Demonetisation may have hurt more than it helped – Amulya Ganguli

Two Thousand Rupee Note

EconomistThat the people in general and the banking system have got back on their feet after demonetisation is a tribute more to their resilience than to the government’s wisdom. But what is undeniable is that they have been put through a wringer, as it were, when the ultimate gain in terms of cleansing the system has been negligible. – Amulya Ganguli

It will take time for the economists to figure out whether the fall in the growth rate to 5.7 per cent is the result of the disruption caused by demonetisation and the Goods and Services Tax (GST), but most of the common people will see a connection between the two steps and a slowing down of the economy. For most of them, the GST seems right—like the uniform civil code in another field of national life notwithstanding the teething troubles—but the jury is out on whether demonetisation was necessary if only because 99 per cent of the banned currency has been returned to the government.

Even if this means that those with unearned incomes have chosen to deposit their money in the bank, the question will remain whether the huge disruption caused by demonetisation was required to ferret out these holders of black money, especially when their numbers cannot be too large since most of the dubious earnings is not kept in cash but invested in gold, jewellery and real estate.

The claim that counterfeit currency will be detected by demonetisation has also been disproved by the fact that the amount of such notes that has been turned in is a mere 0.0007 per cent of the total. If the government’s intention in wiping out 86 per cent of the currency in circulation in one fell swoop was the result of the failure to keep Narendra Modi’s election-eve promise of depositing Rs 15 lakh in each bank account by unearthing black money, it can only be described as a “monumental misjudgement”, as Manmohan Singh called demonetisation.

It is not surprising, therefore, that the government has changed its line from the initial justification of demonetisation as a means of breaking the back of the so-called parallel economy to that of converting the country into a cashless, digital economy. However, even if this second objective is laudable, the unanswered question remains whether the shock and awe of demonetisation were necessary considering that more than 100 people died while standing in queues before banks and how an unknown number of small businesses suffered. According to one estimate, five million jobs were lost.

The fact that the people in general and the banking system have got back on their feet is a tribute more to their resilience than to the government’s wisdom. But what is undeniable is that they have been put through a wringer, as it were, when the ultimate gain in terms of cleansing the system has been negligible.

It is obvious that the same ends of trapping the hoarders of black money and nudging the country towards the greater use of plastic cards could have been achieved by far more carefully devised ways by experts which would not have caused the kind of turmoil set off by the sudden sweeping of the economy by the broom of demonetisation.

The utility of this reckless intervention is all the more doubtful since the Bharatiya Janata Party’s (BJP) claim that demonetisation paid it political dividends is not foolproof. For instance, the party’s record in winning elections in 2017 is 3-2 considering that it lost in Punjab and came second in Goa and Manipur while winning in Uttar Pradesh and Uttarkhand. It is another matter that the BJP negated the outcomes in Goa and Manipur by some adroit manoeuvres in horse-trading in order to secure the allegiance of MLAs susceptible to enticements. But the original score line showed that demonetisation was not a booster for the BJP.

It is also unclear to what extent the dramatic step of November 8 last year has been a damper for terrorism and Maoism since Kashmir remains on the boil while the decline in the incidents of Maoist outrages from 155 in 2014 to 118 in 2015 to 69 in 2016 can be ascribed to a natural process caused by the gearing up of the official machinery and the realisation among the insurgents about the futility of their cause. Demonetisation, therefore, can hardly be advanced as a reason.

The worry for the government at present will be about the fall in the growth rate as it will rob the country of its claim of being the fastest-growing economy and accentuate the phenomenon of jobless growth.

It is the failure to rev up the employment scene which is making the government turn to the customary measures of wooing vote banks by expanding the ambit of the creamy layer for the backward castes and firming up the BJP’s electoral tactic of enticing the non-Yadav backward castes to its side through a sub-categorization of these groups. But in the ultimate analysis, only a buoyant economy can help the ruling party’s political fortunes.

If demonetisation has put paid to such hopes in the near future—although the new Niti Aayog vice-chairman, Rajiv Kumar, has called a link between the falling growth rate and demonetisation “spurious”—the government will have only itself to blame. – Financial Express, 2 September 2017

» Amulya Ganguli is a columnist for the Financial Express in New Delhi.

