note demonetisation

Is Modi’s move to scrap high-denomination notes more about politics than economics?

Economic theory offers little or no guidance as to the impact such an action would have.

The government of India’s decision to abolish high-denomination notes of Rs 500 and Rs 1,000 has been given two primary rationales. The first is to address a problem of counterfeiting, suggested to emanate from across the border, and the second is to address the problem of ill-gotten gains resulting from corruption or tax evasion. The dramatic nature of the announcement of the move, giving rise to an appearance of determination and decisiveness in government, and the claim that popular social goals were being pursued, appear to have generated initial support for the action (such as on social media). However, how wise an approach to addressing these problems is it?

Fundamentally, the abolition of high-value notes involves the application of a blunt instrument of uncertain value. Economic theory offers little or no guidance as to the impact such an action would have, and effects on the proclaimed goals could be counter-productive, with some groups being harmed for no fault of theirs, while undermining the ultimate promise of governmentally issued money that it is a reliable medium of transactions and source of value. It is far from clear to what extent the government’s decision was based on a careful study weighing the consequences.

Consider the idea that foreign terrorists use counterfeit cash to finance their operations. If they can bring in counterfeit cash, then do they not also have access to foreign currency abroad which they can transmit with hawala methods, or indeed can they not smuggle them outright and exchange these in the black market within the country? What about the idea that counterfeit notes are being systematically and intentionally used to destabilise the national economy? There is nothing to stop currency notes in circulation being instead gradually, or indeed rapidly, replaced through central bank operations, as routinely and continually done in all countries to substitute for ageing banknotes.

What of the idea that the elimination of high-value notes will make it harder for officials and politicians to engage in corrupt acts, or for citizens to engage in tax evasion? Corrupt acts are of innumerable types and the quid-pro-quo can take the form, depending on the size and nature of the corruption involved, of delivery of in-kind benefits, transfers of title, or indeed payment in precious metals, larger numbers of small-denomination notes, the new high-denomination notes to be introduced, foreign currency or crypto-currencies, especially if willing intermediaries can be found.

No one who has experienced or studied the creative character of corruption in India and worldwide should doubt the ability of the interested parties to find such workarounds. A supposed technical fix is no substitute for multi-pronged solutions to complex institutional and social problems.

Although there has been a move elsewhere in the world to eliminate high-value notes because of their use in criminal activities, notably in Europe where the European Central Bank has prominently pushed for such a measure, it has been resisted in Germany and in other eurozone countries, where cash plays a very large role in legitimate transactions because the public is credit-shy and values anonymity.

By introducing a new Rs 2,000 note the government has in any case muddled its message. Will the move either punish previous wrongdoers or prevent future wrongdoing? It is unlikely to punish previous wrongdoers because cash proceeds of corruption are likely for the most part to have been redirected into other assets of one kind or another, perhaps abroad. If they are still in the form of cash, it is plausible that intermediaries will be found to funnel the resources into new banknotes, for a fee. The move is unlikely to prevent future wrongdoing both because other routes will be found for transactions and because, to the extent it reduces the wealth of the corrupt, it may even provide a spur to further corrupt activity to make up the losses.

Distributive consequences

What of the distributive consequences? In a country as diverse, complex and uneven as India (features readily forgotten in today’s media-driven universe) it is wholly probable that some will hear the message too late, not know how to go about making exchanges, or not have the required forms of identification or bank accounts for exchanging more than the still-modest maximum of Rs 4,000. If they must rely on intermediaries, they will pay direct and indirect costs, and even risk losing all of their cash.

Such difficulties are likely to be faced especially in the rural sector, among the socially vulnerable, and the illiterate. The effect on the holdings of the elderly and women who are less likely to be able to engage in direct transactions with banks, may be sizable, but there is little basis to know what it will be. One wonders if the RBI made the requisite studies and what role they played in the decision to proceed. The costs of the exercise in terms of the time of bankers and citizens are likely moreover to be enormous. Is a cavalier attitude toward their time that of an India “open for business”?The likely impact on aggregate demand of the destruction of wealth may have been judged small, but is in fact unknowable.

To summarise, those who have means and determination to evade taxation, hide ill gotten gains of corruption, or finance terrorist activities, have had and will have other routes. The one objective that the move might possibly help with more substantially is to reduce the general impact of counterfeiting, but that goal could have been better handled through a progressive replacement combined with a call for greater public and institutional scrutiny of older high value notes.

The draconian move will generate huge disruptions and possible adverse economic consequences despite its presentation as a “surgical strike”. Moreover, whether this step has furthered the government’s purported goals is unverifiable, which will make it easy for it to claim success regardless of the disruptions entailed, and to sustain the notion that the government is bold and decisive.

One is left with the feeling that this action may be, quite apart from any sectional political calculations which might be involved, motivated by the desire to create a high level of political mobilisation – the enactment of the idea of the nation as a daily plebiscite – in which all who exchange cash will participate. In doing so they will indirectly bow down before, and affirm, the narrative of the government. One can only hope that enough of them will, despite the initial unthinking plaudits, maintain the independence of thought needed to raise essential questions.

Sanjay G Reddy is an Associate Professor of Economics at The New School for Social Research.

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Swara Bhasker: Sharp objects has to be on the radar of every woman who is tired of being “nice”

The actress weighs in on what she loves about the show.

This article has been written by award-winning actor Swara Bhasker.

