By Kamal Mitra Chenoy*
The channels including a couple I have gone to are trying to cover up the havoc caused by the demonetisation suddenly sprung on an unprepared people, especially the poor and middle strata, both urban and rural. As is well known, the ₹500 and 1,000 notes make up a total of 85-87% of the total value of the extant currency in the country. But the banking system especially in the rural areas doesn’t adequately address the needs of the rural poor especially the landless labour, the poor peasantry and middle peasants. Even the more affluent peasants like the rich peasantry and rural landlords, are not hoarders of black money unless they have urban economic links. These are a small minority.
Channels like NDTV have extensively interviewed traders and industrialists in the major markets like Chandni Chowk and Noida, who were very displeased and badly hit by demonetisation. This included the Vyapar Mandal. Semi-feudal urban areas were also covered, where the people were very sceptical of the government’s latest scheme. FM Arun Jaitley has come out with a new, zany formula, “a cashless economy.” Firstly, a tiny fraction of the people have credit/debit cards especially in the rural areas, viz. 4-5%. But virtually all cards are linked to international banks or credit card companies like MasterCard, American Express and Visa, who take at least 2% of the revenue. So the credit cards are not autonomous of foreign capital, and are more foreign exchange based than the banks.
Jaitley’s cashless economy idea does not address the alternative clearly. How will the bottom 80% of the population will be cashless? They can’t afford credit cards, not to speak of ₹2,000 notes which are the regimes real gift to the black economy. Even the strata above the 80%-95%’can not be independent of cash. And within the top 5% where the bulk of the black economy rich are, many would like to hide their cards expenditures, and therefore would use black money.
So Modi, Jaitley and the rest of their supporters really have no idea what they are talking about. For example, how demonetisation would disempower/weaken terrorists. Does Modi really think that terrorists will carry ₹500 and ₹1,000 notes? If high value notes may be used by terrorists then why print the new ₹2,000 notes? The terrorists would be very foolish to display such large notes in most of the areas they operate in. They would be more careful and use ₹100 and ₹50 notes. After all they are not intending to go to a restaurant or buy anything expensive and attract attention. So this claim is also completely false.
A serious problem with demonetisation is a misreading of the nature of black money. As eminent economist Prof. Prabhat Patnaik has clarified black money is not a stock but a flow. Black money is not mainly stored, but is regularly in circulation. Black money is used to create more black money inside the black economy, as well as moving into the white economy. In the Rajya Sabha debate on Wednesday, Sitaram Yechury pointed out that banning notes was not the answer. He could have added that the creation of the ₹2,000 note was contrary to the logic of removing ₹1,000 and ₹500 notes, as the ₹2,000 notes could be kept in half the space of ₹1,000 notes which is very useful for black money.
Basically, Modi’s scheme is as Arvind Kejriwal has pointed out in some detail, completely unviable, or to use more colourful language a “jumla.” Some of the arguments put forward by secular parties are troubling. Rahul Gandhi has opposed a “reversal” of the demonetisation process. But surely ₹2,000 notes which will help the black economy should be withdrawn. The country’s economy has suffered from the penetration of black money into the economy. So far there has been little discussion of the black money abroad, which is between 65%-75% of the total black money. Hopefully all the secular parties will form a united front in the Lok Sabha and fight the struggles ahead, and expose the black economy wherever it is.
*Professor of political science, Jawaharlal Nehru University, New Delhi. Source: Chenoy’s Facebook timesline