People queue outside a bank as they wait to deposit and exchange 500 and 1000 rupee notes in Amritsar on November 13, 2016. India's cash machines will take several weeks to reset with new bills,

Parliamentary Committee Report: Demonetisation was a great blunder – M.Y. Siddiqui

Rupee 2000 Notes

M. Y. SiddiquiThe report calls demonetisation a blunder. Not a single objective has been met, it says. – M. Y. Siddiqui

A Parliamentary Committee on Demonetisation has submitted its report, which will be tabled during the Monsoon Session of Parliament.

Accordingly, the report calls demonetisation a blunder. Not a single objective has been met, it reportedly says.

Findings of the Committee reveal no major black money was found. It says Finance Ministry accepts that only details of Rs 4,172 crores of suspicious money which could be black. (Prime Minister Modi had predicted Rs 5-7 lakh crores would have been black).

According to the Committee’s findings, demonetisation had no effect on terror funding. Neither cashless nor was less cash society formed as Finance Ministry was projecting. People have shifted back to pre-November 8, 2016 level cash transactions.

In a further revelation, the report says demonetisation killed small scale industries and major unorganised sector. Bhartiya Mazdoor Sangh, a trade union affiliate of BJP, has reported a loss of four crore jobs and shut down of over three lakh industrial units. Report has questioned decision-making authority and termed all decisions were taken without planning, like size of currencies not planned according to ATMs, Rs 2000 note was brought in without any smaller denomination note to exchange, no considerable amount of currency printed for supply which led to huge rush to banks and ATMs, rules changed on daily basis proved flawed planning. Till date, ATMs remained dry in rural areas.

In a startling revelation, the report says failed demonetisation planning has now led to cut in expenditures of Government on health, education and other vital sectors. Education sector remains most affected as funds have been stopped, fees hiked, and seats decreased for research. Taxes have been increased, interest rates on PPF and other savings scheme reduced.

In view of the foregoing, who will be held responsible for all this organised blunder? Who will account for Rs 30,000 plus crores incurred on distribution and all other expenses like advertisements, transportation, extra pay to manpower etc? The question arises who will be held responsible for 180 plus deaths during the whole process?

Will PM Modi account himself before the bar of the people or will Indian democracy continue to be throttled with arbitrary exercise of power by one man government, shorn of collective responsibility? Will Modi go down in the history of India as the first disrupter of its economy by getting away with the aggressive hyper nationalism and any one questioning him as anti-national?

Media have been warned not to bring the report to light. – Tehelka, 3 August 2017

» M. Y. Siddiqui reports for Tehelka from New Delhi.

Demonetisation: Has Modi Sarkar scored a self-goal? – Punarvasu Parekh

Narendra Modi & Arun Jaitley

JournalistInstead of devising ways to minimise the losses suffered by the citizenry, the bigwigs of the ruling party are busy promoting cashless transactions. All cash is not black money, all black money is not in cash. Yet the use of cash is being portrayed as something outdated and undesirable, if not immoral. – Punarvasu Parekh

Modi government has lost the plot on demonetisation. The “surgical strike” on corruption, terror funding and fake bills has turned into promotion of cashless transactions, cheered by powerful commercial interests. Issuers of credit cards and debit cards are smiling from ear to ear. Promoters of payment companies and money changers are literally salivating at the tremendous business opportunities suddenly opened up for them. One of them spilled the beans in a feat of ecstasy, declaring that no amount of marketing can do what demonetisation has done for them.

Meanwhile, initial enthusiasm having faded, the fatigue of being cashless is telling upon people’s patience. Trade and businesses, small and big, have been hit hard. Industry is limping. Despite bountiful crop, farmers are in tears as there are no buyers are for their produce, their meagre savings have become invalid and they have no money to buy inputs for sowing summer crops. Bank employees, suddenly charged with carrying out the gargantuan task of physically replacing billions of currency notes in a short while are having harrowing times facing people’s ire, paucity of cash, frequent changes in rules, RBI prodding and raids by investigative agencies. Many games will be played in the few days that remain before the deadline, but the dismal picture is unlikely to change materially. Modi government underestimated the reach and the resourcefulness of the crooked, and overestimated the integrity and capabilities of the banking system. Modi himself and BJP will pay a heavy price for this double error.

