Demonetisation and the Question of Inflation

NARENDRA Modi had asked for 50 days’ time for his demonetisation measure to work: the people were supposed to suffer for 50 days, by the end of which the wonderful results of demonetisation were to become evident. He was even willing to get “hanged” if proved wrong at the end of this period.

The Dialectics of Authoritarianism

WE are seeing in India at present a remarkable inversion of reason. The more the common people suffer from the impact of Modi’s demonetisation, the more he is lauded for the “courage” shown by him in undertaking it. An economic measure should be, and normally is, judged on the basis of how it benefits the people, and any measure that brings distress to the people is derided for that reason. What we find in the present case however is just the opposite: the more demonetisation brings distress to the people, the more it is applauded for its wisdom and courage.

Banks as Victims

IN the outcry against the disastrous demonetisation experiment of the Modi government one aspect that has not been given adequate attention is the damage it has done to the reputation and the balance sheets of the banks. Customers queueing before bank doors and ATMs seem on occasion more forgiving of the government than of the harassed bank employees, who are forced to ration out currency and offer those customers they can accommodate, less than even the maximum withdrawal permitted by the government and the RBI.

Demonetisation and Banks’ Lending Rates

SPOKESMEN of the ruling party are busy these days spreading another falsehood, namely that, because of demonetisation which has brought in huge amounts of cash to their coffers, banks would be so keen to lend that their lending rates are going to fall, and that such a fall will act as a stimulus for the economy.

Demonetisation as the Basis for a Fiscal Stimulus

A BIZARRE argument is doing the rounds these days. It states that the cash which gets disabled in the “black economy” because of the government’s demonetisation measure, would enable the government to undertake an equivalent amount of expenditure with impunity; it can therefore spend more on infrastructure and other essential areas, or simply provide cash transfers to the people.

Demonetisation as a Means of Fighting “Black Money”

SO many lies are being spread by the government which is currently busy wrecking the Indian economy in the manner of a bull in a china shop, so many spurious economic arguments are being trotted out by it, that one has to be extremely vigilant not to be swept away by this tide of unreason. In the current article, and the two subsequent ones to follow, I propose to examine some of the more persistent assertions that are being made by government spokesmen.

The Chimera of a Cashless Economy

A SECONDARY justification for the demonetisation of 500 and 1000 rupee notes, apart from its presumed deterring effect on “black money”, is that it ushers in a move towards a “cashless” economy. This argument too, however, like the perception that “black money” is just held in the form of a hoard of currency notes, is staggering in its simple-mindedness.

Demonetisation of Currency Notes

NARENDRA Modi went on national television at 8 pm on November 8 to announce that from midnight of that very date, ie, in a mere four hours’ time, 500 and 1000 rupee notes would cease to be legal-tender. The justification advanced for this bizarre move was that it would strike at “black money”. An additional argument was thrown in, to the effect that fake currency notes used by “terrorists” would now cease to be effective; and some particularly enthusiastic supporters of the government even went to the extent of calling it a “surgical strike against terrorism”.

Developing “Infrastructure”

THE term “infrastructure” covers all sorts of things, from ports to roads to canals to bridges to building railway lines. Because it covers such a range of things, many of which appear to be useful, most people look upon “infrastructure” development as an indubitably desirable thing under all circumstances. Questions are scarcely asked about its worthwhileness when the government allocates larger resources for the “infrastructure” sector, or when it instructs public sector banks to give larger loans for “infrastructure” development.

Focus on Inequality

THE World Bank and the IMF have started a new trend of late, of taking “progressive” positions in their publications even while insisting on the same old “conditionalities” in policy negotiations with particular countries. In accordance with this new trend these institutions have now got concerned with issues of poverty and inequality; and the World Bank has just brought out what is supposed to be the first of a series of annual publications tracking progress towards poverty removal and curtailment of inequality. This publication is called Poverty and Shared Prosperity.

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