Connect with us


The Truth about Demonetization






After months of dilly-dallying the Reserve Bank of India has finally come out with the figure that nearly 99 percent of the currency notes demonetized in November 2016, came back to the banking system.
The total value of demonetized currency, in the form of Rs.500 and Rs.1000 notes, was Rs. 15.44 lakh crores, of which Rs.15.28 lakh crores came back to the banking system, which is 98.96 percent. Since a few small windows are still open for the return of demonetized currency, the final figure will certainly exceed 99 percent, which puts paid to the government’s claim that demonetization would deal a crippling blow to the black economy.
This claim, it may be remembered, was based on the argument that while demonetization would entail honest people depositing cash with banks, the black economy operators would not dare to do so, since they would be scared that questions would be asked about where they got all the cash they were coming to deposit.
The absurdity of this argument now stands exposed. According to this argument the test of the success of demonetization in crippling the black economy lay in the fact of demonetized currency not coming back to the banking system. A figure of Rs.3.5 lakh crores was mentioned as the amount which the government expected not to come back to the banking system.
Indeed on the basis of this expectation, all sorts of claims were made at the time: that this amount could be simply distributed among the people, since the RBI’s reduced liabilities, owing to the disappearance of this amount of currency, could be made good with impunity by printing equivalent new currency; that this amount could be simply given to the government for spending through the budget without any additional debt being incurred on its part; and so on.
Well, it now turns out that that the value of currency not returned till now is only a paltry Rs.16000 crores, and most of it no doubt from honest people who could not meet the deadline for turning in their old currency notes: it amounts in other words to a sheer loot of honest people by the government.
But even this is not all. The cost to the RBI of printing new currency, and of mopping up, through Reverse Repo operations, the unwanted liquidity of the banks, which had to pay interest on deposits that brought in this liquidity without earning anything in return on such liquidity, was Rs.30000 crores.
This was far in excess of the Rs.16000 crores that was snatched from the people. The RBI which is supposed to have got enriched by demonetization, thus ended up incurring a net loss on account of this exercise, which entailed a loss of fiscal resources.
An enormous shock was thus administered to the economy for no rhyme or reason. It dealt a heavy blow to the informal economy; it boosted unemployment among the poorest segment of labourers; it caused massive hardships for common people who had to stand in endless queues to get just a fraction of their own earnings that had been deposited with the banks; it caused the deaths of 103 persons; and it led to a net loss of fiscal resources.
The excuse for all this, that it would cripple the black economy, was palpably bogus to start with; its bogusness is now exposed by the RBI’s own data.
But the government’s temerity it would appear knows no bounds. Finance Minister Arun Jaitley who till the other day was gloating over figures of how much money he expected to be disabled by demonetization, has now done a complete about turn, and is celebrating the figures of how little has been disabled. The success of demonetization he now claims consists not in the fact that demonetized currency did not return to banks, but in the fact that it did. Demonetization according to him succeeded in “flushing out” currency from the black economy operators who were forced to deposit it with banks.
Now, if black economy operators simply exchange old notes for new ones, then that does not hurt the black economy one iota. Jaitley’s argument would have some basis if two conditions were satisfied:
One, that black economy operators who deposited old notes could not obtain new notes in exchange;
and two, that black operations demanded exclusively currency transactions.
Neither of these conditions holds. But let us for argument’s sake assume that all transactions by black money operators have to be carried out exclusively through currency notes. (This is obviously untrue, for when a black money operator buys an air-ticket for himself, he does not pay for it with a wad of currency notes; but let that pass).
The first condition requires that re-monetization should not have been complete, for if it is then everybody is back with the same of value of currency that he or she had deposited in the first place and there is no question of black economy operators being inconvenienced. Now, it is certainly the case that re-monetization has not been completed; but the government’s own Economic Survey said that it had been, implying not that 100 percent of the surrendered currency had been put back into the economy but that the degree of non-remonetization more or less corresponded to what people would voluntarily wish to relinquish, that the demand and supply of currency in the economy were now more or less matched. But if this is the case then there is no question of black economy operators being strapped for cash, and therefore there being any dent in the size of the black economy.
In other words the mere “flushing out” of old currency from black money operators is of no consequence whatsoever; the only thing that matters is whether such “flushing out” causes a shortage of cash in the black economy which can incapacitate it to a certain degree. And such a shortage, by the government’s own Economic Survey, does not exist.
What is more, such a shortage of cash for the black economy simply cannot exist for two reasons. First, “black” economy operators and “white” economy operators are not two completely separate entities. The same person who operates in the “white” economy also engages in “black” activities: for instance a mine-owner who extracts larger undeclared mineral resources has one foot in the white economy and another in the “black”. Now, even if we assume that re-monetization is not complete, in the sense that the currency-bank deposit ratio with the “public” is less than it would desire to have (unlike what the Economic Survey believes to be the case now), all such operators straddling both the “black” and the “white” economies, could easily ensure that the currency requirements for their “black” transactions were adequately met, by economizing on the currency requirements for their “white” transactions.
In other words, they could always ensure that any shift from currency to bank deposits forced upon them by the government could be made to impinge to the required extent on their “white” transactions and not on their “black” transactions, so that their total business, taking both “white” and “black” operations together, was not affected.
But let us take a case that is even more favourable to Jaitley’s argument. (Though Jaitley himself has made no such argument, we are attributing to him a semblance of a reasoned argument in order to see its fallacy). Suppose the black economy operators constitute a completely separate entity from the white economy operators, and suppose they cannot do any transactions without using currency, which is in short supply for them because re-monetization is not complete.
In other words the currency-bank deposit ratio in the economy as a whole has fallen and they are the primary victims of such a fall to start with.
In such a case they would simply suck out currency to the extent they require from the “white” economy, in particular from the informal economy, by offering an appropriately higher interest rate, if not directly then at any rate through intermediaries. Any such sucking out would entail partly a reduction in the amount of currency required per unit value of transactions in the informal economy (what economists call a rise in the velocity of circulation of currency), and partly a reduction in the value of transactions themselves, through for instance a cutting back in the holding of commodity stocks by small shop-keepers, and so on. This latter effect would be recessionary for the economy as a whole. The “black” economy would not be affected by any currency shortage in such a case but the informal economy would, which would have overall recessionary consequences.
It follows then that even if we breathe some logic into Jaitley’s argument, which is clearly advanced in desperation in the face of an embarrassing revelation for the government, it still makes no sense.