In a supreme but cruel irony, a measure that was supposed to empower ordinary citizenry and punish the wrongdoers has ended up giving extra powers to income tax officers and police—two of the most corrupt, venal and cussed arms of the Indian state.

Two developments have sapped people’s enthusiasm. The groups that were targeted (or were thought to have been targeted) have managed to escape almost unscathed, even as those who did no wrong are made to bear the full brunt of the exercise. Secondly, the hope that situation will return to normal in a few weeks has proved illusory.

All outlets are being plugged for the ordinary people (witness the latest flip-flop on deposits exceeding Rs. 5000) even as floodgates have been opened for kings of the crooks—political leaders. The revenue secretary has “clarified” that political parties can deposit any amount, no questions asked and no tax to be paid. Since most of the political parties are family businesses, political leaders will not only regularize their ill-gotten wealth as party funds, but also extend the same favour to others; for a fee, of course. It is true that political parties have always been exempt from income tax. What is galling is that instead of devising ways to block their path to the banks, the government is helpfully drawing their attention: don’t worry, there is a way out for you. Ironically, every clarification issued by official spokesmen has only served to strengthen this assurance. Whatever the official justification or pleading, the fact is that unless political parties are divested of their illicit cash hoardings, all the hardships suffered by the people and all the damage sustained by the economy are in vain.

Success of demonetisation has three criteria. One, currency notes representing unaccounted wealth would not return to the banks and get demonetised automatically. Corrupt politicians, industrialists, businessmen as also terror funding networks would suffer heavy losses but could not complain. Secondly, the demonetised bills would soon be replaced with new legitimate ones so that it is business as usual before long. Finally, steps are taken to compensate those who have suffered losses for no fault of theirs.

Urjit PatelThe reports till date indicate that none of these criteria is likely to be met. The volume of demonetised notes returning to the banks has exceeded all expectations. The crooks have tried every trick in the book to legitimise dud notes—Jan Dhan accounts, benami accounts, staffers’ and relatives’ accounts and advance payment of wages, besides purchasing gold, dollar and land. Plus, the last days may see a heavy rush for deposits. Initially, there was a hope that about a fifth the demonetised notes (approximately worth Rs. 3 lakh crore) would not return to the banks and, with some help from RBI, the money could be used by the government for the benefit of the people and the economy. That hope is shriveling with each passing day. Indeed, now there is a real possibility that more notes may return to the banks than were originally issued by the RBI! It will be scandalous if they do.

Secondly, just half the notes deposited in the banks have been replaced with new ones. Distribution of new notes is as scandalous as depositing the old ones. Ordinary citizens spend hours in serpentine queues for a couple of bills, sometimes collapsing and dying, whereas the crooked manage to get crores upon crores of rupees in new notes sitting pretty at home. Private sector banks have shown that given an opportunity they can surpass the much maligned public sector banks in corruption and malfeasance. Even RBI staffers have been nabbed for foul play. There is a direct link between the black market in new notes and the people dying in queues before banks and ATMs. As regards the decision to print the Rs 2000 note and change the sizes of the bills, it is hard to say whether it was a blunder or sabotage.

On the other hand, half the cash that kept the wheels of agriculture, trade, industry and businesses moving has been drained out of the system. The economy is gasping like a man with half the blood drawn out. Shops have no customers, factories have no money to pay wages or buy materials, small traders and service providers find their businesses flattened. The finance minister has added salt to the wound by declaring that not all the demonetised notes will be reprinted.

Farmers are probably the worst hit. Bountiful harvest after two successive draughts had aroused hopes of some respite, if not good times. These hopes have been shattered. Prices have hit the rock bottom at a time when kharif crop as well as fruits and vegetables are arriving in the market. There have been heart-rending reports of farmers having to destroy their own crop of vegetables to clear the ground for rabi sowing, since market prices would not cover even the cost of harvesting the crop and carrying it to the market.

The consequences of the harm inflicted on the economic activity are just beginning to unfold. The coming months would be worse. Don’t be surprised if the GDP growth slumps below 7 per cent in the December and March quarters.

