Demonetization

Just came back from the bank. My second visit so far. The first, I had to stand in a queue for an hour and half to deposit my old money and exchange some of it for INR 4000 in the new currency. The second, today, I had to spend ten mins in the queue to withdraw some money from my account against a cheque.

I am an armchair theorist – the theorist of the worst variety. I simply can’t bring myself to put in the hard work and research required to delve deep in to any subject and get my facts before opening my mouth. I just take the available facts and try and think my way through to the rest of the story. Not a good idea, to say the least. However, having said that upfront, I still think that this method is not without its merits.  One, it makes me think – which it seems is one of the toughest things that the mind can do, although the human mind was designed for that one purpose only. Second, it spares me the effort of having to actually pour through reams of information available on the social network or the news channels. From what little I have seen, neither of the sources have stood up to the basic tests of credibility and impartiality. 

I certainly have good things to say about this step. Have listed a few below:

1. Fake or counterfeit money becomes invalid at one swoop. Simply scraps of paper. Goes out of the economy instantly. Poof - like magic! It’s a good thing.
2. As a corollary, money, mostly fake, used to fund insurgency and terrorism by our neighbor/s becomes void – as result, we can expect an immediate drop in acts of insurgency and terrorism.
3. A fraction of the moneyed (the tax evader types and not the law abiding moneyed) who had been stupid enough to hoard their wealth in bank notes will be penalized by default. Agreed that there are myriad ways to convert the old bills in to usable currency - but none of these are easy or foolproof. Hardship and risk is involved. Hence, this too might be a good thing overall. 
4. As a basic tenet of economics, supply remaining the same, if the demand (read buying power) goes down, prices will fall. Be it consumables or real estate for that matter. This however is a short-term phenomenon. Things should be back to normal as soon as the banking situation improves – six months to a year at the most. This too, even if short term, is a good thing. It is obviously better to buy potatoes, or a house for that matter, at a lower price for six months, as opposed to never.

But this is where I run out of good things. Here is my take on the issues mentioned above – and then some (and i know that all or most of these points have already been discussed threadbare at all forums - so don't go in expecting too many novel or original points):

1. Fake notes and the corollary, funding insurgency: In the short term, both will drastically go down. However, if an enemy nation is determined to ruin India, what is there to prevent it from creating fakes of the new currencies being floated by the Govt. It will take some time and money – but the enemy has both of these in abundance. These notes, in fact any notes in the world, are not counterfeit proof. Hence, we can expect the fake notes back in circulation after a few months. And with that, there will be increase in insurgency – as sure as night follows day. 
2. Black money: As I stated, the real players in the black money game are not stupid. They do not hoard currency notes stuffed in to pillows or mattresses or buried in pots. They invest that – in real estate, in stocks, and in God knows what else. But never in currency notes. So, I don’t expect them to take a hit of any consequence. Yes, the small fry, the Marwari businessman who deals only in cash, the local money lender and their brethren will feel the pinch. But the real actors -  the business houses, politicians, film stars and cricketers -  who presumably account for more than 80% of the black money in circulation won’t be affected. The social media is awash with stories of hundreds of crores being deposited in the banks within a week of the announcement. But let us just think this through for a moment. I myself had ten thousand rupees cash in old currency with me on the day of the announcement. I deposited that in the bank the very next day. Let’s assume that only 10% of the population are like me. Ten percent of 125 crores is almost 13 crores. If each deposited a paltry ten thousand, then the total deposits would be 130 Thousand Crores. We are yet to reach half way of that figure. So that is not a big deal in itself. But after depositing 10,000, I proceeded to withdraw 24,000 out of my account – which, I normally would not have. If others withdraw half of that, more than twice the money will be withdrawn than has actually been put in. That cannot be good news for the banking sector nor the economy. 
3. Further, the kirana stores and the vegetable vendors have been hit. First I could not go to them as I did not have adequate cash handy after depositing my old notes. When I received / withdrew money from the bank, the poor vegetable vendor did not have change for 2000 note that I bandied in his face. So I simply went to the supermarket and brought my groceries and vegetables using my card. 
4. Those who were in the habit of hoarding currency notes, will continue to do so. Nothing is there to prevent them from doing so. In fact, now they are assured that the Govt will not carry out a similar exercise for the next ten years at least. Hence they can gleefully continue to hoard money. 
5. Lastly, I raise a contentious issue: Who knew that the Govt is going to implement this step? The Govt obviously. And people close to the Govt. The Government and the ruling party, at least in our country, are synonymous. Why do political parties need illegal hoards of cash? Mostly to fight elections. Every party does that. Every party accumulates cash, most of it illegally, for this purpose. We have the UP elections coming soon. This practice of enticing voters with cash and cash related incentives is an established fact in UP. It’s a big State. It has many constituencies. It requires cash - a lot of it. All parties were prepared for that – some openly soliciting cash from its followers. Now with this one move, the cash reserves of most political parties are worthless heaps of paper. I say most, not all. The only party which had prior knowledge about this would naturally be better prepared. And which is that party? Second, with the short term fall in prices as well as incidence of insurgency and terrorism, which party stands to gain the most political mileage out of this? 
6. People love to be martyrs. It lends a sense of heroism to their staid, predictable and often tough lives. People inherently want to see themselves as suffering pain for the welfare of the nation. Not many get a chance to stand at the border or lay down their lives for the country. Now here comes a chance where standing in queues to get your own money out of your bank can be seen as contributing towards nation building. It is being played so, very smartly, by the minds behind this entire move. Pain is made out to be good. Its honorable. Its laudable. The more pain you suffer the more of a patriot you are. People have died standing in queues. But that is acceptable – they are martyrs after all. Died for the nation.  The second is more of a psychology thing. There is a lot of frustration and pent up anger in the poor as well as the so called lower middle class. The have-nots. They feel that they have been betrayed by the society as a whole. While they struggle to make ends meet, to feed their children, to get adequate health care, they keep seeing the lifestyles of the rich and famous. The Haves. Its normal to feel betrayed, left out and somehow cheated and exploited. The rich and the corrupt are often seen and measured through the same viewing glass. I am honest, hardworking and reasonably intelligent – even then my family suffers, my life is a miserable struggle for existence. Whereas these pampered, spoilt, dishonest rich have all going for them just by virtue of their birth. I can’t accept that. I can’t tolerate that. I know that even if I pour my sweat and blood, chances are that I will never be able to reach their level. So now, finally, my PM, the lowly but honorable Chaiwala, has done something to punish these bad guys. Now, their money will be taken away. They too will feel pain, feel fear. This gives me a kind of perverse pleasure. I know, to some, this may seem far-fetched, but I feel, that this too played an important role in all the glee being poured on to the social media.

But at the end – I will still say – that this measure is better than no measure. Even if this stops terrorism and needless loss of lives through terrorism, for six months, hats off. However, I reiterate, that this measure, alone, by itself, will hardly make a dent. This must be the beginning. The first tiny step.  As regards the matter of curbing black money – that only time will tell.