Being fair and transparent

The Kashmir Monitor



By  Navin B. Chawla

Two phases of the 2019 general election have been completed. Polling has finished in 186 out of 543 parliamentary constituencies. Polling in Vellore, Tamil Nadu, has been cancelled for corrupt practices. Five phases still remain till counting is comprehensively undertaken for all the seven phases of the election, on May 23. The reason to complete all the phases is that the result of any one phase should not influence the choices that electors may make.

Having served the Election Commission of India (EC) for five-and-a-half years during which I conducted the 2009 general election, I have an insider’s view, but of course am not privy to the inputs that the EC has and on which its decisions are made.


As I have argued in my recent book, Every Vote Counts, several negative features of our electoral scene have worsened. Since the Model Code of Conduct came into effect, in just the first two phases this time, money power has so reared its ugly head that seizures made of unaccounted cash, liquor, bullion and drugs amounting to ₹2,600 crore have already surpassed the entire seizures made in the nine phases of the general election in 2014. Most depressingly, this includes huge hauls of drugs, the vast majority smuggled into Gujarat. Uttar Pradesh is awash with liquor. Tamil Nadu has seen the largest seizures of illicit cash —over ₹514 crore.

These vast sums intended to bribe or influence voters prove several things. The first is that these sums almost certainly represent only a fraction of current illegal spending, a tip of the iceberg as it were. They have been detected by the EC’s machinery acting on the basis of tip-offs, or else by the vigilance of electoral officials in the States. Unfortunately, the bulk of illegal tranches of money, liquor or freebies would have reached their destination. Second, political players have refined their methods in being many steps ahead of the EC’s observers and their vigilance teams by moving their funds to their destinations even before the elections are announced.

Does this not make a mockery of the statutory limit of ₹70 lakh that each Lok Sabha candidate has as his poll expenditure limit?

