Exactly one week before my planned trip to India for an extended vacation, our Prime Minister made the stunning announcement to demonetise all existing Rs.500 and Rs.1000 notes. Without any warning 86 per cent of the money supply vanished in no time. The paltry amount one was allowed to withdraw from the ATM machine unnerved us as tourists. The exchange of demonetised notes in the bank by showing some identity card did not bother us, as we neither had any Indian rupee with us, nor some identity card like PAN, Adhaar or voter registration card.
We could, of course, open an NRE account as soon as we arrived here by just going to the SBI NRI branch at the heart of the city that I knew intimately. I immediately thought about the problem faced by foreigners at the height of the tourist season in India.
Tourists bring hard currency and do not want to face any hassle during their vacation. Any inconvenience faced by them gets widely reported in the press of their countries of origin. Most of them come here to see some exotic places without any complication, and they could easily go to a host of other Third World countries for the same purpose. It seemed to me that the big claims of our present dispensation to bring volumes of foreign tourists to our country ended up in smoke by the demonetisation move of our Prime Minister. It was highly insensitive on my part to think of the plight of foreign tourists and the potential loss of hard currency for our country. Queues in front of ATM machines were proofs of real and immediate hardship of ordinary people. I soon became part of the queue, and ran from one ATM machine to another without success.
I had the advantage of going to the NRI branch and get Rs.24,000 each week without standing in a queue. I once witnessed the surreal spectacle of a huge crowd in a local SBI branch seemingly waiting forever to take (limited) cash from their own accounts. The patience was amazing. We must have developed this habit by standing in line for everything for as long as I could remember. Did people really believe, to paraphrase Narendra Modi, that this was the last queue to end all queues?
There are ostensibly two main reasons given for the draconian measure of demonetisation announced by our Prime Minister. They are: to counter the black economy, and to stop Pakistan from flooding us with fake currency for financing terrorism. The first reason is an unrealistic one, as most high-end holders of black money have long ago converted their ill-gotten money by investing it in gold, real estate or stashin in a foreign bank by manipulating invoices of imports, among other illegal means. They have even extended their reach now from Switzerland and Cayman Islands to Panama and Lichtenstein.
The low-end holders of black money have paid villagers to put the ill-gotten wealth into their Jan Dhan accounts. The aggressive efforts of the current government to encourage the villagers to open those accounts paid off for the electoral base of the BJP. The commission the villagers got for travelling vast distances and standing in queues without end is the best illustration of trickle down economics in India.
The other reason put forward by the government, stopping the smuggling of fake currency, must make the ISI laugh. If euro or dollar can be faked despite their using the latest technology, how easy it would be for a foreign government to fake new Indian currencies by using international contacts is not difficult to surmise. The common dictum is that no two economists agree. The demonetisation decision was an exception that brought rare unanimity among top international economists with the verdict that this is an unmitigated disaster for Indians.
Only a few local economists with known allegiance to the BJP supported the decision. With the economy running in high gear, this sudden dislocation of economic activities defies logic. The official reasons for the move have been debunked by most experts on black money and fake currency. The real reason seems to be political.
The Modi bhakts remain as loyal to the present government as ever. But the Modi wave seems to be waning a bit, with the initial euphoria diminishing as fancy initiatives announced every other day by the government after coming to power are leading to nowhere. To revamp the enthusiasm, particularly with the crucial UP election around the corner, Narendra Modi needed to act.
Politically this was a masterstroke that made the opposition confused. The poor and the working class in India are accustomed to accepting their lot as the result of their karma in previous births, but they must envy and resent the better-offs nonetheless. They have been largely ecstatic with the official line that the present government was out to teach the holders of black money a lesson. To criticise the decision was portrayed as tantamount to supporting those corrupt people. The total dislocation of the economy was tolerated for the naïve belief that the purpose was a noble one.
It was soon apparent that the demonetisation decision was pathetically planned and the execution made me realize that we are still, in essence, just another developing country. There was neither accountability, nor transparency of the whole process. In 43 days, 60 rules were changed. A month after demonetisation our Prime Minister assured us that the hardship would be over at the end of this year. He then added, as an aside, that the difficulties would start easing with the start of New Year. To me it was like Yudhistir telling Drona about the death of a horse bearing the same name as Dronas son.
Then the Finance Secretary kept rambling about how many notes of which denomination would be released at different phases. The boring statistics made no sense to me, and soon enough experts calculated that normalcy would return on 8 July of the next year at the earliest. Then the Prime Minister quoted Chanakya about illgotten wealth being invariably lost after ten years. The statement is absurd and unscientific, and must have been quoted out of context. The reason for quoting this from Chanakya was a reminder that the UPA government was in power for ten years. The connection is bizarre, to say the least.
Mamata Banerjee, with natural instinct for politics, thought demonetisation to be an opportunity to catapult into the national scene. She has been a relentless critique of the botched attempt at demonetisation of the present government. She did not get much support from other regional leaders, all of whom aspire to be the leader of the anti-BJP alliance if that materialised before the next general election. The only other leader to take a clear stance on demonetisation is Rahul Gandhi. In fact, the scion of the Nehru-Gandhi dynasty appears to be speaking like a leader for the first time in his long political career. Narendra Modi might have unwittingly given Rahul Gandhi a chance to redeem himself from his earlier pathetic performances as the leader of a political party.
Demonetisation led to the greatest hype to date of the Modi government after one month of administrative bungling when we suddenly learnt that another unspoken aim of demonetisation was to change India in one stroke to a digital economy. This is very much like our claim that we skipped the industrial phase and jumped directly from the agricultural economy to the services economy, thereby joining the rich countries without slogging through the painstaking process of developing the manufacturing sector.
Anyone going through the last three decades of the development of digital economy in the West would find the whole claim of cashless economy in India ludicrous. The infrastructure is almost non-existent and the security of our digital services is scary. But anything digital excites Indians beyond measure. Narendra Modi knows better than any other politician what sells best in his country.
The writer is former Dean and Emeritus Professor of Applied Mathematics, University of Twente, The Netherlands