Surgical Demonetization? What Is Good And What Needs To Be Fixed?

I consider demonetization as a key policy that has reverberations with system wide impact and a potential to clean the swamp from decades of moral erosion and political ineptitude. It’s a defining moment of our century and for India, while it was long overdue. I so strongly wish this initiative to win! So, what’s wrong and how to fix the 2016 Demonetization? Those who don’t consider it as a misfired shot, should explain how these 600 million people should manage being cashless or cash strapped until Mid or Last December, 2016. Those who consider this as not a misfired shot, should also explain how this is salvo actually hits those who indulge in black money?

The situation is similar to surgery. I mentioned two fallacies with any surgery and let the readers choose options on how to fix those. By participating in the survey, you will see where you stand amongst those who are vocal on this issue. Polls are open until Dec 4, 2016. Visit after a few days to see how your peers have voted.

What Is Good And What Needs To Be Fixed?

Or, let us ask – What is wrong with Surgery?

Surgery is indicated for an existing abnormality that causes significant functional compromise and it cannot be managed conservatively because of the inherent limitations. The procedure removes acutely offending situation, an example would be an appendix, a tumor or structural abnormality. It does not however remove the root cause that resulted in the outcome mentioned above.

Two pertinent things though – It is done with best interest standards and, the probability of successful outcome is high with anticipation, planning and execution with precision. If a doctor has vested interest in operating an appendix that was never swollen, or if the procedure is accompanied impromptu with inefficient planning and execution, no doubt, the outcome would be compromised or fail to achieve the desired outcome.

Demonetization is a long overdue indicated surgery. No doubt. A system where parallel economy is the norm meant that this was long overdue. It was obvious earlier too but no one dared challenge the system. It was as usual pleasing populist politics. It required a leader, not just with a vision, mandate but also a character, that is so much devoid of our polity. It was hard to find a leader until Narendra Modi undertook that mission.

It’s definitely a radical move, in industry parlance, they call it radical change. That radical change has to be supported by underlying fundamental change in ethos and values. Simply changing overt artifacts is unlikely to change the ground realities. When radical change is implemented without fundamental change, the system has a tendency to bounce back to its original state.

At least two major fallacies with 2016 demonetization

Of the several fallacies with the 2016 demonetization wave, I will focus on the two, which I mentioned in my earlier paragraph.

  1. Logistics and planning were not envisioned, anticipated, planned nor executed
  2. Selected few were aware of the likely change in advance and had already capitalized on the possibility.

Is the media biased?

Every day, we get to hear dreaded news from Modi’s Demonetization, when we talk with folks from India or whether we read a news channel. Generally, outside newspapers don’t have any political stake or bias. Generally, i won’t believe the Indian media, because you get biased news either way, highly positive or highly negative.”, the same holds true with my folks back in India. So, I can take them without that pinch of salt.

Even if I am not reflecting system wide, I can say, it was planned inadequately and executed improperly or else, why do we have to roll back the changes for farmers, college tuition, hospitals, rural areas? If this was anticipated, why is the common man at such a misery? Any radical surgery is associated with post-surgical pain, but the managing doctors have a plan, will never ask you to wreath in pain unattended. It is wrong to say the pain is created by the media, media hype. Don’t we know that the same Modi was so much exalted by the same media?

Why do we care for JFK?

Often Modi supporters point towards his celibacy and character. To be true, celibacy and personal character has nothing to do with political character or political ideology. History is replete with anecdotes of successful kings and emperors having harems with multitude of concubines. What mattered was their feel of the pulse for the masses. These rulers kept the state above themselves. Their personal life was a relaxation and second only to the state or the subjects they ruled. Not long ago, it was revealed that John F Kennedy always had a lady serving him while he was flying abroad as leader of a great nation. We all know, his vision for US and the world order, as well as the value he espoused for the most downtrodden. We all know how decisive he was during the 1962 Cuban war in avoiding third world war. To many, he is credited with putting Man over the Moon.

Why we want Modi to succeed with this initiative?

Personally, I see this as a MUST and long OVERDUE correction for Indian economy, not because of emerging digital phenomenon but to starve or eliminate the parallel economy. A failure of 2016 demonetization will be sad. An astute and courageous politician is likely to face electoral rout in the upcoming state elections, not because of acting for a good cause but for lack of vision, planning and execution.