Instead of devising ways to minimise the losses suffered by the citizenry, the bigwigs of the ruling party are busy promoting cashless transactions. All cash is not black money, all black money is not in cash. Yet the use of cash is being portrayed as something outdated and undesirable, if not immoral. The fact that services of credit cards, debit cards and payment companies come at a price, are hazardous and complicated for ordinary Indians is cleverly downplayed.

Ordinary citizens who cheerfully put up with all the hardships and sportingly suffered losses are threatened with notice, scrutiny and punishments, even as those sitting on mountains of black money are rewarded with one more amnesty scheme: pay 50 per cent tax, keep another 25 per cent in a bank interest free for four years and spend the rest.

Whatever may be said by Modi’s supporters, the common man today feels cheated and betrayed. Those who did nothing wrong are facing all sorts of troubles, and the wrongdoers have escaped with a few scratches, if that. Poor planning, shoddy implementation and a rotten banking system have converted a bold and well-meaning measure into a self-goal.

» Punarvasu Parekh is an independent senior journalist in Mumbai.


India’s honest majority look to Modi to cleanse bureaucracy – M.D. Nalapat

Corruption in the Indian bureaucracy

Prof M.D. NalapatOnly an accelerated drive against high-level official corruption may motivate citizens into enduring for months more the pain caused by the incompetence of much of the bureaucracy tasked with implementing the epochal policy unveiled by PM Modi on 8 November 2016. – Prof M. D. Nalapat

The most meaningful “majority, minority” dichotomy in India is between those citizens who are honest and those others who are dishonest, i.e. those who correctly pay the numerous taxes due and those who do not. Despite the reality that continuous additions to the colonial governance codes in India have arbitrarily criminalised swathes of activity that are legal in practically all other democracies, it would be safe to say that the “majority community” in India (i.e. those who are honest) comprise 90% of the population, leaving 10% in the “minority”. Even within that sometimes under-appreciated group, government servants, about 75% are honest and less than a quarter crooked, judging by the many this columnist has come across. Among officials, around 10% occupy posts which have the potential to make a significant difference to the situation facing the public.

It is on this 2.5% of the total of government employees that Prime Minister Narendra Modi needs to most concentrate on. Corrupt officials have an outsize influence on policy. They have the ability to move up the promotion ladder much faster than the honest, who need to spend most of their time trying to make both ends meet till the next payday, rather than wooing their superiors and political heavyweights in the manifold ways that the crooked have access to. Indeed, the uninterrupted flood of repressive laws and regulations that each government unleashes on the population demonstrates the choke-hold of the upper echelons of the 2.5% of officials who are dishonest. 

Almost all such regulations are broad and vague enough to be subject to misuse, thereby becoming manna for the dishonest rather than (as pious declarations accompanying such measures invariably aver) balm for the honest. The historically outsize influence of the dishonest in the actual working of the governance system ensures that many honest citizens get penalised under such laws and regulations, usually for technical violations, even while relatively few of the big fish get caught. These latter have the means to reach out to the dishonest minority within the governance system, thereby ensuring their safety. For public consumption, there may be a prime time hullaballoo raised by the very officials who are shielding them. However, proof of official intent vests in practical outcomes. If depredators either escape or get away with a mere wrist slap (such as a small fine), it is reasonable to assume that much more than conversation was exchanged between officials and the wrongdoer. When the political executive is being served a menu of policy options, and the judiciary the chance to review them, these two pillars of the governance system need to factor in the reality of corruption within the system in weighing and discounting recommendations made by officials which may focus not on the public interest but on their own and that of other corrupt individuals.

