It took 90 years, but Dave Barry finally met his match. On September 22, 1927, Jack Dempsey fought Gene Tunney for the heavyweight boxing championship of the world. After the reigning champion Tunney had been knocked down by Dempsey in the seventh round, the referee, Dave Barry, refused to start the count until the challenger walked to a neutral corner. Tunney rose as Barry called, “Nine”, having been given 13 whole seconds to regain his senses, and went on to defeat Dempsey. The bout came to be known as the Battle of the Long Count.
While Barry’s decision probably changed the direction of the Tunney-Dempsey fight, Urjit Patel’s long count was always doomed. It only delayed the inevitable admission that Narendra Modi’s note swap was a barely mitigated failure. We knew already that the government and the Reserve Bank of India had been in panic mode since December 2016, as scrapped notes piled in from all corners of the country. What else could explain the effort to prevent senior citizens and Non-Resident Indians from exchanging their hard earned and entirely legal stashes of cash, after an initial promise of adequate time?
Patel’s count hasn’t officially ended, and I suspect more bad news is yet to come, but the central bank buried some important information about it in a dark corner of its annual report. On page 195, it stated that, “Subject to future corrections based on verification process when completed,” all but 1% of the old Rs 500 and Rs 1,000 notes had been returned. The Finance Minister Arun Jaitley immediately cited as a sign of success the fact that, “People have been compelled to deposit even black money”. In other words, black money not returning would have been a victory, and so was black money returning. It’s marvellous to be in a situation when all possible outcomes are triumphs.
Not everybody bought Jaitley’s argument. Vivek Kaul in Equitymaster, Mihir Sharma in Bloomberg, Mohan Guruswamy interviewed in Mint, and Rammanohar Reddy in Scroll.in, among others, explained the many ways in which the plan was ill-conceived and had gone awry. They pointed to slowing gross domestic product or GDP growth, the impossibility of taxing the returned money efficiently, the failure to detect much fake currency, the faltering move towards digital payments, the dent demonetisation put in RBI profits, the continuing menace of terrorism, the continuing protests in Kashmir, and the loss of jobs as a result of Modi’s brainwave at a time when job creation was anaemic anyway.
I have little to add to the damning analyses of these experts, but there’s one issue they have not tackled adequately. A persistent claim in favour of demonetisation has been that money can now be tracked, that it has come into the formal system for the first time. This claim is made not just about deposits exceeding a certain limit, which in theory if not in practice could be investigated as proof of past tax evasion, but for every paisa that made its way back to banks. This point was repeated constantly in November and December last year, and resurrected last week by demonetisation’s apologists. My question is: Those old Rs 500 and Rs 1,000 notes that we had, where did they originate? Did they magically appear in peoples’ wallets and purses? Or were they printed by the government and distributed through the banking system? I have a feeling it was the latter. If currency that came from banks could disappear into darkness once, what is preventing it from doing so again?
Say, person A had Rs 50,000 in Rs 500 and Rs 1,000 notes under her mattress on November 9, 2016. She deposited those in her bank after standing in a long queue. Having stood in many more long queues, she withdrew the entire amount in new notes. Since the new currency was exactly like the old aside from being uglier, since the notes contained no microchips or other tracking devices, how would anybody know if she proceeded to keep them under the same mattress or used them to pay for groceries and incidentals over the last nine months? The idea of trackability and transparency is a red herring. Or perhaps it’s worth coining a new term, saffron herring, given the accumulation of deceptions and lies perpetrated by this administration and its disciples in the media.
Setting the record straight
The day the RBI report came out was a bad one for Urjit Patel and the Modi administration. To make matters that little bit worse, Patel’s predecessor Raghuram Rajan ended his self-imposed year-long maun vrat at the same time, launching upon a book tour to accompany a new publication of his speeches. The question everyone wanted to ask was what he thought of demonetisation. In an interview with the Times of India, Rajan said he had told the government about, “Costs of demonetisation outweighing the long-term benefits” and, “flagged what would happen if preparation was inadequate”. That is bankerspeak for, “Demonetisation was a horrible idea made worse by inept planning”. Something tells me Rajan didn’t get a, “Welcome back, Raghu” WhatsApp message from Urjit Patel that morning. Rajan has now said he had to set the record straight about his contribution to the demonetisation debate because the RBI misguided Parliament about it, an extremely serious charge though couched in his usual diplomatic language.
The Modi government’s salvation, in the face of its proven incompetence, is not just the blind faith of a large section of the population, but the even greater incompetence of the Opposition. Among leaders of the Indian National Congress, P Chidambaram has been the lone consistent and intelligent critic of government policies, and wrote a stinging column after the RBI’s revelations. That might explain why the government is pursuing his son with such vigour, which is not to say Karti Chidambaram is necessarily innocent of the charges against him. Unfortunately, the de facto leader of the Congress, Rahul Gandhi, continues to be clueless about policy and strategy. He has just travelled to the United States to, “Expand his thoughts about artificial intelligence”. The jokes write themselves.