IS MODI’S GAMBLE WORKING?

Let me just begin with a couple of quotes from W.E.Deming.

A bad system will beat a good person every time”

“If you can’t describe what you are doing as a process, you do not know what you are doing”

On November 8th, 2016 when the whole world was looking forward to the US election results, Prime Minister Narendra Damodardas Modi pulled a rabbit out of the hat to the entire Indian population. As Modi would always do anything with a bang he made a shock announcement that the 500 and 1000 Rupee notes in circulation to be withdrawn with immediate effect. It was indeed a seismic moment to the largely cash driven Indian society.

Panic spread across the country and people could feel the ripple effects. The reason cited by the PM was it was a “surgical strike” against black money. He claimed it was a closely guarded secret kept close to the chests of a few in the government. In reality if he claims to be surgical was it planned well. Have they anticipated the chaotic aftermath of such an unprecedented move anywhere in the planet. The common man was asked to deposit the money in the bank and withdraw it from the banks and the ATM machines across the country. And then the pandemonium followed. There was a limit as to the amount of money which could be withdrawn, long and serpentine ques at the ATM machines. The amount of money which could be withdrawn was changed from day to day. People were struggling to get cash, unable to pay the bills in time, unable to buy their daily groceries. Small businesses were unable to pay the wages of their employees, many weddings across the country were either postponed or struggled with it, unable to pay their medical bills. To top it up most of the ATM’s were running out of cash. The machines had to be re-calibrated for the new 2000 Rupee notes introduced by the government of India. Common man and elderly citizens seem to be taking most of the brunt. The whole exercise seems to be like a hyperbole!!

Is this humongous exercise justified? The government machinery seems to be clueless as to how to deal with the magnitude of problems. They kept on moving their goalposts everyday. From saying it’s a fight against black money they suddenly started to sing a song about digital transactions. Modi with his perfect oratorical skills kept on addressing the population through digital and print media asking for 50 days time to address the problem. Is this really possible. Him and his team seem to be living in utopia. 8 out of ten economists of stature said it wasn’t a wise move albeit good intentions.

Let us look at some of the facts. Indian economy is vastly cash driven economy. 86% of the cash is in 500 and 1000 Rupee notes. Close to 50% of the population do not have access to bank accounts in India. Of the over 50% of those with bank accounts about 40% of them are dormant. Thanks to the 13 crore new accounts opened by the previous UPA government and another 25 crore Jan Dhan account opened by the incumbent government. The vast majority of the impoverished population is in rural India where banking seems to be a herculean task. 4 out of five villages in India do not have a bank to transact with. Government talks about digital payments since we have about 61% of the population having a mobile phone. The smartphone usage in India has increased to 17% of the population. On paper it seems to be perfect to implement these changes. But let us look at the ground reality.

According to the parliament’s own admission about 46% of the population do not have bank accounts. Pricewaterhousecooper’s estimates 23.5 crore of Indian population is out of the banking system. The World Bank estimates only 38% of rural Indian population have banking access though 70% of the population lives in villages.

22% of adults in India have Debit cards and only 10.7% of the same use it for transactions. It is only a paltry 1.2% of the population use it for internet payment. A recent report by Qualcomm raises questions about the security of the mobile apps in India. Mastercard has reported only about 5% use credit cards in India. There are only 18 ATM for 100,000 population which is the least in the world. Even in a country like China there are 55 ATM per 100,000 leave alone the the Western countries where it is significantly higher

Only 9% of the Indian population has mobile internet connectivity. adding to the misery is the patchy internet connectivity across the country. How are we going to push the digital transactions across the country given the abysmal infrastructure? Where are we heading? A gargantuan exercise like this need to be well thought over. Top economists of the world including our own Amartya Sen have expressed serious concerns as it is lacking a human face. The government and it’s spokespersons jump on the defensive and scorn at other economists viewpoint. Those who express concerns at it are branded anti-nationals and shouted down. The black marketeers and the ones who have evaded the tax aren’t standing in the Que to take their own money. The common man and the poor are made to stand in the rain and sun. Their productivity is decreased and their earnings take a dip. Elderly citizens struggle the most. The average daily wage laborer has got no clue as to what to do. They do not have enough money for their living.

Experts believe only 5–6% of the total money is in unaccounted cash. The rest of it is stashed in real estate, jewelry and foreign bank accounts. This is a very small proportion of the 2 Trillion Dollar economy. The cost for printing new money is about 1.5 lakh crore of Rupees. The cost of fall in GDP over the coming years are to be added to. Various international agencies such as Fitch, Morgan Stanley, HSBC and the Economist have downgraded our growth ranging from 0.5% to 3.5% The cost to the economy is huge. I am not sure if the incumbent government has any plans to meet these huge problems. Who is to take care of the common man until the situation improves?

Of the 16 lakh crore rupees of 500 and 1000 Rupee notes about 12 lakh crores have been returned to the banks. It clearly shows most of the black money is being laundered by unscrupulous elements. The government was hoping a vast amount of black money will not return to the banks and hence they can get get rid of the liability. This hasn’t been a moment of truth. The Income tax officials have raided many places across the country and come out with huge sums of black money. The honesty of our Income Tax officials have also been questionable in the past. And the wealthy seem to get away with huge sums of currency with the connivance of bank officials. Is this exercise aimed at getting the real culprits. I wish I am proved wrong but sadly not. Various ideas are being implemented on a daily basis and the government isn’t willing to concede it as a wrong move. Meanwhile the urban middle class seem to be euphoric at the Utopian idea of demonetization and digital transactions. He is the one who has always been peeved at the trader and an agriculturist not paying their due taxes. Hence he senses a victory in this process. Sadly good intentions if executed in a bad way can lead to disastrous consequences.

Dr. Manmohan Singh spoke in the parliament as this whole process being an “Organised Loot and Legalized Plunder”. Since UPA rule has been tainted with multiple scams they do not hold a moral high ground in calling so. But that doesn’t absolve the government of its chaotic implementation. I would call it an “Organised Chaos and Legalized Blunder”.

Mr. Prime Minister as a sincere and honest citizen I would like to see a corruption less India where we could hold our head high. The vast majority of our population is poor and cannot understand the nuances of internet banking and digital transactions. It is quite a daunting process for him. Any growth of a nation has to be inclusive. It cannot be a lopsided development where the rich get richer and the poor get poorer. Even in Western countries the concept of cashless economy doesn’t exist. In your quest for achieving something out of the ordinary and trying to leapfrog the technology please do not make a common man suffer. The rich and the corrupt haven’t suffered in the last few weeks but the common man has bore the brunt of your agenda.

Few things could have been done before embarking on this cacophony to which the world is a witness. India lacks infrastructure. The country needs uninterrupted electricity, wider reach of internet and mobile connectivity, more villages covered by banking sector, installation of more ATM network and above all you have an enormous duty of educating a common man as to the benefits and how to use them too. It is an arduous and uphill task which will take a long time but would inflict less pain on a common man.

Who benefits the most in this process is none other than companies like PAYTM, Mobikwik and RelianceJio to name a few. Alibaba of China has a 40% stake in PayTM. Are the public comfortable with the fact that their personal details are being held by a Chinese company. Are their security credentials vetted and approved? Many questions remain unanswered. As the country waits with a bated breath over the benefits of this exercise it would be wise to have a humane face to the entire process.

I would like to conclude from the quotes of W.E.Deming again.

“It is not enough to do your best. You must know what to do and then do your best”