Wednesday, 9 November 2016

UNDERSTANDING THE 500-1000 BAN – WHY IT ISNT ABOUT CORRUPTION ALONE

UNDERSTANDING THE BAN – WHY IT ISNT ABOUT CORRUPTION ALONE


MY THOUGHTS ON THE PEOPLE OF INDIA
The Indian capacity for hero-worship at times surprises me; it is one thing to hero-worship without cause; this can be  easily dealt with by speaking facts. But it is quite another to hero-worship when a) the personality in question is very good at what he-she does; and b) the hero-worship has basis in facts, albeit incompletely understood. This was proven yet again, as there arose a deluge of praise – most of it deserved – on the 500/1000 note ban. That by itself is fine; but going through the comments frankly left me speechless, as I saw an amazing capacity to not think in the light of cold reason, but rather react in a classic response from a strong emotive viewpoint


TACTICAL GENIUS
That is critical; if responses arise from emotive regions of your brain, the capacity to fully analyse diminishes. And that was in full evidence yesterday, as people went ballistic, not asking questions, not trying to fathom the move, not trying to connect the dots – but rather, going ballistic in praise. This admittedly excellent move has many parameters to it; few people and publications picked out the finer nuances of this stunning strategy. The most critical aspect is not the Ban per se; it is the tactical execution of the Ban; the secrecy – nay, total secrecy of the step; the way little to no time was given; the way hard decisions were taken. Not one person in my circles stated this, appreciated this. I just hope they understood, but didn’t state it explicitly.


NO SPACE FOR ANALYSIS?
Even  more worrying was that there was no space, quite literally, for conflicting opinion. People were just not willing to listen to reasoned voices, and going gung-ho ballistic, which was a genuine shocker. It shows us people in a very poor light indeed – for reasons I shall point out in the following paragraphs. Let alone the people, this move exposed the Media as well – as their emerged a clear cleft between reporting Media, and Analysing Media. One publication, which I expected, emerged tops, as it correctly analysed the move and its associated problems and full parameters. Just one in my reading at least – if there are others, shall update as and when I read them in follow-up articles.


When I state conflicting opinion – I don’t mean that I disagree with this move – I support it wholeheartedly. In fact, I am full of praise -  not just for the ban, but the way it was implemented. For it to be successful – surprise had to be total. It was. There should have been no time given to anyone, regardless of rich or poor. No time has been given. Full marks to the Government of India for this – and NaMo, who has clearly spearheaded this excellent move. I criticize where due; and praise effusively where due – and this move deserves nothing but praise. These are the kind of hard decisions that this nation needs; these are the kind of hard-headed, hard-hitting reforms that we urgently needed. Good to see some action at last!


UNDERSTANDING THE BAN
Now let us understand the Ban : first, large denominations account for 84% of the money in circulation. I shared this yesterday immediately, few responded, being more enamoured by the externalities of the Ban, not the nitty gritty involved or understanding the full. Now add this data to the total lack of time given – it clearly means difficulties lie ahead in terms of money in circulation, and money available in our pockets. That is why the limits on withdrawals. Going forward, just as in the case of GST, where I noted that everything hinges on implementation – I state the same here. Now, this is the real test for the GOI – how efficiently it can manage cash replenishment in a diverse nation such as ours. That is why I reserved judgement, and still do, knowing fully well the fickle nature of the Indian Electorate. Let us see.


Second, Corruption. Yes, it will be a temporary and massive setback for corruption; and is to be welcomed wholeheartedly. Again, everything hinges on the implementation and the follow-up; not all corrupt money is held in cash – and not all cash transactions are corrupt. The entire retail trade, for example, depends on Cash transactions, and most retailers do daily banking or thrice a week banking, and normally use a mix of 1000, 500, 100, 50 and 10 notes to deposit, which represents their retail collections from customers over the day. The Indian Economy is mostly cash-based, like it or not.


And that is why this is a hard decision – it will like as not impact roll-over of trade, as over the short term the trade adjusts. People will be inconvenienced, there could be a panic like situation – for proof, note the rush to ATMs. All I did was check if I had enough to tide me over  for 2 days in 100 and lower denominations, and forgot about going to the ATM. How fast logic prevails will entirely depend on the CMS wings of the banks {CMS is Cash Management Services}, and the Government planning. This is the real test going forward – their implementation skills. All the best to them; we need this initiative to succeed, and need it badly.


This is being touted as a move against corruption; that is only one small aspect of this – as I was at pains to point out in several whatsapp conversations yesterday. It will not do anything to prevent the further accumulation of Black Money; that is an entirely different story altogether, one which no doubt is being attended to. It will also not to anything whatsoever against small-ticket corruption; the corruption that confronts us normal people is the 10 and 100 rupee variety which is rampant. This Black Money will remain until systemic reform is implemented. This variety is also a significant aspect of the Black Money and Corruption conundrum confronting us as a nation.


It will only impact the big-ticket moves, and held-up cash that is stored secretly. Some portion  of the 500 and 1000 rupee variety corruption will have been invested, or put into circulation – this will not be affected. The nationwide Hawala Network operates on all currency denominations; this network will be inconvenienced, not put out of action. How they take this is something which the authorities will no doubt have planned for, {digitization programme is one such example}  so let us wait and watch. What is happening is phenomenal, and let it be implemented first before we can draw any conclusions.


It will also give a fillip to mobile money, online and cashless transactions, mobile wallets – all of which are traceable monetary mediums, and which will be a welcome move. It is said that a large part of India’s Economy is in Cash Mode – not necessarily all of it illegal. The impact on this segment will only be known over time, given the deep relationships, networks, business interdependencies, and norms and practices of operation – which are primarily based on Cash as of now. It is hard to dismantle this structure overnight; and thus cash will continue, especially since new 500 and 1000 tender is being introduced over a period of time. But yes – now,  there will be further motivation to shift towards non-Cash and online methods, improving traceability and reducing transactions costs.


THE MAIN PLANK
Which brings me to the main plank of this wonderful move : this is a move that, in one fell swoop, finishes the entire counterfeit cash network and makes it redundant. This was, increasingly, becoming a major problem, as has been previously highlighted in various news articles. The finger was pointed at Pakistan, and was a major thorn in the flesh. In one overnight move, the entire network right from Pakistan to the last points in India has been rendered valueless; this fake money has been flushed out of the Indian Economy in one move, in a matter of hours so to speak. This is the primary objective



The second aspect is Terrorism – funding terrorism also has been made far more difficult, and is a brutally hard smash into the entire terror machinery. In fact, this move is one of the hardest hits the Pakistani terror factory will have ever suffered; now financing terror for them is going to be bloody hard, near on impossible – unless they use traceable transactions, which are easy to monitor. Their options are now highly limited, and poses serious logistical difficulties for them. That is the second objective of this entire matter – which has three prongs. The major one – counterfeit cash; second – terror, and minor objective – Black Money flushing. Ek Teer Se Teen Nishaane. And that is why this move deserves a standing ovation from all India – well done, Mr Prime Minister, as well as every member of the team that made this possible!  

2 comments:

  1. One thing I hate with paper money is the inflation.If 1 item is in high demand and short supply then the person with greater number of this "paper" called money can pay more,increasing the price of the item.If precious metals are used as currency like silver or gold coins,which are in limited supply,then inflation could be controlled.Corruption would be controlled as well.
    As for this move,the planning is good,lets see the execution.Although,I have faith in modi to execute it well.If he can just invest some money in education and healthcare,he is going to be the best PM India has had since independence.

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    1. Thanks Ankit... Agreed on your point on Education and Healthcare... let us see how things pan out

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