RBI ATMThe Reserve Bank of India has believed since the time of Governor Yaga Reddy that the 1.26 billion people of India should be made to adopt the cashless ways of Sweden, despite the difference in conditions between the life of the median Swede and the median citizen of this country. It is clear from 8 November that RBI Governor Urjit Patel looks askance at those citizens with zero untaxed income who have nevertheless withdrawn substantial amounts of cash from their accounts to use towards patronising the (much-derided by Central bankers ) “informal” economy. The most trumpeted e-gateway in India for making payments is controlled by Jack Ma, who when last sighted was not an Indian citizen. Indeed, foreign rather than domestic interests have a lock on most major internet and mobile telephony entities in India. And “Indian” banks have been silently taken over by foreign entities. US shareholders dominate the big credit card gateways used in India, with Chinese shareholders in the same companies coming a close second and those with Indian citizenship nowhere on the equity horizon. Unless PM Modi manages to endow digital keys to over 600 million citizens within his term, for a considerable time to come it is more socially advantageous to put (taxed) rupees in the hands of the poor and the lower middle classes such as small shopkeepers and crafts-persons, rather than entirely through plastic controlled by multinational interests that are gaining in advantage over their domestic competitors with every passing day because of the rupee falling while interest rates and crippling regulations rise, with some rules making the word “draconian” an extreme understatement. An individual may have kept apart substantial cash (drawn from his or her bank account and shown in tax returns ) not to pay the “black” component of a future real estate purchase, but to make repairs to a temple entering the stage of dilapidation. The grim 1970s-style warnings issued by officials to taxpayers who prefer holding on to and paying with cash are making honest taxpayers, rather than the big crooks, nervous about depositing their clean “old” cash in banks despite the fact that such holdings will become waste paper after 30 December. Prime Minister Modi must protect the honest majority of citizens from crooked officials expert at using technical or imagined violations into darts designed to squeeze payments from honest taxpayers. Modi needs to ensure that the regulations being unveiled day after day on television be designed so as to protect the honest and get used on “bulk carriers” and not only small “fishing boaters” of black cash. A sniper rifle should be used in enforcement that aims at big fish rather than allow bureaucrats to wield blunderbusses spraying multiple innocents even as they incentivise the guilty to increase the bribe offer. 

India’s honest overwhelmingly cast their 2014 votes for Narendra Modi. The target of his next high-octane “surgical strike” should be the crooked among the higher rungs of the bureaucracy. Those who have defiled the noble calling of government through graft and misfeasance should be made to encounter justice rather than peacefully catch a flight together with family to London or Miami for—in more than a few cases—a very long stay. Only an accelerated drive against high-level official corruption may motivate citizens into enduring for months more the pain caused by the incompetence of much of the bureaucracy tasked with implementing the epochal policy unveiled by PM Modi on 8 November 2016. – Sunday Guardian, 26 November 2016 

Corruption in India

Notes ban and broken promises – G. S. Vasu


G. S. VasuNot many seem to have noticed a subtle but clear shift in the narrative. On November 8, we were told that this historic step was taken to cleanse the system of black money. None can complain, even if it means short-term pain. On December 16, we are told that digitisation should be the new way of life. Strangely, black money or its removal is no longer dominating the discourse. – G. S. Vasu

Journalists are often accused of looking at the wrong end of the stick. More so in the case of demonetisation, because it is the most profound public policy, impacting almost the entire population in the post-Independence era.

We cannot think of any other policy which had such a huge impact, positive or negative. And, therefore, the continuing debate on the pros and cons. That the government keeps pushing the deadline to ease the post-demonetisation currency crisis even after a month is, in my view, not the big issue, despite it having inconvenienced a significant section of the population. What is now reasonably clear is that the main objective—attacking black money—may not be achieved. It is still early to assess the impact on two other stated purposes: arresting terror (by flushing out counterfeit notes) and Naxalite activities. On November 8, we were told that there was approximately Rs 14.2 lakh crore in the form of Rs 500 and Rs 1000 notes in the system, and it was widely expected that at least 20 per cent of it would never make its way back.

On Thursday, the Supreme Court was informed that the banking system has already got back Rs 13 lakh crore, with two more weeks to go. However well-intentioned the prime minister’s intentions may have been, the raids, arrests and large-scale seizure of new currency suggests that the system has helped exactly those who were expected to take the hit. The revelation though is that we now have a new set of thieves—some bankers—added to those already existing and ably aiding the tax evaders and hoarders. I was perplexed when some bankers told me about how this was managed: Assuming 3,000 genuine customers each exchanged Rs 4,000 per day by producing a copy of their Aadhaar card, the same would be photocopied multiple times by bankers and used to accept wads of invalid currency from those they intended to benefit and in turn give them new notes. Ingenuity at its best! That brings us to the fundamental question. Forget the pre-poll promise of getting back black money stashed abroad. Let’s do a value vs volume analysis.

