Friday, December 9, 2016

FEW MYTHS ABOUT DEMONETIZATION DEBUNKED SMALL PAIN GONE-ALL WILL LIVE HAPPILY THEREAFTER

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Post Demonetization, interested groups in the opposition and Media carried out a sustained malicious campaign through the print and visual channels. Opposition tried to make it a big issue in the Parliament but shied away from debate after the first day as there was no issue to be discussed and they were convinced the Government was ready with answers. So, as usual, they adopted disruption tactics that Media mostly covered as a victory of sorts to the Opposition. Meanwhile, queues continued near the banks and for reasons known to RBI, the ATMs have become dysfunctional. Murmurs that started on the first day continued unabated though the intensity is reducing by the day.

Meanwhile, Media is having a field day spreading all kinds of theories and spreading all kinds of rumors. Many of the theories are the wild imagination of the theorists or a sinister attempt to misguide the general public and create a sort of revolt against Modi. Many forces are at work in this nefarious design. Media, for its part is carrying out a sustained negative campaign either because the Media barons are paranoid that their ill-gotten wealth would be taxed or they were being propped up by the powerful tax-evaders lobby who fear their ill-gotten wealth would be halved once action started on eliminating the cockroaches hiding in bed spreads. Either way, public is kept under constant guess and are being confused with these sinister theories. Let us examine some of the myths these selfish groups are spreading. Let us examine, one by one, from day one till date these myths.

Arvind Kejriwal's "Scam" theory:  The first to jump with absurd theories without proof (as is his practice) is Arvind Kejriwal. First, he said close friends of Modi were informed of the decision by phone long before it was announced. There was no proof and this directly contradicted the theory of other opposition parties that it was "sudden" and there was no planning. Then he spread a rumor that Modi was paid Rs.25 crore bribe. His former colleague and now bete noir Prashanth Bhushan went to SC, catching hold of the straw. SC dumped the petition. After he failed to bring out an iota of evidence on this charge he went a step ahead and said BJP knew it. He tried to project the purported credits of huge amounts in the SB account of WB unit of BJP. This did not cut much ice with Media or people. He then made the wildest allegation that all this exercise was a "scam".  As this too failed to enthuse masses, now he stopped talking.

In Telugu, there is  one "Prakriya", a literary exercise where the highly learned in the language takes simultaneous quizzes from eight other  learned poets. These quiz like questions are asked in parts and the "Avadhani"  (the performer)  fills one line after the  other  of eight poems spontaneously without missing the grammar.  Finally, he should recollect all the poems he recited in parts, at one  go. This is called "Dharana" and power of memory.  In this group there is one "educated"  man who goes on talking nonsense and gibberish to distract the concentration of the "performer" He is called "Aprastua Prasangi", irrelevant babbler.  His value is that of a court jester. Whenever I see a tweet by this joker, I remember the "Aprastuta Prasangi"

Mamata and Maya's Economic Emergency theory: This is a myth. A road map of 50 days was drawn by the Government and the Government cautioned people that there would be hardships for 50 days. In emergency situations like war or the ambition of one lady to protect her seat of power, what happens? The whole country gets disoriented.  For example, those who lived during the second World War knew that there was ration for every consumable item. Udad Dal that goes into making Idly or Dosa, the breakfast item of 90% of Southerners was rationed to one kilo a month. Many restaurants faced closure and thousands went jobless.  This was true of each other item. Today, that situation never occurred. There was no rationing. The main items like milk and vegetables were never in short supply. Yes! The business suffered a temporary shortfall of anywhere between 25% to 40%. But people found other ways to do business. They extended credit. I saw that no shop, either retail or wholesale was closed. Where is economic emergency? Temporary pain for perceived gain in the  long run was accepted by the public. When the  public largely ignored these tantrums by these ladies, they stopped hitting the streets and were sitting inside TV studios.

Congress' long queues theory:  Queuing up for everything right from milk to Cinema Tickets, from urea to immigration counters is not new to Indians. Youth may not be knowing but in the seventies we used to stand in queue for milk packets of Vijaya Dairy in Hyderabad.  Sometimes, the milk van was coming after ten'o clock thus disrupting our office routine. There were no refrigerators those days to store milk. Some days, the van was not coming at all.  Who was ruling then? Then we used to queue up in front of ration shops  for hours for oil, sugar, wheat, rice (on days they were available,, that was rare). The whole stock was going to black market. Who was ruling then? Then, they speak of farmers. Farmers used to sleep  near urea shops through the night to get the adulterated fertilizer. Some days it was not coming. Farmers used to get restive and agitate. Many a time they were being beaten up. And the urea was going to black market. Who was ruling then? We were standing in queue for hours in front of train reservation counters. Who was ruling then? Today, the queues are looking different. People are waiting patiently. There is a little frustration. But there is no palpable agitation. No one is revolting. The hoarder of black money is not revolting for fear of getting caught and others are not revolting as they wanted the system to be cleaned once and for all.

