Monday, January 16, 2017

My fears for India, post demonetisation ..

Interesting cartoon on the damage demonetization has done
to the  Indian economy
Demonetisation still remains a hot discussion topic in the country, with more and more depressing and disappointing news coming out in  public domain with each passing day. Through this passage let me try to create an awareness and attempt to get behind the economic intentions of the disruptive action. The cartoon depicts what has happened to the pillars of economic activity in the country.

India is the third largest economy in the world with a Gross Domestic Product at Purchasing Power Parity of $ 8.7 trillion (IMF estimate for 2016) in comparison with China's $21.3 trillion and US' 18.6. trillion. Thanks to Dr Manmohan Singh Indian GDP which was at #10 position in 2004 was brought to global rank #3 in 2014. Dr Manmohan Singh was a very cool person, he never used to get agitated with all petty issues happening in the country and he had a good team which saw to it that mischief creating elements or miscreants were kept under control.

India in 2017 faces a peculiar problem. The present Indian PM was presented with an economy which was globally at #3 position. He just had to pursue the actions of the economist PM, Dr Manmohan Singh, which could see the country sailing to the #2 position in 10 or 15 years, overtaking United Sates, the second largest economy now. One of the greatest inheritances of Narendra Modi was a peaceful and confident country inching to march as the second biggest economy in the world.

A concerned former PM Manmohan Singh,
whats happening ?
Narendra Modi initially started his tenure quite confidently, quite lucky to get a solid rock economy as inheritance from his predecessor. He even managed to see the country growing at 7 to 7.4 % in the two years before he decided to go on the offensive and secure the growth of the country. In one shot and with limited knowledge to his close partners in the ministry, Modi banned all higher denominations of currency, mainly the Rs 500 and Rs 1000 notes, about 86% of the currency in circulation amounting to almost 15.44 lakh crores in the country on the 8 th November 2016. He also gave a time limit of Dec 31, 2016 till when citizens could deposit the money with them, black or white into bank accounts. He also brought restrictions on the amount that could be withdrawn daily and weekly. The move to limit the cashless transaction was a major blow for the people living in the towns and villages of the country where nearly 70% of Indian population resides.


A pensive PM, worried how to get out of this rut ? If only
he had done enough homework on the economy, than
dependingon his team of ignorant and incapable 
shouting brigade 
The initial euphoria seen in the country and lame efforts to shout down all opposition to the move which would otherwise bring prosperity to its citizens, has given way of late, to one of desperation and anguish. The initial move has since metamorphised to a drive to change nature of transactions from physical mode to cashless mode, electronic transactions.

The people naturally got disturbed. The country which was till then having only 3% non-cash transactions suddenly being forced to switch to cashless transactions, got the people nervous. These people found it very difficult to switch their modes from cash to cashless.

Farmers even after selling their produce found it difficult to get buyers pay up as there was a cash crunch and a limit on the amount of money that could be transacted across the bank counters daily to Rs 4000 and weekly to Rs 24,000. Fruit growers and farmers remained unpaid, pushed to the brink of poverty and were not having money to pay for the seeds for the next sowing season. May of them have abandoned sowing for the next season. Tomatoes were being thrown in the market, tons of it, as the price had fallen to Rs 0.50 for a kilogram (50 paisa), not even enough to pay for the efforts by the farmer, forget the cost of fertilisers and water that has gone into it.

The malaise is bound to spread across the farming community of the country unless urgent measures are taken to lift the restrictions on the amount of  transactional value of daily and weekly bank withdrawals.  Generally all business establishments in the country have registered somewhere between 25% to 40 % drop in businesses on a daily basis. Sales of high-end cars, purchase of land, buildings (avenue for black marketers to stash off their ill gained finds) has taken a severe beating. The people now feel whether this was the right action to be taken to stop these black marketers and anti-social elements in the country from damaging the country's economy further ?

Modi was also unmindful of the fact that by demonetisation he was targetting just the tip of the iceberg, ie 6 % of the total value of black money in the country. 94% of black money in the country is invested in gold, real estate and stashed out of the country to swiss banks and banks in tax havens of the world. Frankly speaking he was not smart to get at the woods than the trees. He wanted to contain Pakistan his arch enemy somehow than aiming for the welfare of his people which needed some really intelligent moves.

Prior information of the financial situation in the country post a demonetisation shock was not accurately conveyed to PM Modi neither by the earlier PM Dr Manmohan Singh (in the interest of the nation, did they ever discuss about the growth of the economy even once ?) nor the finance ministry officials. If PM Modi is now forced to call off his demonetisation drive and cashless currency campaign (a distinct possibility..), it would be a loss of face for Modi, but definitely in the long run, it would save the country a decline in economic might.

The coming days is going to bring greater disaster for the country than what has happened all these days, let's watch and wait.  These are the words of the former PM Dr Manmohan Singh. Coming from a person who has reined over the economy for ten years and did mighty good to the country and the economy, unlike any previous Prime Ministers could even dream of doing, his words cannot be wished away as opportunistic talk .. Read news from The Hindu where former PM Manmohan Singh asks the citizens to be ready as the worst is yet to come and the ill effects post demonetisation is yet to hit the country.

A very recent Nobel laurete Amartya Sen comment on demonetisation ..

The PM is keeping all cards close to his chest, waiting for the opportune moment to have the last laugh, as is his customary approach. But will he have that luxury any time soon ? Was it carried out due to ignorance at the top or with some devious planning behind it ? The country still does not know the true intentions.

Let us not forget that in a democracy every idea and everybody have their day !

george 

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