Saturday, November 19, 2016

What a mess!

I have consciously been avoiding talking about the Narendra Modi government's radical move to demonetize high-denomination notes to fight the menace of black money and terrorist funding. In light of all the rumors and misinformation being willfully spread by the media and the Opposition alike, I thought it better to wait (arguably, I had the privilege of doing so in a far away land) and listen to both sides. And while there are a variety of opinions going around, most based largely on political leanings in absence of any real data (it's only been about two weeks, give or take, since the PM made the historic announcement), one fact is certain: the inconvenience is real, as is the suffering inflicted on the entire country.

From a philosophical perspective, what does one make of this move and the thinking behind it, as exemplified by the PM's announcement and subsequent speeches? It is clearly a leaf out of a Communist textbook: a massive invasion of the private property rights of citizens (on the fruits of their labor, as represented by money) by the state. The initial justification - of weeding out black money and ending terrorist funding - are laudable in a society that wants to be fair and safe. And, if reports from Kashmir are to be believed, the latter objective has been met almost instantly. However, the way new rules have subsequently been created to enable farmers to pay for implements, and families to pay for weddings, is reminiscent of a command economy where bureaucrats dictate every economic activity of the individual. If the country feels under siege, it is because the only situation where such a command economy would be permissible in a democratic society is in time of war.

But then, perhaps it is a war. Isn't that what we elected Modi to do - launch a war against black money and corruption? Isn't that what was promised by the anti-corruption movement that decimated UPA2, the most corrupt government in the history of the Republic? Did we really expect that a war would not take a toll on everyone (I am not referring to the dubious and at times laughable exaggerations about deaths during this episode)? The problem is, in a war, you know if you won, lost, or reached stalemate. In this situation, there is simply no reliable way to tell if black money has really been weeded out of the system - and the government and RBI have certainly not been forthcoming to explain such a system if they happen to have one in mind. And so, the only justification being given is of envy - the rich are suffering, which must be good for the poor. The closest equivalent to this that I can think of is Indira Gandhi's bank nationalization, which was celebrated by the poor despite them still having no access to formal banking for half a century afterwards, purely because it was packaged as the rich being put in their place. Mr. Modi's rather dramatic speech in Goa gave teeth to this justification, and it is a testimony to his massive popularity that so many people have bought it and support his move, despite the lack of even an indication that there is evidence that the goals may be met.

That the implementation was shoddy is a no-brainer that even the BJP cannot deny, and some conspiracy theorists blame it on the Finance Minister, who is anyway seen as a fifth column. Even if we believe that secrecy was necessary to meet the stated objectives (which, I repeat, the government and RBI have offered no way to demonstrate), why the new Rs. 2000 notes could not be made of the same size and shape as the old notes so as to not require recalibration seems to find no answer. That is the singular reason for massive queues outsides ATMs, even as banks have actually pulled up their socks and done a good job. And if, for some reason, that was not possible, why did the government not know that Indians inherently like to hoard things (an outcome of decades of state-imposed poverty, also called socialism) and thus not expect these long lines? Or did they - why do they not want to even talk about it?

And speaking of the new notes - why are they being issued? According to the original stated purpose, the old notes that constituted a huge 86% of the currency base were not used heavily in day to day transactions (which may be true), but were being hoarded as either black money or purely because people liked to keep money at home. What stops the new notes from meeting the same fate, short of some miraculous change in mindset? The only answer seems to be a vague promise of 'regulating' the circulation of the new notes, which I do not for a moment believe is possible. And even though this entire episode has woken up people to the existence of electronic money, will it last? I doubt it, but I hope to be wrong.

In summary, despite the good intentions and my continued admiration for PM Modi, he has proven to be a true socialist at heart (and a much better administrator of socialism than his predecessors). This was indicated before by many of his moves, but there was always some lingering doubt because of a few excellent, pro-market economic reforms as well as the generally poor state of the private sector globally after the Great Recession. With demonitization, there is no doubt left. Modi is no Thatcher or Reagan - he is pretty close to Nixon though. This will cause much heartburn to my fellow BJP supporters, but supporting free markets and free societies cannot be conditional or malleable to the wishes of a leader. And while we certainly believe that Modi will win another term in 2019 (in whatever manner), we can no longer believe that he has faith in free markets. May, 2014 is dead, long live May, 2014.  


rohit gupta said...

Hi Sushobhan

I understand what you have written but I would completely differ from your assessment.

I have been following PM since he was the CM of Gujarat. I have lived in guj for 20 years and i know that probably it is the only state where buisness isn't ridiculed and the national "cronies" (ambani and adani) are eulogized for their wealth creation.Not that people agree with cronyism . Just imagine the fascination that a bengali kid has to rabindra sangeet. This is the same feeling that gujarati kids have towards business.

Anyways I diverge. Modi single handedly created a automobile manufacturing zone in sanand to rival Tamil nadu which hitherto had a vast lead. His tenure is remebered not for freebies but the rule of law that was envisaged. just before 2007 elections in gujarat he refused to waive the electricity dues of farmers when the whole party wanted so. I clearly don't remember any move of his as a CM that is characteristic of socialist CMs that we have throughout India.

India is a vast country where each state has different aspirations and past experiences. At the risk of oversimplification i would say that barring Gujarat, few pockets of Mumbai, NCR and Bengaluru India doesn't respect capital leave alone capitalists. If you look at the chief ministers of India you would notice that only a handful of them truly believed that govt has overstepped its boundaries. Only Chandra babu naidu apart from modi comes to my mind.

To be honest India will not accept an openly pro market leader. rahul gandhi has repeatedly from 2104 onwards maintained a singular stance i.e suit boot ki sarkar and PM and his crony friends.While I absolutely disagree with this the charge may seem funny now but it will stick somewhere 3-4 years down the line. The crony culture that congress has created will not allow a free market enthusiast to work freely. I beleive that modi knows this.He has decided to beat congress in their own game. After this move i believe he will show how to be a true socialist and create a paternalistic welfare state.

A reoudiation of your assessment can be seen when PM addressed the start up India seminar which involved many famous entrepreneurs in the audience.

This are his words : "Please tell me which are the economic activities that government shouldn't be doing. The govt has tried to do a lot of things during the last 60 years, now please tell us what not to do". Do listen the speech. It was a gem. It was definitely not from a socialist.

India doesn't allow a leader to be a Thatcher or a Reagan. I believe that the most effective leaders would be those who have both thatcher and Corbyn rolled into one and knows when to unleash which one. And this is the role PM plays brilliantly. He can be a socialist and a free market enthusiast depending upon the circumstances.

Just look at his biggest criticisms ever since he became PM. All are related to free market policies. Shameless morons like Communists have even began to say that Pm plans to finish reservation by restricting the govt led companies.
To do good for the country world wide experiences have told us that liberal capitalism is best suited to lift people out of poverty.But If you want to win elections you need a socialist exterior covering that.

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