some beneficial fallout on the digital economy. Industry stakeholders feel that though the note-ban drive gave the necessary impetus to citizens to start adopting online payment platforms, a lot needs to be done by both the government and the industry to make it a success.

But was the country-wide upheaval worth it to make people adopt more digital transactions? No jury would need to deliberate for long on such a question.

 

(Aparajita Gupta can be contacted at [email protected])

(Editors: The above article is the last one in the series on demonetisation leading up to November 8)

Analysis

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

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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.

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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.

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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])

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Analysis

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

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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])

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