Sitaram Yechury's Obituary theory: This guy whose party got a mere 10% vote in the by polls in West Bengal behind BJP's 25% is naturally upset. Now they have minimal presence in the country. He wants an obituary for an unspecified number of people who died for unspecified reasons at unspecified places. He even does not have their details. There are no reports that family members of the deceased made an issue of their deaths. Reasons may be many. If he named one person and linked his/her death really due to demonetization he could have had his way. Another myth spread by the non-existent party, whose obituary would have been proper.

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Even before the targeted date of 30th December approached, theories started floating in the Media about the total failure of the scheme. Word is spread through various channels that there is, in fact no black money in system. This is laughable as these very leaders and the Media were continuously blabbering about the existence of black money and were asking, "What is Modi doing about black money in our country?" How many of left liberal economists not sore their throats shouting, "Why is Modi silent?" These same guys now shout, "The whole money in circulation came into the system and where is black money"

Let us understand the word "Black Money"  as these people were shouting about earlier and the same "Black Money" they now say was not existing at all. Black money is that money which is either in circulation in a parallel economy that the Government and Tax Authorities have no information about or hidden by hoarders.  Some overzealous economists and so called experts wrote columns and shouted (soon after demonetization)  that black money does not exist in the form of cash but it exists in the form of fake assets or gold or other assets.  This is a myth. And their argument is that the one or two notes of higher denominations held by the marginalized is not part of the black money. With due respects to the toiling masses, I differ with this view.  When the system is accepting the generation and circulation of unaccounted or black money as a fait accompli, each unaccounted rupee that is circulating in the system from the point of generation to the end point is part of the malaise. 

Let us take case in point.

There is a builder. In dealing with the sale of buildings constructed by him, it is a practice to accept 40% to 50% in cash thus avoiding paying taxes. Whatever expenses he claims, he again claims from the accounted transactions he undertook and he claims exemptions. While constructing the building he collects this white and black component by check and cash  or in other words accounted and unaccounted.  

How does the money so hidden from tax authorities move? He buys sand, for example. Sand is another business where nothing is accounted for. He pays cash to the sand dealer. Sand dealer in turn pays the unaccounted cash to the truck owners who again do not declare these transactions to the Tax authorities.  The truck owners pay salaries to the drivers and other staff in cash. As  the drivers and other lower level staff do not fall  in taxable income net, they again do not declare anything. So, from the point of origin to the end point, at no point there is a clue to the tax authorities about the cash movement. If we take the whole transaction, the unaccounted money that generated at the builder's point ended in the hands of small time workers. These small time workers again spend the money in cash by buying essentials from small traders who may be doing turnover in crores (in some cases) but as they never declare their source of cash  or its spending, it again misses the radar. The small trader, in turn, buys goods from a wholesaler by paying cash and never declares large part of his turnover. The wholesaler, in turn, purchases his goods directly from farmer or through middlemen and again pays cash. The farmer, however big he is, never declares the cash receipt. What does he do? He buys a building from the builder by paying 50% in unaccounted cash and 50% in accounted cash. This cycle goes on.

What was the larger objective of Modi in squeezing all the cash from the market?  If anyone, including the famous economists that also includes our ex-Prime Minister thinks that it was only to book those who are  hoarding huge cash in lockers or beds, they are mistaken. It may be only 5% of the total money in circulation. But 50% of the money in circulation is unaccounted including the single Rs.500 note held by a laborer, as is evident from the foregoing.  The larger objective is to bring each transaction, as far as possible, into the transparent tax radar. So, when detractors say that the black money holders will again hoard money in larger denomination notes they are misguiding gullible public. Agreeing to their view point also, how much money will go into hiding? Is it not 5% only? Taking it for granted, Modi is still ensuring that 50% of the total money in circulation is going to be revealed to tax authorities. That is where the digital push comes. Change is slow and painful. Did we not feel the pain when large scale reforms were undertaken by PVNR? How many of the rural folk then understood the changes that were taking place very fast?  How many could operate a cell phone or Satellite TV. Today you find Dhoti clad farmers and laborers roaming the streets of various countries. 