This is one core deliverable from Modi that is so highly regarded and appreciated. It was eclectic for its system wide impacts of transforming the ethos and economy of India. Yet, it was planned with such belligerence, neglect, logistic flaws and ineptitude of executioner’s vision. This is a lesson learnt while governing a country like India with its complex mesh work of distinct economic layers.

Selected References:

I am in constant search of unbiased opinion. When I try Indian newspapers, they are either biased for Modi or vehemently against Modi. Either of which are inappropriate for understanding the ground realities. By extension, the same happens when I talk with my folks back in India. Thus, I am just disappointed gathering information from Indian Newspapers or those residing in India.

To me, established players from media from advanced countries offer better perspective. Generally, amongst India media, I choose to read Times of India, The Hindu, Financial Times, Economic Times. I prefer to read BBC, Bloomberg etc. for unbiased news about India. Below, is a collection of selected articles.

Demonetization and India’s Macroeconomy – Will Rupee Depreciate?

India: Demonetization and its Discontents

Jets Loaded With Banned Cash Draw India’s Ire in Graft Crackdown

Noted American experts divided over India’s demonetisation drive

The Economist | Free exchange: Paper pains

The Economist | India’s demonetisation: The ropy rupee recall

The Trouble With India’s Demonetization Gamble

IMF says Modi govt’s demonetization move needs to be handled prudently

How Narendra Modi’s demonetisation move brought Raghuram Rajan and Subramanian Swamy together

Did The Government Use Raghuram Rajan’s Exit To Push Through The Demonetisation?

Here’s What Raghuram Rajan Thinks Of Currency Demonetisation

Rural Distress Is On The Rise But Support Grows for Demonetisation: HuffPost-BW-CVoter Survey

Manmohan Singh Gave Major Burns To Modi On Demonetisation Today And Twitter Is Ecstatic

How India’s Cash Chaos Is Shaking Everyone From Families to Banks

India’s Modi Holds to 50-Day Pledge as Cash Chaos Intensifies

India’s Economy Grows Less Than Estimated Before RBI Rate Review

Modi’s Revolutionary Dreams

Noted American experts divided over India’s demonetisation drive

Can India’s currency ban really curb the black economy?

India rupee ban: Currency move is ‘bad economics’

Slew of U-Turns Blight Modi’s Cash Ban, Leaving Indians Outraged

What Will India Do With 23 Billion Worthless Banknotes?

 


 

 

18 thoughts on “Surgical Demonetization? What Is Good And What Needs To Be Fixed?”

  1. Dear Ash,
    Thanks for sharing your thoughts and indepth analysis on this burning topic

    I have read many media reports and view of many political parties citing that this done without much thoughts and planning. But I have different views. More than 70 percent rural population have very low income with almost no savings. Except the urban, believe a majority will be hardly dealing with 500 and 1000 Rs notes. Most Jandhan accounts had near zero balance. It is very surprising that after demonetization suddenly these people are coming with 500 and 1000 notes that too in fairly large quantities and repeatedly for exchange. The Jandhan accounts have almost reached max limit all of a sudden. Does this money really belong to these people or someone else ? There is a pressure on Govt to increase the cash flow… Is this campaign not motivated ? Increase of cash flow of new currency will enable the culprits to exchange old with new currency and escape

    Liked by 1 person

  2. Thanks for your insightful comments. I was referring to this in my blog when I said, the change has to be fundamental, changing artifacts won’t change fundamental behavior. Despite, we do that, people will find ways to go back to their default behavior.

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  3. It’s true that demonetization shall not alone put an end to black money and shadow economy. But this is the first step which was badly needed. We will need several other steps to gradually make the economy near cashless. A cashless economy only in real sense can root out corruption, shadow economy and blackmoney

    Liked by 1 person

    1. People are ingenuous. They will find ways to their default behavior. It’s a system’s issue, unless we fix the fundamental flaws, it’s unlikely to work. It starts from politics (influencing policy decisions, buying votes etc.), and runs down until tax office.

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  4. There is always room for improvement in any plan but expecting a perfect plan in such a big decision, particularly when one has to maintain utmost secrecy is almost impossible.
    I also do not agree with you when in a Suttle manner, you try to cast aspersions on the character of Narendra Modi on the basis of hearsay and social media propgenda of opposition!

    Liked by 1 person

    1. Thanks much for your comments. Unlike marriage or other function, events as massive as demonitization, have to be thought with minutest details. Lack of planning is evident when you roll back some of those program, when the poorest of the section suffer and when you see logistic nightmare. Personal character of Modi is not a concern. That’s what I asserted in my blog.