As a country we need to ask ourselves some hard questions. When every rule in the book is being broken, when there is no transparency on how political parties collect or spend their funds, when limits of candidate spending are exceeded in every single case, then the time has come to debate whether we need to re-examine our rule book. In order to supervise the matches in play, the EC has had to deploy over 2,000 Central observers for the entire duration, drawing them out from their ministries and departments at the cost of their normal work at the Centre and in the States. Thousands of vigilance squads are set up and must act on the information they receive, which is why the current level of seizures have already made this India’s most expensive general election yet. An intelligent guess may lead us to a final tally of spending in excess of ₹50,000 crore, the bulk of which is made up of illicit funding and spending.

It is by now clear as daylight that electoral bonds, far from enabling a legitimate and transparent means of political funding, have proved to be the reverse. The EC, in its own affidavit before the Supreme Court, has admitted as much. The Supreme Court’s order has made sure that full disclosure, albeit to the EC, has already effectively killed further funding along this route. Nothing is a better disinfectant for camouflaged funding than sunlight itself.

With my experience this compels me to say that any serious reform with regard to funding must come from the EC itself, for it is very unlikely that any government will take an initiative in this direction. The EC must take stock after this election is over. It should convene a conference of all stakeholders, including of course all recognised political parties, both Central and State. But this should not be exclusively confined to them, for they will tend to support the status quo or they will be unable to reach consensus. The list of stakeholders must also include the best constitutional and legal minds in our country.

In my book I have also raised the twin problem of candidates fielded with criminal antecedents. The 16th Lok Sabha that has now passed into history, saw almost 30% of its members declaring, in their compulsory self-sworn affidavits, the list of criminal cases registered against them. They are also legally obliged to declare their wealth and their educational qualifications. This is the result of two vital orders passed by the Supreme Court in 2002-2003, the result of a battle that the Association for Democratic Reforms fought tenaciously. Unfortunately, in the first phase of this election, 12% of the candidates perforce declared that they had heinous cases pending, while in the second phase the figure was 11%. It may be noted that these cases include murder, attempt to murder, dacoity, kidnapping and rape. Have we forgotten Nirbhaya and 2012 already?

The matter of the Model Code of Conduct and its administration by the EC has been the most frequently reported single issue in this election. For those of a certain generation, the 10th Chief Election Commissioner (CEC), T.N. Seshan — he once famously declared that “he ate politicians for breakfast” — was the man who made the country sit up and take note when he decided to level the playing field as never before. There is little doubt that he reminded the EC that it had powers inherently enshrined in Article 324 of the Constitution — powers so great that there is arguably no other electoral management body with similar powers.

I learned this during my years as Election Commissioner, and these are the powers I exercised during the course of the 15th general election in 2009; I was successfully able to confront three Congress-ruled State governments and one Congress ally too. One of them even convened a special press conference to declare that his government would move the Supreme Court against the EC’s “arbitrariness”, but I personally had no doubt about its outcome. As it happened, he chose not to in the end.

The point I seek to make, by virtue of my own experience, is that the powers of the EC are so enormous and so all-encompassing that they exceed the powers of the executive in all election-related issues during the course of the election period. Of course, these must be exercised judiciously, fairly and equitably, not least because every decision is analysed in every “adda”, every home, every street corner and every “dhaba” across the country, where the EC’s decisions must be seen to be fair and transparent. During the years precedent to becoming CEC, I was fortunate that Mr. Seshan advised me whenever I called on him. As a result I never felt any need to make reference to government or court, once the process was under way.

If there is anything for me to applaud thus far in this election, it is the decision made by two political parties which have selected over 33% women candidates — Mamata Banerjee’s Trinamool Congress (41% for 42 Lok Sabha seats) and Naveen Patnaik’s Biju Janata Dal (33% for 21 Lok Sabha seats). After years of patriarchy or at best lip service, these parties have taken a vital step towards empowering women politically.

(The Hindu)

Continue Reading


Why Imran bats for Modi

The Kashmir Monitor



By  Ayesha Siddiqa |

It seems that people from very odd quarters — such as Pakistan Prime Minister Imran Khan — want Narendra Modi to win the upcoming elections. Khan’s recent comments, in which he desired victory for his counterpart as good for the future of a peace initiative, may be driven by pragmatic reasons, but it indicates the separation that exists between the two countries. Following comments by the Opposition and in segments of the social media, the federal information minister intervened and pretended that Khan, who can often open his mouth before engaging his brain, was misunderstood.

