India Today - - FROM THE EDITOR-IN-CHIEF - (Aroon Purie)

Much has hap­pened in the five weeks since Prime Min­is­ter Naren­dra Modi de­clared that Rs 500 and Rs 1,000 notes would no longer be le­gal ten­der. We’ve had 60 com­mu­ni­ca­tions from the Re­serve Bank of In­dia and fi­nance min­istry, once even at vari­ance with each other. Ob­vi­ously, the prime min­is­ter has cho­sen to ride a tiger and he re­ally does not know where it is tak­ing him. But he knows that if he doesn’t tame it soon, he may just be de­voured by it. This ex­plains the flurry of ac­tiv­ity. It all started with great flour­ish with the laud­able goal of elim­i­nat­ing the evil of black money, cor­rup­tion, coun­ter­feit cur­rency and fi­nanc­ing of ter­ror. Now with barely a week left for the de­mon­eti­sa­tion dead­line to ex­pire, it seems that of the Rs 15.4 lakh crore that was de­mon­e­tised, most of the black money—es­ti­mated to be Rs 3-4 lakh crore—has been laun­dered, with Rs 13.2 lakh crore al­ready be­ing banked. With banks over­worked, there is no way to check fake notes and the govern­ment may now have the em­bar­rass­ing prospect of hav­ing more money in banks than the amount of cur­rency in cir­cu­la­tion as de­clared by the RBI.

The govern­ment now has the stu­pen­dous task of de­ter­min­ing how much of this money was black, an ex­er­cise to be car­ried out by the in­come-tax depart­ment, which is not known for its rec­ti­tude. Without re­forms in rules and reg­u­la­tions—which give great dis­cre­tion to politi­cians and bu­reau­crats—there will be no re­duc­tion in cor­rup­tion. Black money will soon be gen­er­ated in new cur­rency. This may be why the govern­ment nar­ra­tive has changed from un­earthing black money to mak­ing In­dia a cash­less econ­omy if it is to be con­sid­ered a mod­ern na­tion. Again, a laud­able goal. The ques­tion is, at what cost and how quickly? In spite of the Prad­han Mantri Jan Dhan Yo­jana, which cre­ated 250 mil­lion bank ac­counts, over 45 per cent of In­di­ans are still un­banked. The govern­ment ar­gu­ment points to In­dia’s bil­lion mo­bile phones (although the num­ber of cell­phone users is ac­tu­ally in the 600 mil­lion range) which can per­form dig­i­tal trans­ac­tions. But the cell­phone revo­lu­tion has grown or­gan­i­cally over many years as con­nec­tiv­ity and in­stru­ment costs de­clined. It was not done overnight.

To­day, the govern­ment is try­ing to make a virtue of its blun­der­ing im­ple­men­ta­tion. Rs 15.4 lakh worth of cur­rency was taken out of the mar­ket and, till De­cem­ber 19, only Rs 5.92 lakh crore has been re­placed. The govern­ment ex­pects to print half the de­mon­e­tised cur­rency—close to Rs 8 lakh crore—by the De­cem­ber 31 dead­line. It thinks this will force peo­ple to shift to dig­i­tal pay­ments. At present, a mi­nus­cule 2 per cent trans­ac­tions are dig­i­tal, com­pared to ad­vanced economies like the US, where it is 45 per cent. It is not clear how much of the cash the RBI in­tends to re­place. But if the cash crunch con­tin­ues, this will be a pro­longed painful process, caus­ing much suf­fer­ing to the poor. The chal­lenge for In­dia to make more dig­i­tal pay­ments is enormous.

Our cover story ex­am­ines how this process will un­fold. The good news is that In­dia has the back­bone for a dig­i­tal pay­ment so­ci­ety. Dig­i­tal tsar Nan­dan Nilekani, who was in­ter­viewed by Group Ed­i­to­rial Di­rec­tor (Pub­lish­ing) Raj Chen­gappa, be­lieves per­sonal con­sump­tion ex­pen­di­ture will quickly go up to 20 per cent dig­i­tally. The Aad­haar card can be used to cre­ate bank ac­counts through mi­cro ATMs. In­dia is a coun­try of ju­gaad, as seen with money laun­der­ers. As IT min­is­ter Ravi Shankar Prasad is fond of say­ing: “In­di­ans first ob­serve tech­nol­ogy, then they adapt it, and after that they adopt it.” Hope­fully this is true.

The onus, there­fore, is on the govern­ment to over­come this Modi-made cri­sis. As World Bank chief econ­o­mist Paul Romer likes to say, a cri­sis is a ter­ri­ble thing to waste. It has po­si­tioned Prime Min­is­ter Modi as a cru­sader against cor­rup­tion, a mod­erniser and a Robin Hood, all rolled into one. The acid test of his au­da­cious move will soon be seen in the state elec­tions of Ut­tar Pradesh and Pun­jab. As a mag­a­zine that has chron­i­cled his­tory as it hap­pens over the past 40 years, we like to take the long view. If de­mon­eti­sa­tion re­duces cor­rup­tion, in­creases funds for pub­lic wel­fare, min­imises govern­ment, changes elec­tion fund­ing, and ac­cel­er­ates eco­nomic growth, then the Prime Min­is­ter will have es­tab­lished his place in his­tory as a true re­former and In­dia will be well on the road to be­com­ing a mod­ern econ­omy.

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