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  5. I feel that we cannot get a final word on demonetization so soon. Pro and cons are put forth by the groups based on their orientation.
    It has definitely put a fear/explained the concept, in the minds of people about unaccounted money, which was a norm till now or some were blissfully unaware of. In that sense it is a good beginning. This certainly will prevent corruption in govt offices, tax evasion by small and medium business etc. Hawala operators /underworld is under dire striats, terrorist networks of jihadists are silent and ultra left naxalites have suddenly become ‘HAVE NOTS’.

    The big fish/ sharks are smart and they will not be adversely affected. Some sort of demonetization 2.0 will be required for them and it will definitely come.
    Now regarding the chemo side effects viz. Effects on the innocent poor people, farmers; who prefer to deal in cash. They definitely are facing some queuing problems but are not bothered as they have nothing to lose or hide. But those affected like corrupt officials, businessmen are using these poor unaffected people as mules and are using them or their bank accounts to exchange their black money and these people are creating the so called queuing & logistical problems. Counter measures are taken which are sometimes called policy flipflops or unpreparedness by opposition parties and media.
    On the long term prespective the exercise was to force prople to use money by leaving a footprint trail, bring out the cash lying idle into the banking system. Its effects are being seen. Band deposit rates are reduced. Lending rates may also come down.
    Economic activity may come down like farmers may not buy vehicles in short term. Kiranawalas will see business shrinking and moving towards organised retail chains, but they will quickly adjust to the system of e money.

    Liked by 1 person

    1. Thanks for these insightful comment. In fact, we can’t be taking a transactional view towards this deeply impacting action, all I am saying is we need whole lot of different planning.

      Public choas is a symptom and we are going to treat symptomatically, and manage those acute exacerbating symptoms. However, the core focus would still remain on root cause, envisioning and adequate planning.

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      1. The one thing I fail to understand when people say general statement: planning/ implementation was bad ,regarding demonetisation. Strangely I have’nt yet read what should have been done in bullet points.
        For ex. Keep new notes ready before announcement. It would be like saying its secret in a kitty party.
        In my view the only planning that was required let things be as it is with only a select few in the know. Otherwise the whole purpose would be defeated, worse big black money holders would have pushed their black money in unsuspecting innocent people.

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      2. You raised a very introspective concern – as common man, not being part of the core happening, our visibility is restricted to expression (symptoms, pain points, stagnation, loss of business, compromise of daily life etc). We definitely lack any visibility into the making up of the decision.

        As part of governance for several organizations, you and I do scenario and impact analysis, run hypothetical solutions, check the possible outcome using powerful methods including stats and eventually roll the solution into real life. Despite these meticulous approach, sometimes times we tend to roll back our proposed solution.

        Governance of nation is whole lot complex task than what we see in corporate world. However, as enterprise planner and executioners, we can obviously see that if symptoms are seen very early on, we have to roll back option, that in itself is a proof that more planning was required. Simple speaking, Business Continuity should have been the focus of this exercise before cordoning off the presumed culprits. If we say, it was adequate, we really have to question the completeness of this task.

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      3. You raised a very introspective concern – as common man, not being part of the core happening, our visibility is restricted to expression (symptoms, pain points, stagnation, loss of business, compromise of daily life etc). We definitely lack any visibility into the making up of the decision.

        As part of governance for several organizations, you and I do scenario and impact analysis, run hypothetical solutions, check the possible outcome using powerful methods including stats and eventually roll the solution into real life. Despite these meticulous approach, sometimes times we tend to roll back our proposed solution.

        Governance of nation is whole lot complex task than what we see in corporate world. However, as enterprise planner and executioners, we can obviously see that if symptoms are seen very early on, we have to roll back option, that in itself is a proof that more planning was required. Simple speaking, Business Continuity should have been the focus of this exercise before cordoning off the presumed culprits. If we say, it was adequate, we really have to question the completeness of this task.

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  6. Like everybody else, the announcement to de-monetize the 500 & 1000 rupee notes came as a surprise. But it took my wife one visit to the bank to deposit all our old 500/1000 notes and withdraw new cash. It will take a couple months for the new notes to be available and situation to normalise. My wife spoke to our domestic help maid about how she is coping. She said that her son stood in the bank queue and deposited their old notes. The shortage of cash is teaching us to move to electronic payments. Most of the salaried middle class today gets our salary in the bank and we withdraw cash as much as we need. In my example, our domestic help probably has to “adjust” to the new concept of cashless, when we pay her straight to her bank account rather than giving her cash. I personally spoke to my local vegetable and fish vendor and they were curious to understand what Paytm (electronic wallet) is. So despite their ignorance, they will learn and accept this change – because they have nothing to hide.