Assuming 20 per cent of the currency within the country was black, it was plain that it existed with just about 0.5 per cent of the population. In any given city, one could ask anyone in the enforcement and investigative machinery of the government and they would reel out the names of the suspects. Was it beyond the power of the government to have targeted them? Alternatively, if the tax machinery was so inefficient that it could not track 0.5 per cent of the hoarders, would it now be possible to scan almost every bank account and hand out a certificate of honesty? A section of corrupt government officials and some profit-making companies apart, how is black money otherwise generated? As one global expert on economics put it, in a country where a five per cent commission on any project has become a norm, it is parties in power that thrive on it to keep their machinery going and pass on a part of it as “bribe” to voters at the time of elections.

Therefore, without addressing the core reasons—by revoking discretionary powers vested with ministers and babus, or bringing about political reforms— the benefits of any move of this nature could be limited. How well the prime minister negotiates the impact of demonetisation on the economy and the concurrent measures he initiates to get the desired results shall determine the fallout. Amidst the political slugfest and currency crisis management, not many seem to have noticed a subtle but clear shift in the narrative. On November 8, we were told that this historic step was taken to cleanse the system of black money. None can complain, even if it means short-term pain. On December 16, we are told that digitisation should be the new way of life. Strangely, black money or its removal is no longer dominating the discourse. – The New Indian Express, 17 December 2016

» G. S. Vasu is the Editor-in-Chief of The New Indian Express, Chennai.

Black Money Cartoon by R K Laxman

Demonetisation: Personality trumps the rule of law – Mathew Idiculla


Mathew IdicullaFor people without bank accounts, demonetisation amounts to compulsory acquisition of property without provision for compensation as their old currency is no longer exchangeable. – Mathew Idiculla

I promise to pay the bearer the sum of X Rupees, declares the RBI governor on every Indian bank note. As fiat currency, it is the state’s guarantee that makes these pieces of paper a legitimate medium of exchange. This contract between the state and the citizen was broken, at least partially, on November 8 when Prime Minister Narendra Modi announced that the 500 and 1,000 rupee notes hoarded by “anti-national and anti-social elements” are now “just worthless pieces of paper”.

The Centre’s move rendering 86 per cent of the currency invalid raises serious legal and institutional questions. Can the promise made by the RBI governor be rescinded by the government in such a manner? Further, can the Centre restrict a citizen’s right to withdraw their own money? In this article, I examine how the demonetisation policy deinstitutionalises the state as it undermines the rule of law and instead seeks to legitimise public policy through charismatic authority. Demonetisation and the rule of law: One of the prerequisites of a state governed by the rule of law is that legal and institutional norms are stable, clear and predictable.

Decision-making cannot be impetuous or arbitrary. But unlike previous instances of demonetisation in 1956 and 1978, the latest move by the government has come via an executive and not a legislative action. The notification for cancellation of the legal tender status of the notes (the Attorney General seeks to distinguish it from demonetisation) was issued under Section 26 (2) of the RBI Act. This provision states that the Centre can, “on recommendation of the Central Board” of RBI, declare that “any series of bank notes of any denomination shall cease to be legal tender”. Hence, the government has to demonstrate with documentary evidence that the decision was indeed taken as per the advice of the RBI and not by the whims of the prime minister. There is also no clarity regarding the legal basis on which limits and conditions were placed on cash withdrawals. The RBI Act does not have any such provision.

Article 300A of the Constitution provides that right to property can only be restricted by the authority of law. Since bank notes are movable property, any restriction on its access must be provided by law. However, demonetisation was carried out without issuing an ordinance or amending any law. Further, for people without bank accounts, demonetisation amounts to compulsory acquisition of property without provision for compensation as their old currency is no longer exchangeable. Since the launch of demonetisation, there have been multiple policy somersaults which further raises legal questions. For example, while the notification clearly states that old 500 and 1000 rupee notes can be exchanged until December 30, on November 24, the government abruptly declared there will no longer be any exchange. Such U-turns go against the doctrine of legitimate expectations, an essential principle of the rule of law which provides that people have a legitimate right to expect a public authority to honour a promise or policy proclamation. – The New Indian Express, 15 December 2016

» Mathew Idiculla studied law at Christ College and is currently a fellow at the Law, Governance and Development Initiative at Azim Premji University, Bangalore. His research interests are in the field of constitutionalism, Indian democracy, public policy and urban governance.