I again reiterate that the unaccounted money starting from the origin till the  end point  with a laborer or farmer, small trader or street vendor remains unaccounted unless a system overhaul is undertaken. Yes! There may be difficulties in commoners getting accustomed to technology. But, just as they are now traveling to foreign countries beating language barriers, facing grueling questions from Consulates, Immigration, Customs, just as they  are operating smart phones, using Wi-Fi freely, just as they are booking tickets on-line they will get accustomed to Digital transactions. Then, they raise the question, "How  many months or years do we have to bear the cash crunch?" Today, Government assured the SC it will be normal supply of cash in fifteen days. But Government is sure the amount of money in circulation will be far less than it was and notes of higher denomination will be squeezed out of the system slowly. There is an increase of 400 to 1000% increase (of various types)  in digital transactions in November.  It will increase further. Any politician or economist worth the salt would have grasped by this time that RBI slowed down supply of cash purposefully to guide public to digital transactions.  Once the targeted reach is achieved they will  ease money flow but slowly and steadily. But the person who is accustomed to digital transactions will never go back to cash transactions as it is more cumbersome.  And, once the  fact goes into their minds that it is going to effect the rich and super rich who were exploiting them by lower wages, they will not only do it but encourage others to go digital. 

Many rich people, politicos and media barons are running a sustained campaign that the Digital India push takes years and in the meantime the poor have to suffer. This is malicious. It  is very clear that  they are paranoid that once the rural folk gets included in the mainstream, they can no longer exploit them as they have to pay minimum wages as prescribed by the Government through banking channels and they have to adhere to the PF and ESI norms.  That day is not far away, when maids working as house helps demand minimum wages through banking channels.

Whole cash has come to banking channels and where is black money? This is the most stupid argument. The intention of the Government was never to get dividend on the amount not credited in the banks but to channelize the entire undeclared and declared money into the system and clean up the system. Taxing those who credited higher amounts then declared will follow and may take a year. In the meantime the scare mongers want to spread malice by spreading baseless rumors like Government is going to seize gold, your houses etc. Public are not fools to fall into this trap.. If  there is no black money in the system, why is there such frantic effort to credit the amount in various accounts? Why is there so  much rush at the banks to withdraw as much amount as possible within the limits allowed? Where has the 4.38 lakh crore new currency gone? Where has  the 2.51 lakh crore money in small denominations gone? This is still legal tender. It shows how the crooks are trying to defeat the grand purpose of demonetization. 

By a conservative estimate even now, at least 4.00 lakh crore will go into the drain after 30th December. This is because SBI says there may be a 20% double counting in the 11.55 lakh crore declared by RBI. When it comes to brass tacks SBI knows better than RBI as they do banking and RBI only supervises.That  will  be huge and to that extent the wealth of the super rich vanishes. Note that RBI declared that there was never an intent on its part to pay dividend on this amount to government and government never said that officially. So, there is no issue of failure of the scheme as a section of the Press and Media is trying to misguide.

On counterfeit currency they say it is only Rs.400 crores. They fail to grasp that counterfeit money to just buy an AK 56 gun can kill hundreds of people if not checked. And one more specious theory is , ""How many days will it take the counterfeiters to counterfeit the new series?" These guys have more faith in counterfeiters than in the mighty government. There is a reason. We were ruled by counterfeiters for six decades. It is no wonder skepticism runs in our blood.

Weddings:  Another misnomer created was a silly question. "Can we perform marriage with Rs.2.50 lakhs?" Who asked you? Spend as much as you can afford by cards or digital transactions. The amount of Rs.2.500 lakh was intended for the purpose of payments to those people who do not have bank accounts like those who supply small items.  Problem with these guys is they want to spend crores of unaccounted money on weddings. Take it, it is no longer possible. You may have to pay dowry, which is illegal,, too by check. 

It is the duty of the opposition and media to spread awareness and reduce the pain of the general public. Instead, they took a malevolent stand that Modi is out to destroy the poor and protect the rich. Modi is a politician whose thinking can be understood by only  a few. He is a statesman who  can be understood by even a layman like me. Time is a great healer. The small pain that the public are undergoing will be healed soon and gains are going to remain forever and ever, and all will live happily ever after.

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SATYAMEVA JAYATHE



PS: I AM NOT AN ECONOMIST. THE VIEWS HEREIN EXPRESSED ARE FROM MY EXPERIENCE OF ABOUT FIFTY YEARS OBSERVING POLITICS AND ECONOMIC ISSUES. I MAY OR MAY NOT BE RIGHT IN THEORY.