All women growing up in India, South Asia, or anywhere in the world frankly; will remember in some form or the other that gentle girlhood admonishing, “Nice girls don’t do that.” I kept recalling that gently reasoned reproach as I watched Sharp Objects (you can catch it on Hotstar Premium). Adapted from the author of Gone Girl, Gillian Flynn’s debut novel Sharp Objects has been directed by Jean-Marc Vallée, who has my heart since he gave us Big Little Lies. It stars the multiple-Oscar nominee Amy Adams, who delivers a searing performance as Camille Preaker; and Patricia Clarkson, who is magnetic as the dominating and dark Adora Crellin. As an actress myself, it felt great to watch a show driven by its female performers.

The series is woven around a troubled, alcohol-dependent, self-harming, female journalist Camille (single and in her thirties incidentally) who returns to the small town of her birth and childhood, Wind Gap, Missouri, to report on two similarly gruesome murders of teenage girls. While the series is a murder mystery, it equally delves into the psychology, not just of the principal characters, but also of the town, and thus a culture as a whole.

There is a lot that impresses in Sharp Objects — the manner in which the storytelling gently unwraps a plot that is dark, disturbing and shocking, the stellar and crafty control that Jean-Marc Vallée exercises on his narrative, the cinematography that is fluid and still manages to suggest that something sinister lurks within Wind Gap, the editing which keeps this narrative languid yet sharp and consistently evokes a haunting sensation.

Sharp Objects is also liberating (apart from its positive performance on Bechdel parameters) as content — for female actors and for audiences in giving us female centric and female driven shows that do not bear the burden of providing either role-models or even uplifting messages. 

Instead, it presents a world where women are dangerous and dysfunctional but very real — a world where women are neither pure victims, nor pure aggressors. A world where they occupy the grey areas, complex and contradictory as agents in a power play, in which they control some reigns too.

But to me personally, and perhaps to many young women viewers across the world, what makes Sharp Objects particularly impactful, perhaps almost poignant, is the manner in which it unravels the whole idea, the culture, the entire psychology of that childhood admonishment “Nice girls don’t do that.” Sharp Objects explores the sinister and dark possibilities of what the corollary of that thinking could be.

“Nice girls don’t do that.”

“Who does?”

“Bad girls.”

“So I’m a bad girl.”

“You shouldn’t be a bad girl.”

“Why not?”

“Bad girls get in trouble.”

“What trouble? What happens to bad girls?”

“Bad things.”

“What bad things?”

“Very bad things.”

“How bad?”

“Terrible!!!”

“Like what?”

“Like….”

A point the show makes early on is that both the victims of the introductory brutal murders were not your typically nice girly-girls. Camille, the traumatised protagonist carrying a burden from her past was herself not a nice girl. Amma, her deceptive half-sister manipulates the nice girl act to defy her controlling mother. But perhaps the most incisive critique on the whole ‘Be a nice girl’ culture, in fact the whole ‘nice’ culture — nice folks, nice manners, nice homes, nice towns — comes in the form of Adora’s character and the manner in which beneath the whole veneer of nice, a whole town is complicit in damning secrets and not-so-nice acts. At one point early on in the show, Adora tells her firstborn Camille, with whom she has a strained relationship (to put it mildly), “I just want things to be nice with us but maybe I don’t know how..” Interestingly it is this very notion of ‘nice’ that becomes the most oppressive and deceptive experience of young Camille, and later Amma’s growing years.

This ‘Culture of Nice’ is in fact the pervasive ‘Culture of Silence’ that women all over the world, particularly in India, are all too familiar with. 

It takes different forms, but always towards the same goal — to silence the not-so-nice details of what the experiences; sometimes intimate experiences of women might be. This Culture of Silence is propagated from the child’s earliest experience of being parented by society in general. Amongst the values that girls receive in our early years — apart from those of being obedient, dutiful, respectful, homely — we also receive the twin headed Chimera in the form of shame and guilt.

“Have some shame!”

“Oh for shame!”

“Shameless!”

“Shameful!”

“Ashamed.”

“Do not bring shame upon…”

Different phrases in different languages, but always with the same implication. Shameful things happen to girls who are not nice and that brings ‘shame’ on the family or everyone associated with the girl. And nice folks do not talk about these things. Nice folks go on as if nothing has happened.

It is this culture of silence that women across the world today, are calling out in many different ways. Whether it is the #MeToo movement or a show like Sharp Objects; or on a lighter and happier note, even a film like Veere Di Wedding punctures this culture of silence, quite simply by refusing to be silenced and saying the not-nice things, or depicting the so called ‘unspeakable’ things that could happen to girls. By talking about the unspeakable, you rob it of the power to shame you; you disallow the ‘Culture of Nice’ to erase your experience. You stand up for yourself and you build your own identity.

And this to me is the most liberating aspect of being an actor, and even just a girl at a time when shows like Sharp Objects and Big Little Lies (another great show on Hotstar Premium), and films like Veere Di Wedding and Anaarkali Of Aarah are being made.

The next time I hear someone say, “Nice girls don’t do that!”, I know what I’m going to say — I don’t give a shit about nice. I’m just a girl! And that’s okay!

Swara is a an award winning actor of the Hindi film industry. Her last few films, including Veere Di Wedding, Anaarkali of Aaraah and Nil Battey Sannata have earned her both critical and commercial success. Swara is an occasional writer of articles and opinion pieces. The occasions are frequent :).

Watch the trailer of Sharp Objects here:

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This article was published by the Scroll marketing team with Swara Bhasker on behalf of Hotstar Premium and not by the Scroll editorial team.