Modi Cartoon

How long will the coalition of the corrupt stand united against Modi? – Minhaz Merchant

Opposition Bandh

Minhaz MerchantCashless and witless, the Opposition will pray that Modi trips up on executing demonetisation in the next crucial 30 days of December. – Minhaz Merchant

With the exception of the JD(U), the cash-deprived Opposition has come together in what some cruelly call a coalition of the corrupt.

Prime Minister Narendra Modi has meanwhile seized the moral high ground in a Them vs. Us binary: you are either corrupt (and oppose demonetisation) or you are clean (and support demonetisation).

The message resonates politically. It is as powerful a message as Indira Gandhi’s Garibi Hatao slogan in the early-1970s.

To avoid losing the long-term political battle, as Mrs Gandhi did in the late-1970s, Modi will now have to win the economic and social argument.

First, he will have to quickly—and the timeframe for this is measured in days not weeks—sort out the cash shortage in the unorganised sector where many of the poor work.

High denomination notes valued at around Rs 8 lakh crore out of a total corpus of old Rs 500 and Rs. 1,000 notes valued at Rs 15 lakh crore have so far been deposited into the banking system.

However, only around Rs 4 lakh crore of new notes have been re-circulated (mostly in unwieldy Rs 2,000 denomination).

The resultant cash shortage is causing distress among daily wage labourers, small cash-and-carry retailers and unbanked tribals.

Most are stoic. Independent opinion polls show 80 per cent-plus support for Modi’s move against black money. The support cuts across age and income demographics.

But patience can wear thin. Hence the urgency of printing enough new notes (especially of Rs 500 denomination) to replenish liquidity in the unorganised sector.

The Opposition has responded with barely contained fury. Its “bandh” on November 28 disrupted life in cities like Kolkata where Mamata Banerjee’s TMC holds sway. It left Mumbai, India’s financial capital, unmoved.

Prime Minister Narendra Modi with Finance Minister Arun Jaitley Notes with benefits

The economic benefits of demonetisation fall into two categories. First, the value of unclaimed old notes is expected to be nearly Rs 4 lakh crore out of the Rs 15 lakh crore worth of notes rendered illegal tender.

This will allow the government to receive a special dividend from the Reserve Bank of India (RBI). The money can be used to recapitalise banks as well as build infrastructure and enhance public investment in education and health.

The second economic benefit is the increase in the tax base as a large part of black money turns white. If Finance Minister Arun Jaitley delivers a bold Union Budget on February 1, 2017, the economy could rebound from the April-June 2017 quarter onwards.

Armed with a treasury flush with cash, Jaitley can afford deep cuts in personal income tax. This will be politically popular with the middle-class just as the campaign against black money has been popular with the poor.

A cut in personal income tax along with the implementation of GST to replace indirect taxes (service, VAT, excise and customs) could drive a consumption-led boom by mid-2017.

Economic growth, which in the November 2016-March 2017 period may fall from a pre-demonetisation estimate of 7.70 per cent to around 6.80 per cent, could well spurt to over 8 per cent in 2017-18.

This is critical for Modi. If the economy recovers sharply, black transactions reduce, private investment recovers, and consumption through greater digitisation picks up, Modi will be in pole position to win three battles: economic, moral and political.

With several state assembly polls looming in 2017-18, and the Lok Sabha election due in 2019, it is a battle the Opposition knows it cannot afford to lose. Hence the coalition of convenience that makes a Mamata Banerjee offer an electoral alliance to a sworn enemy like the CPM.

Meanwhile, Parliament remains paralysed. The prime minister will not speak in either House till the debate on demonetisation begins. The Opposition will not begin the debate till he speaks.

The deadlock will eventually be broken by backroom talks in the well-practised Indian art of jugaad.

Cashless and witless, the Opposition will pray that Modi trips up on executing demonetisation in the next crucial 30 days of December.

If he doesn’t, they should get used to seven-and-a-half more years of PM Modi. – Daily-O, 28 November 2016

Three Stooges