NEW DELHI: Who did Prime Minister Narendra Modi consult? Who were his advisors on demonetisation? These are the questions on every lip, with even BJP leaders usually the most fearful of speaking out, wondering what made the PM take the decision that has thrown the entire nation into chaos.

Even while writing this the office has got desperate calls from Vasundhara enclave by persons standing in queue outside the Canara bank branch since the morning. One young woman said she has been standing outside since 8 a,m, “The bank opened at 11am and it has closed now at 330pm our turn has not come, how can we manage, how can we function tell us,” she said. A man called saying people were pelting stones, and there was complete chaos. Another woman called furious, “do you people think it is a joke, if you had to stand here you would know.”

In other instances:



The name of the advisors vary in although Reserve Bank Governor Urjit Patel, Finance Minister Arun Jaitley and BJP President Amit Shah are common to the speculative lists being bandied around. Industrialists Gautam Adani and Mukesh Ambani are also on the grapevine list, with the former having posted in support of the move. Ambani, as always, has been more circumspect. Before his announcement at 8p.m. PM Modi was closeted with Jaitley and National Security Advisor Ajit Doval. He had also met the three defence chiefs in what is now seen as a confirmation that he was expecting protests to hit the roads, and spoke of the inconvenience in his address to the nation as well.

The first person to speak out for demonetisation, after the PM’s announcement, was Shah. The second from the government was Jaitley who gave his first statement two days after. Adani has followed now six days later. Most of the cabinet ministers have remained silent. Sources reported deep consternation within the BJP and sections of the RSS. A senior journalist very close to the RSS was openly bad mouthing the move, criticising the Prime Minister and insisting that “even Ramdev is very upset.” In fact this person who has been supporting PM Modi in Delhi social circles rather belligerently in the past, and has recognised clout, now said, “I made a very big mistake, I do not know why I voted for him.”

PM Modi’s speech at Goa after returning from Japan was indicative of this worry. He threatened, cajoled, and ‘broke down’ speaking of his commitment to end corruption, of leaving his life to become the Prime Minister, of the threat to his life. Senior editors described this speech as a “sign of new nervousness” with the decision not carrying the hoped for accolades. Instead the continung chaos, that even had the Prime Minister fielding his 96 year old mother who went to a bank to exchange notes, threatening to dismantle much of the good will ahead of the Uttar Pradesh and Punjab elections.

Almost the entire opposition, including BJPs allies, have strongly criticised the mood and despite the effort the banks are finding it impossible to cope with the rush, that is fast becoming a crisis. The currency is in short supply with banks closing windows early on in the day. The ATMs now the government finds, are not calibrated to accept the new Rs 500 and Rs 2000 notes and remain dependent on the old legal currency that is in extreme short supply.

No one in government is accepting the blame. It has rested squarely on PM Modi, and Jaitley although a couple of articles have appeared blaming everyone’s fall guys, the babus. The government is silent, with the Prime Minister alone speaking on the issue from the pulpit. The RSS has been very quiet, with not a word on the issue from Nagpur. The Shiv Sena has launched a castigating attack on the BJP with leader Sanjay Raut saying that if the government does not roll back the decision, it can then face a roll back itself.

Major economists have written and spoken against the decision, making it clear that while it has created mayhem, it will not tackle black money in the way it is being projected. Economists predicted the chaos, even before the queues hit the roads as it were, leading again to the question : how is that the PM’s advisors did not portend this?

Reputed economist Prabhat Patnaik wrote in The Citizen the morning after the decision came into effect at midnight: ““Black money”, it follows, refers not to a stock but to a flow. ”Black activities”, like “white activities”, are meant to earn profits for those engaged in them; and simply keeping a hoard of money earns no profits. What Marx had said about business activities also holds about “black activities”, namely that profits are earned not by hoarding money but by throwing it into circulation; the “miser” does the former, the capitalist the latter. And those engaged in “black activities” are capitalists not misers.