    The announcement was sudden, but “connect the dots” – Starting with Jan Dhan Yojana, then going full speed on Aadhar card (National ID) linking despite their initial opposition to it, and finally the recent tax amnesty scheme that brought INR 2 Trillion under taxation, the government gave all indications to put trails to the money flow. So I think the real affected are those who have loads of undisclosed cash. They will find loopholes to convert their cash but government is closing these avenues e.g. the government announced that people can only deposit old notes in the account, they cannot exchange over the counter.

    This move however does not solve the 2 larger issues of “corruption” and “tax evasion” in the Indian society. But in my view, it does give a severe blow to the big sharks by making all that unaccounted cash money (equate to power) worthless overnight. Apart from the salaried class, others have gotten used to evading taxes by under-disclosure of their income because it is okay to do so. They justify why they should not be paying their taxes by blaming the rot in the day to day system of government corruption. This vicious cycle has to end, and probably this move hopefully serves as a strong message to accept the change.

    What if government decides to repeat this de-monetisation for the new 2000 rupee notes in a year or two?

    Liked by 1 person

  7. We have voted the government to power n should stand by them for their actions towards the betterment of the nation.
    95% of us actually would not be very clear by the benifits which the country would gain post the process of demonetisation. Majority of us have a habit of speaking n reacting off the cuff not realising the gravity towards the action taken by the Govt.
    It’s ironic that I don’t think any of us ever spoke on such issues during the reign Indira G n her team— so why be so venemous now —
    Sit back relax n enjoy the flight to see Air India soar greater skies– JaiHind– Bharat Mata Ki Jai–

    Liked by 1 person

    1. I agree, common man lacks the visibility into the impact of such strategic initiatives. There is every reason to be supportive of this. I would go a step further and say, we don’t need mass concurrence on strategic initiatives. Something that erodes our moral fabric, makes us hollow in our interaction has to be stopped, one way or the other. Someone, showing the audacity to do that, needs to be supported. We cannot wait for the masses to support such mission. I don’t think, the army should wait for concurrence with the general population when the country is attacked. There is no question about the validity of this action.

      The concern is about envisioning, planning and executing. India is not Singapore or Malaysia. Its a complex country with several layers that cris- cross, added to that, the issue is deeply involved with human psyche and culture. Can we presume, 50% of the population is culprit? Can we punish a population that is as any closer to these number? This is like suddenly cordoning off an area of incidence. Is this the only option of solving the problem.

      Do you know, several corporate houses in select states already had a hint and very few had those barred notes. This sentiment is echoed from several states. How can this be explained? I believe, precedence can be set with our own behavior. I can’t start preaching you without practicing it myself. Politicians themselves play with significant pool of black money during elections.

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  8. I have read your article and appreciate you for the article. I have voted and would request you to add at least one reason how JFK avoided a war.

    Thanks in advance.

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    1. After the Bay of Pigs failure, Cuba offered USSR to build nuclear launch pads in Cuba. This created immediate threat to US despite being numerically and technically superior to USSR in nuclear war heads.

      During those 13 days while the missiles were discovered in Cuba, the atmosphere was rife with anxiety of an impending nuclear war (third world war). JFK spent sleepless nights collating intelligence, collaborating with allies and negotiating with adversaries across time zone. He finally reached a deal with Khrushchev. As per the deal, USSR retracted the missiles from Cuba, US promised not to attack Cuba unprovoked and secretly retracted some of its missiles from Italy and Turkey.

      A hallmarks of Statesmanship is selecting and addressing priorities, threats and minimizing risk in time. It involves a great deal of negotiation with adversaries and inclusion of concerns. These are defining characters of great leaders.

      On a side note, JFK was well known for his dalliances with several women, including interns at White House and movie stars. However, I am separating personal character from political ideology. Often intermixed by common man, what ultimately matters in the annals of history is how you resolve the crisis/issues at that time and envision a future for those whom you serve.

      Though politically incorrect to say, I gave this example to highlight the fact that we, as common man, should not bother about the personal moral (sexual) character of our leaders. What matters is their ideology and the execution of that ideology!

      Like

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