Tuesday, December 20, 2016

Monumental Stupidity called Demonetization

This sinner was in a conference at the Physics Department of the Banaras Hindu University, Varanasi, India. My better half, that is the fashionable euphamism for wife, received a hectic call from her sister around nine pm on November 8, 2016. The Prime Minister of India, Mr Narendra Modi, had declared that the highest denomination currency notes, Rs 500 and Rs 1000, will no longer be legal tender.

The great demonetization juggernaut of India rolled out. And brought India to a near stand still and the condensation continues unabated. Here are few of the current head lines.

Things are getting worse : Vegetable Venders (Indian Express, December 19, 2016)
Demonetization to Effect Foreign students (Forbes)
India's Demonetization Debacle (Wall Street Journal)
Demonetization Shows India's Parliamentary Oversight Failure (Asia Times)
Impact of Demonetization Fiasco (Forbes)
All Pain, No Gain : India's Failed Demonetization (Coin Telegraph)
Currency Demonetization Hits India's Mobile Sales (PC World)
Cure Worse Than Disease (Forbes)

India's abrupt demonetization 'seems completely silly'
(Deutsche Welle)
India's Botched War on Cash (Harvard Business Review)
Man Made Disaster (Forbes)
And on and on.

If you wanted a worse CV you would be hard pressed.

The intended purpose was to leave the the corrupt people, hording literally tons of cash in their houses, with useless paper in their hands.

It did not work. Plus negative effects have already been serious enough to stop talking of gains.

Prime Minister's home state of Gujrat (remember that?) was top most in googling about how to convert black money into white.

Since no one was ready for the sudden shock we can suppose that internet was not of much help to the corrupt.

They themselves were of immense help for themselves.
Bank managers must have made a fortune by dispensing the new currency to the corrupt.
There have been about fifty arrents of people with huge amounts of new currency with them.
Millions and billions of rupees, incredible as it may sound.
All of these people happened to be from BJP, Bharatiya Janata Party (Indian People's Party), the ruling party.

What must have happened is the following. The black money don walks upto the bank manager. Hands him over the old currency. Walks away with new currency, minus the manager's commission. That commission could begin with ten and end up with thirty or more. But less than fifty. Fifty was government rate. This fifty percent government commission was one of the umpteen `micro'-management measures implemented by the government to control the fall out of the demonetization measure.

Clearly the `greedy' black money don who did not want to depart with fifty percent of his `hard' earned money had to go through another hardship because the government, or the RBI, the Reserve Bank of India, the monetary authority, was clamping down on managers who must have already made their fortunes. The dons simply hired large number of common people to deposit a quarter of a million rupees each in their account to change old currency into new. This too with the range of ten to thirty percent commission.

This ended in obscenely long queues out side the banks - who could differentiate between the genuininely suffering cashless populace from the minions of the black money dons?

Of course neither the RBI nor the government was sleeping. They issues rule number 9584 that accounter that deposited about quarter of a milllion after demonetization move will be frozen.

India in the meantime came to a stand still, a slow death. First thing to dry was the kitchen cash. Then came the supply sector. The truck drivers ran out of the teb rupee notes they had to give to the policeman at every corner to pass through populated areas and at the hundred rupee notes to have a meal on the cheap road side hotel and the five hundred rupee notes to give at the tolls. Government intitially focussed on printing Rs 2000 note. No one had the change to return after small purchase.

Then the goverment discovered cashless economy. Use PayTM and debit and credit cards and use e-commerce, they said. Strange in a country where all of these things comined account for a miniscule of economy.

It was weeks before the RBI governor could be seen in public and talking about the problems that brought India to a halt.
It turned out that he was all the time in the know. In fact he was amongst the few who were trusted by the Prime Minister. The RBI Governor, Mr Urjit Patel, happens to be a Gujrati, just like the Prime Minister. The chemistry was so designed that the most effective people in the task force that was supervising the move were from that state and they would talk in Gujrati. whatever synergy it might have created was not enough to ease the pain of the common people, industry, economy, finance and business. News from big industry is yet to filter in.

By now about hundred fifty people have died either in queues or because of the stress generated by demonetization. Most of the India is functioning on credit. Banks are dispensing only that money that the traders have been depositing from their greatly reduced volumes of trading.

The Primie Minister intially thought it would be over in few days. One wonders what the task force saw and analysed to miss such a long term debacle. Then he asked for fity days. Then his finance minister informed the public about the grand news that the things will be alright in a quarter or two. Paul Krugman gave a very caliberated, cautious and controlled non-assessment. ( Thanks for the concern Nobel Laureate.)

Private banks intially gave the allowed Rs 24000 to their customers at the first come first serve basis and these were the first ones to go dry. Queues were the longest on State Bank of India counters. They initially dispensed Rs 10000 per customer but very quickly came down to Rs 2000. Queues became longer. ATMs, that had the country wide initial problems of caliberation for new curreny, soon went cashless. The bank staff would move around and try to put cash in the ATM randomly and very quickly the first three or four people will drain the precious Rs 15000, the total in the ATM, for all of them are now moving with multiple credit cards - largest one reported was a man with 24 ATM cards. The customer code is written in the form of a telephone number of ten digits. Which four numbers are the real code is of course known only to the bearer.

The BJP goons, these are called Bhakts in India today, the devotees, intimidated anyone in the queue who tried to complain about the demonetization pain and sorrow. Sorrow for there have been heart rending episodes of people ending their lives for want of cash.

One of the much touted goals of demonetization was to control terrorism. How does that come into picture? Easy-peasy. Pakistan was sending terrorists into India with counterfeit currency. The new currency would put an end to that sabotage of Indian currency.

Source : MuftiSays