Intriguingly, despite India being the most significant country in the neighbourhood, its election outcomes have marginal impact on the region. Khan’s statement, in fact, indicates that disconnectedness in which the head of the government of a neighbouring state refused to measure the implications beyond tactical effect. It seems a right-wing government in India does not matter to Pakistan. Or, perhaps, a Modi-led right-wing government is a wish come true for the ideological right-wing in Pakistan. For the first time since 1947, people do not have to convince each other of how right Muhammad Ali Jinnah was in creating Pakistan: Not that Pakistan was ever designed for all Muslims of the Indian subcontinent, but it now sees its formula for ideological nationalism justified in the face of rising religious-ideological nationalism next door in India. I have lived through the times when Pakistan’s intelligentsia was confused in the face of Indian secularism and democracy. Despite having their own country, there would be an internal conversation about the Indian experiment being better. The last four to five years has brought about a change in that thinking.


The BJP leadership of the last five years cannot be held entirely responsible for all the political and sociological change. If anything, the last four years have helped expose the true colours of the rising Indian middle-class that does not necessarily think very differently from the Hindutva supporter on certain issues. There is no sign that the Congress under Rahul Gandhi would have the gumption to change the course of society. Hearing the young Congress leader speak at a university in London, he did not seem to possess the temerity to deviate markedly from the ideological path that the BJP has chosen for India. However, there is an opinion in Pakistan that a Congress-led government, or any dispensation other than the present formulation, may be more cautious in how it approaches issues in the region.

Meanwhile, the general sense is that with Modi at the helm of affairs, war and conflict will mark the tone of relations between the two countries. However, this would be beneficial for Pakistan’s nationalist project that gets strengthened with every news of mob lynching of Muslims and other minorities, from India. This is not to argue that the state of minorities in Pakistan is any better: But New Delhi no longer represents a secular ideal. For Islamabad, a non-secular India is easier to contest.

The only limitation that Pakistan faces in fighting a BJP-led India is its own internal problems, like the dearth of financial resources, and not the intent. This also means that conflict cannot remain the only shrill refrain: A resolution would have to be negotiated for which the establishment in Rawalpindi prefers a BJP-governed India. Khan’s statement basically means that he, and others who share his thinking, believe that a strong right-wing government is the only credible element with which Pakistan could settle its matters. The question then is, what happened after the Lahore declaration? Wasn’t it a BJP-government that was willing to talk peace? Or, what happened to the peace initiative between the A B Vajpayee and Pervez Musharraf governments?

Seen purely from the Pakistani establishment’s perspective, Kargil happened because the military wanted an equaliser at a time when the political government had not taken it into confidence. As far as the breakdown of talks at Agra are concerned, the right-wing in India was divided at the time and the segment represented by L K Advani did not want peace. For Rawalpindi, Modi represents a neat synthesis of India’s right-wing. Hence, the negotiations would be more comprehensive than ever before. The only problem, however, remains that how does one predict Pakistan’s deep state — whose contours, today, are even more difficult to define.

This understanding goes hand in hand with the thinking that the pragmatism of the Hindu right-wing would not stop Delhi from talking to Pakistan despite the latter’s habitual U-turn from peace initiatives. While the emphasis following most track-II dialogues, particularly after a bilateral crisis, is on the Indian members of the group to apprise their counterparts of the anger in India, the Pakistani side has always maintained that it is possible to pick up the conversation thread from where it was dropped. A decade into this behaviour, there is barely anyone on Pakistan’s side with the capacity to remind their own the highly problematic nature of this approach.

Not unlike today’s India, the cost of dissent in Pakistan is very high. There is little traction in the corridors of power towards an alternative approach to resolving the conflict. The deep state in Pakistan — which is not necessarily the entire military, but is symbolised by it — has gained excessive control of all discussions and dialogue. There is also the confidence that international and regional geopolitics allows Rawalpindi the opportunity to continue with its old approach. Money matters are critical, but it will not force a course correction unless Pakistan reaches a breaking point.