Of course, in any business money is also held for a shorter or longer period (e.g. during the C-M-C circuit); but this is true as much for “white activities” as for “black activities”, so that the belief that the differentia specifica of “black money” is that it is held while “white money” is used for circulation, is completely without any basis. Allmoney circulates, with occasional pauses when it is held, whether it is employed in “black activities” or “white activities”. The essence of unearthing “black money” lies therefore in tracking down “black activities”, not in attacking money-holdings per se. And this requires honest, systematic, and painstaking investigation.

Long before the days of computers, the British Internal Revenue Service had earned the reputation that it would eventually catch up with any tax defaulter simply through a process of grinding and meticulous investigation. True, Britain is a small country compared to India, but that only means that the size of the tax administering personnel has to be larger, tailored to the needs of the country; and if this is done, then unearthing “black money”, at least in the domestic economy, is merely a matter of patient and efficient tax administration.

A sizeable portion of “black activities”, however, is operated through banks located abroad; indeed some would say that this constitutes much the larger portion. Narendra Modi himself before his election had talked of “bringing back” the “black money” stashed abroad, suggesting that the bulk of “black money” was located abroad, even though his remark displayed the same naïve understanding that “black money” referred to a hoard rather than to a range of activities. But if foreign banks constitute the predominant source of funding “black activities”, then the demonetization of 500 and 1000 rupee notes, while causing much hardship to ordinary people, will do little to eliminate such activities. “

And concluded, “What the Modi government has done is unprecedented in the history of modern India. Even the colonial government had shown greater sensitivity to the convenience of the people than the Modi government has done by demonetizing only those notes which were possessed by the super-rich and not those possessed by the people at large. This “emergency measure”, however, is in line with the numerous other measures being currently pursued by the Modi government which has embarked on an undeclared “Emergency”: it is as fatuous as it is against the people. “

Demonetization-Witless-and-Anti-People

Economist Swaminathan Aiyer wrote in the Economic Times: “As a flow, black money is simply income that escapes taxation. This is not just income from crime, bribes and real estate deals: it includes the income of the vast majority of Indians. Barely 3 million people file income tax returns, of whom less than two million pay income tax.

Hundreds of millions of small businessmen, unorganised workers, farmers and self-employed persons should be paying income tax but do not. Rural India (with 70% of the population) is very largely a cash economy with no income tax office in sight.

As India modernises, it must shift hundreds of millions of people from the unorganised and untaxed sector into the organised, taxable sector. Over and above this, a strong police-judicial system is needed to identify and quickly convict big offenders. Neither change looks likely anytime soon. So the generation of fresh black income will barely be touched by demonetisation. So, euphoria is unwarranted.”

Economist Arun Kumar wrote in the Hindustan Times: “At what cost to the economy? Household, business and industry would be adversely affected as transactions would become difficult in the coming months. Large part of the economy does not use plastic money or cheques. Small businesses will be hit hard and that is the BJP’s core constituency. There would be long queues at banks and a black market may emerge in the currency notes for exchange and for smaller currency notes. There would be premium for gold and foreign currency – this was the case in the 1980s with the Bearer Bonds. Jan Dhan accounts are likely to be used for converting black into white. Havala may become more active. Demand for discretionary items would drop sharply in the coming months. But sales in Malls and from e-commerce based on plastic money may rise. However, in the net, dislocation of trade and commerce is likely leading to a hit for industry which has hardly been growing recently.

Our poorly performing and leaky bureaucracy would be unable to handle such a complex operation at such a short notice. Remember the wheat trade nationalization in early 1970s which had to be reversed in a few months time because of the havoc it created. But the present move cannot now be reversed even if it fails. The government has taken a big risk. Why? Recent steps to control it via the foreign money bill and the Income Declaration Schemes failed. It wants to show that it is serious about the black economy after its promises during the 2014 election. In conclusion, it is unclear that the likely impact on the black economy would justify the costs that the economy would have to pay.”

These economists come from different streams, and yet to the same conclusion. The question thus as to who advised the Prime Minister begs an answer. More so, as the government now operates in utter secrecy with the corridors of power made totally inaccessible to the media through word of mouth notices to the ministers and officials that they must not speak to journalists. The ‘or else’ is implied with sufficient force to make all in positions of power to keep journalists at a distance, like the proverbial pariahs.

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