GAYETI SINGH | 23 NOVEMBER, 2016
NEW DELHI: Former US Treasury Secretary Lawrence H. Summers on Tuesday slammed India’s "chaos-causing" currency reform, saying that the decision by Narendra Modi’s government to demonetise 500 and 1000 rupee notes has resulted in a “loss of trust” in the administration, and will fail to check corruption in the country.
In a long blog post co-authored with Natasha Sarin, Summers writes, “most free societies would rather let several criminals go free than convict an innocent man. In the same way, for the government to expropriate from even a few innocent victims who, for one reason or another, do not manage to convert their money is highly problematic.”
The blog post echoes the larger narrative of the international media, that has by and large criticised the recent demonetisation in India. The Guardian, in a hard hitting editorial, says that through the move, PM “Modi has brought havoc to India.” “The short-term impact of “demonetisation” has been dramatic: the $2 trillion Indian economy will shrink. The rich will not suffer, as corruptly acquired fortunes have almost all been converted to shares, gold and real estate. But the poor, who make up the bulk of the nation’s 1.3 billion people, will lose out. They don’t generally have bank accounts and are often paid in cash,” the editorial states.
It continues, “Mr Modi, a Hindu nationalist, was for a decade an international pariah over his alleged role in the mass murder of Muslims in a region he once administered. He wants to be known for something else. President-elect Trump offers an opportunity to recast himself. Two years ago Mr Trump’s svengali, Steve Bannon, described Mr Modi’s victory as part of a “global revolt”. But a looming cash crunch and an administrative crisis makes it look like the revolt might start at home.”
An editorial in The New York Times puts forth a similar argument. “Cash is king in India. It is used in an estimated 78 percent of transactions, compared with 20 percent to 25 percent in industrialized countries like Britain and the United States. Many people do not have bank accounts or credit cards, and even those who do often must use cash because many businesses don’t accept other forms of payment,” it states. “ The government has begun circulating new 500- and 2,000-rupee notes, which means that cash-based corruption and tax evasion are almost sure to return as people accumulate the new bills,” the editorial concludes.
Qatar-based Al Jazeera, similarly, has focussed on the disruptive impact of the move on the country’s poor. “This currency demonetisation has caused chaos as millions of Indians, who mostly use cash for business and shopping, have been lining up outside banks and ATMs,” notes one article. “The Indian government is asking people to be patient with what it calls the "short-term inconvenience" of the new currency policy, but the situation is taking its toll on people living off meagre daily wages,” elaborates another story.
An Associated Press story quotes analysts from the world over critiquing the move. The story, carried by The New York Times and others, states that the move spells “chaos” for India’s ordinary citizens. "Basically, you've created chaos," the story quotes Steve H. Hanke, an applied economist at Johns Hopkins University in Baltimore and a global authority on currency policy. "India is a cash economy. It's not like Europe or the U.S. where everyone is running around with a credit card. That's not the world of India." "It doesn't look like this thing was thought through at all.”
“It is unclear whether this exercise will achieve any lasting results other than having created a national economic crisis, destroying confidence in the national currency and unleashing tremendous suffering for ordinary Indian citizens," Rajiv Biswas, Asia-Pacific chief economist at HIS Global Insight tells AP. "This will have a direct negative effect on retail sales and industrial output during the coming weeks.”
An article in The Economist states, “the surprise scrapping of what amounted to 86% of the cash in circulation could, in fact, turn out to be the worst mistake of Mr Modi’s career.” “For hundreds of millions of Indians who cannot pay for essential goods with credit or debit cards, it has brought not satisfaction but the misery of waiting in angry queues outside overwhelmed banks, only to get limited quantities of new bills, or to find they have run out. For many among the estimated 80% of wage earners who are paid in cash, for the tens of thousands of villages with no banking facilities, and for the traders, drivers, farmers, prostitutes, beggars and others who work in the “informal” economy that accounts for anywhere between 25% and 70% of India’s GDP, it has brought anxiety and hardship. “We’ll know later if Modi is right or wrong,” a man outside a bank in Delhi told one television crew. “All I know now is I’m starving.””
An Opinion piece by Mihir Sharma in Bloomberg makes a similar argument. “One week after India’s sudden declaration that 500- and 1,000-rupee notes were no longer legal tender, the economy is in chaos. And that’s perhaps because the policy was designed as much to shock and awe observers with the government’s command of the Indian economy as to control India’s “black money” problem. What seemed at first to be a masterstroke by Prime Minister Narendra Modi now looks like a grave miscalculation,” the writer argues. “You have to wonder if Modi truly sought expert advice, or relied once again on a small and trusted set of politicians to determine policy. India’s simply too big and complex for shock and awe. Large parts of the rural economy use cash for 80 percent of transactions and have been hard-hit. In seafood-mad West Bengal, for example, the fishing industry is in a state of near-collapse; in the wheat-growing states of the northwest, farmers halfway through the sowing season have run out of cash to buy seeds,” Sharma writes.
“Few villagers have access to an ATM. Most have to trek to a bank branch to change their cash, which means losing out on crucial days of labor. Many Indians, particularly women, still don’t have an active bank account. Finance Minister Arun Jaitley wondered aloud how many poor people would even have 1,000-rupee notes -- probably a rhetorical question, but surely it shouldn’t have been. Someone should've sought the answer before shutting down India’s financial system.”
Closer home, Pakistani media has been following the impact of the move, with Dawn News recently carrying an article titled “Why India's demonetisation will not eliminate corruption.” “The real issue is how the common man been affected by the drive. The current demonetisation has adversely affected the poor, wage labourers, small businesses, farmers and other minorities. Often these small income earners save cash for a rainy day. The incidence of bank accounts and bank transactions will be extremely low among these groups. These are the communities who do not engage in the formal banking sector too much. Rather they save their daily or weekly wages in cash, often in large denominations. It is these groups who have been hit the most by the demonetisation drive,” the article states.
Chinese media, too, has criticised the move. “The government is placing considerable hope in the demonetisation of the old banknotes: It is expected that many participants in the underground economy had to expose themselves in the light when attempting to explain to the bank or government the origins of the large amounts of cash they hold,” Liu Xiaoxue, associate professor at the National Institute of International of Strategy of the Chinese Academy of Social Sciences, wrote in the China-India Dialogue. Shi Lancha a visiting scholar at Tsinghua University called the move a “blitzkrieg” and said it had “snowballed into an unprecedented emergency in India”.
“While it takes political courage to launch such a trailblazing and massive campaign; it actually takes far more wisdom to give it a happy ending. Given the fact that people have to pay an absurdly high price for the expected reform, if BJP fails to deliver its high-sounding rhetoric and promises, then Modi’s much-lauded ‘master stroke’ or ‘big bang reform’ will likely be reduced to ‘nasty partisan conspiracy’ and even a ‘costly political joke’”, Shi wrote for Global Times.
(Cover Photo by Zacharie Rabehi, on assignment for The Citizen)