Continue Reading


The Violent Misuse of a Sacred Symbol

The Kashmir Monitor



By  Manash Firaq Bhattacharjee

A friend had pointed it out to me, in an Arya Samaj Mandir. It was more than a decade ago, when a roommate in JNU, who hailed from Haryana, was entering into an inter-caste marriage with his long-time, Bengali girlfriend. The wedding was taking place against the wishes of their respective parents. There were only friends from the university, who were present to take part in the couple’s happiness. Such is the price of love, in a society where the celebration of “family values” and “religious values” have for generations, meant the celebration of patriarchy, caste interest, and economic interests. It inevitably meant the refusal to accept, the free laws of love. We were in the middle of the short ceremony when my friend drew my attention to a poetic line written on the wall: “Om means a thousand things. One of them is, welcome to the abode of the gods.”

Growing up in a Hindu household, I was of course aware of the symbol. It used to be drawn in red, on small urns made of copper, and placed before a deity. On the urn, Dūrvā (or Darbha, or Kusha) grass would be dipped in water. The Dūrvā grass comprises of three blades, which symbolises the sacred trinity for Hindus. Om, I slowly learnt, was considered the primordial sound, the sacred syllable, that would precede all chanting. The word has been associated with cosmic significance in the Aitareya Brahmana of the Rig Veda, as something that connects the liberated human spirit with the universe, as “essence of breath, life, everything that exists”.


It shook me from inside, to see the photograph of the Om symbol, being violently engraved on the back of a man I learnt is Nabbir, an undertrial Muslim prisoner in Tihar jail. Nabbir was forcibly marked and denied food for two days on April 12, allegedly by the jail superintendent. This is not just a terrible incident, but marks of a sickness that can quickly, if unchecked and not punished by law, spread into a fascist method of torture and humiliation. This is a bizarre act of classifying a non-Hindu victim.

It is necessary to pay attention to what is taking place in this incident. A language of horror is being established through this act of power. By engraving the symbol, the Muslim prisoner’s body was robbed of its sovereignty. Sovereignty here is political in the religious sense. The invisible presence of the sacred exists in the prisoner’s body.  The marking of the Hindu symbol on his back, is a violation of the prisoner’s sacred world, where the meaning of sacred becomes territorial. The body is no longer the body of a man who can exist within his ‘human rights’, despite his lack of political rights as a prisoner.

What is ‘human’ within the man’s belief system is intrinsically his ability to exist as a man who belongs to a god. It is a spiritual relationship that belongs to the realm of another law, where governmental power is marked off, and ideally has no control over. What has occurred in this case is precisely this ‘human’ breach between governmental power and sacred power. The superintendent did not limit himself to the task of holding juridical authority over his prisoner. That limit was overcome by a violent superimposition of another authority (or power) that the superintendent had no right to use over the prisoner.

The act of marking a Muslim prisoner’s back with a Hindu symbol is not a sacred but a territorial act, where the mis/use of power involves marking someone with sacred symbols as proof of dominance. The act of marking the prisoner’s shoulder with the sacred symbol that does not belong to the world he inhabits within, is to humiliate his inner sense of sacredness by deliberating implanting an alien symbol on his body. That symbol is also torn from its own sacred universe, and made to symbolise something territorial.

In the Tihar jail incident, everything is reduced to the trembling of a body, where the sacred is turned into a mark of horror. It is a space where everything corresponds to nothing, where symbols are reduced to bones, where the holy is reduced to what in the Book of Revelation (13: 16-17) is called “the mark… of the beast”. The “essence of breath, life and everything that exists”, what is symbolic of Om, is violently taken away from the prisoner. He is left to breathe, and live, only his humiliation.

Whether you believe or not in the human soul, we can name the soul as an invisible entity that remains in correspondence with something unnamable. It is this soul that all forms of barbaric power want to control and humiliate, in order to reduce the human to a nonhuman status. Even in the Germany of 1938, Jewish prisoners were marked by a yellow star, which was a perverted form of the Jewish Star of David. When history repeats itself, it is not just as tragic or farce, but sometimes pure horror.


Continue Reading

Latest News

Subscribe to The Kashmir Monitor via Email

Enter your email address to subscribe to The Kashmir Monitor and receive notifications of new stories by email.

Join 965,894 other subscribers


April 2019
« Mar