Monday, December 26, 2016
In the wake of the demonetisation tsunami, our Prime Minister asked for a 50-day grace period. That period ends this week, with no end to the sufferings of people at large. What has in fact become clear is that (a) the Government had not done its homework diligently enough before launching such a mammoth policy shift and (b) it is unsure now how to get out of the mess.
The confusion about how to proceed is reflected in the way goalposts are changed with unsettling frequency. It began with the 4000-rupee cap on exchange of old notes turning, within five days, to 4500 rupees, then to 2000 rupees. Withdrawal caps changed too. An indelible ink exercise lasted a few days. Special allowances for brides and bridegrooms brought heartburns because of the stringent operational rules announced alongside. (Political bigwigs of course had no problem conducting ostentatious weddings costing several hundreds of crores). A climax of sorts was reached last week when the Reserve Bank ruled that banned notes could be deposited only in one 5000-rupee instalment. It reversed the rule within a day, bringing itself and the Government to ridicule.
There was confusion even about the purpose of the new policy. Initially we were told that it was meant to end the menace of black money. Then they said it was intended to fight terrorism. More recently, the refrain is that the intention is to make India a modern cashless society, citizens using their mobile phones for their transactions with ease and speed.
None of these appears credible. The big boys of black money do not keep their hoards in 1000- and 500-rupee notes under their beds in India. Our Government says it knows the names of Indians with bank accounts in foreign safe havens. But there has been no serious effort to inconvenience them. Defanging terrorists was a plausible reason. But modern terrorists are a resourceful lot with sovereign states backing them. In any case, local terrorists can raise their own cash. Ask the gangs who emptied banks in Kashmir at gunpoint. That leaves the patriotic ambitions of turning India into an ultramodern cashless country. Noble idea. And forward-looking. But is this the time for it? And at the cost of such a colossal economic-social shakeup? The fact that India is among the world's poorest and most illiterate nations cannot be wished away. Are we to assume that daily wage earners, small-time farmers and sundry hawkers who don't even know what is a bank will be happy to see the country getting rid of cash, rather than vague things like illiteracy and poverty?
However dressed up, the picture was seriously vitiated on December 16 when the Finance Secretary in Delhi announced that political parties could deposit demonetised notes in their bank accounts without income-tax interference. Social media was outraged by this obvious bid to provide legal protection to corruption. The Election Commission pitched in by asking the Government to amend laws to stop exemption to anonymous contributions to parties and to remove parties that contest no elections from the exemption list.
Not many of us know that there are 1900 political parties registered with the Election Commission. Of these only 400 have bothered to contest any election between 2005 and 2015. The 1500 sleeping parties -- which obviously serve as convenient vehicles for some VIPs -- can accept demonetised notes as contributions from undeclared sources and keep them free of income tax. What a farce! The untenability of it was so patent that the Government quickly came up with a face-saving promise to consider the Election Commission's proposals.
This freshly-revealed tendency to allow political corruption will now have to be linked with the saga of bad debts accumulated by our public sector banks. Of all people, Vijay Mallya showed how wreckless the banks had been. Of the 7000 crore he borrowed from various banks, 1600 crore came from the State Bank of India. They knew King Fisher's financial position, he remarked in a letter. Many banks, he said, advanced loans to many businesses in this manner, their total adding up to Rs 11 trillion (11,000 billion).
Who authorised this extraordinary generosity to doubtful borrowers? And why the sudden rise in the bounty in the last two years? According to published reports, the non-performing assets of public sector banks rose by 4 percent during 2004-12 and by 60 percent during 2013-15. When facts of this kind rise before us, it becomes difficult to believe that demonetisation was a wholly patriotic move.