The vi­tal­ity of in­sti­tu­tions

Mint Asia ST - - Cover - BMY ANMOHAN S INGH

The 8 Novem­ber 2016 de­ci­sion by the Prime Min­is­ter to ex­tin­guish nearly nine-tenths of the value of cur­rency in cir­cu­la­tion and ren­der Rs500 and Rs1,000 ban­knotes worth­less overnight was a mis­guided act of co­er­cion that shocked and had an im­pact on ev­ery sin­gle In­dian. It was an ill-con­ceived eco­nomic pol­icy de­ci­sion. Even if one were to take the pur­ported eco­nomic mo­tives of erad­i­ca­tion of black money or en­abling a dig­i­tal econ­omy at face value, ar­bi­trary de­mon­eti­sa­tion was not the means to achieve those ob­jec­tives. Con­trary to be­lief, de­mon­eti­sa­tion was not a case of a “good idea, bad ex­e­cu­tion.” It was a fun­da­men­tally flawed idea. One year later, it is well es­tab­lished that the reck­less de­ci­sion caused enor­mous dam­age. Not just eco­nomic but so­cial, in­sti­tu­tional and rep­u­ta­tional dam­age.

The eco­nomic im­pact of de­mon­eti­sa­tion is quite ev­i­dent in the slow­ing of GDP growth and de­te­ri­o­ra­tion of other eco­nomic in­di­ca­tors. The pre­cise quan­tum of the neg­a­tive im­pact of de­mon­eti­sa­tion on eco­nomic out­put is both in­es­timable and unim­por­tant. What is im­por­tant is that the cur­rent eco­nomic slow­down trig­gered by a liq­uid­ity shock due to de­mon­eti­sa­tion was need­less and en­tirely self-in­flicted. Such a shock may be tem­po­rary in na­ture but can have a last­ing dam­age on the weaker sec­tions of our so­ci­ety and in­dus­try. A liq­uid­ity cri­sis of­ten turns into a sol­vency cri­sis for the weak, as is borne out in data and sto­ries from poorer house­holds and small businesses that are strug­gling to re­cover from the dam­age to their liveli­hoods caused by de­mon­eti­sa­tion.

It is said that money is an idea that in­spires con­fi­dence. Sim­i­larly, a sud­den with­drawal of money can dent con­fi­dence. Nu­mer­ous sur­veys have shown that busi­ness con­fi­dence has plum­meted. Sta­bil­ity and cer­tainty are es­sen­tial ingredients for a well func­tion­ing macroe­con­omy. De­mon­eti­sa­tion has dented both. At a time when in­di­vid­ual and regional eco­nomic in­equal­i­ties in In­dia are rapidly widen­ing, mea­sures such as de­mon­eti­sa­tion have only ex­ac­er­bated such in­equal­i­ties. Mil­lions of our youth are be­ing left out of eco­nomic de­vel­op­ment with lim­ited ac­cess to jobs. Three-quar­ters of non-agri­cul­tural em­ploy­ment is in small and medium en­ter­prises. Sec­toral data from the Cen­tral Sta­tis­tics Of­fice has shown that sec­tors such as con­struc­tion and small man­u­fac­tur­ing have been hit the hard­est post de­mon­eti­sa­tion.

The fa­ther of our na­tion, Ma­hatma Gandhi, ex­horted us to “re­call the face of the poor­est and the weak­est” while con­tem­plat­ing pol­icy de­ci­sions. Ad­vice that was ev­i­dently not heeded in the de­ci­sion to de­mon­e­tize In­dia’s cur­rency. That de­mon­eti­sa­tion in­flicted tremen­dous suf­fer­ing on the weaker sec­tions of our so­ci­ety is now in­dis­putable. That the de­mon­eti­sa­tion idea was whim­si­cal is well es­tab­lished. It is then only ap­pro­pri­ate that the Prime Min­is­ter now gra­ciously ac­cept this monumental blun­der and seek sup­port from all to re­build our econ­omy for the larger good of the na­tion and her youth.

It is also quite likely that eco­nomic growth mea­sured in GDP num­bers will now be­gin to re­cover from cur­rent lows but the na­ture of re­cov­ery is likely to be un­equal and un­healthy. Any head­line eco­nomic re­cov­ery may not ad­e­quately cap­ture some of the per­ma­nent dam­age to the in­for­mal sec­tor. Un­equal and job­less eco­nomic growth are the twin chal­lenges con­fronting our na­tion to­day. It is im­por­tant we do not get dis­tracted from these chal­lenges. In a quest to con­struct a fa­cade of jus­ti­fi­ca­tion for the de­mon­eti­sa­tion de­ci­sion, there is a gen­uine risk of chas­ing wrong pri­or­i­ties for our na­tion. I am afraid that a pre­ten­tious pur­suit of a ‘less cash econ­omy’ to jus­tify a fun­da­men­tally flawed act nei­ther rec­og­nizes nor solves these twin eco­nomic chal­lenges. It is im­per­a­tive that we move beyond the rhetoric and pol­i­tics of de­mon­eti­sa­tion and come to­gether to find so­lu­tions to our chal­lenges of em­ploy­ment and equal­ity. But eco­nomic dam­age of de­mon­eti­sa­tion aside, I also worry deeply about a creep­ing cul­ture of ero­sion of in­sti­tu­tions and their cred­i­bil­ity.

The In­dia that awoke to free­dom in 1947 was a ge­o­graph­i­cal mass of im­pov­er­ished hu­man­ity em­bark­ing on an au­da­cious jour­ney of self-gover­nance and na­tion-build­ing. Seven decades later, we are a proud, co­he­sive na­tion rapidly as­cend­ing the lad­der of global power. This enor­mous rise of our na­tion has been built on the ed­i­fice of strong in­sti­tu­tions, con­ceived, built and nur­tured by our found­ing fathers and sub­se­quent lead­ers. Leg­isla­tive in­sti­tu­tions such as the Lok Sabha and the Vid­han Sab­has, ju­di­cial in­sti­tu­tions such as the high courts and the Supreme Court, the me­dia, ed­u­ca­tional in­sti­tu­tions such as our pub­lic univer­si­ties, in­sti­tu­tions of democ­racy such as the Elec­tion Com­mis­sion, in­ves­tiga­tive in­sti­tu­tions such as the Cen­tral Bureau of In­ves­ti­ga­tion, eco­nomic in­sti­tu­tions such as the Cen­tral Sta­tis­tics Of­fice, the Re­serve Bank of In­dia, the Se­cu­ri­ties and Ex­change Board of In­dia, cul­tural in­sti­tu­tions and health­care in­sti­tu­tions have formed the bedrock of In­dia’s steep as­cent in the global stage.

These in­sti­tu­tions frame rules and en­sure con­ti­nu­ity, re­gard­less of in­di­vid­u­als in power. In­sti­tu­tions trans­late be­lief sys­tems in a so­ci­ety into a set of pro­ce­dures and pro­cesses that can stand the test of time and peo­ple. In­de­pen­dence, cred­i­bil­ity and trust of these in­sti­tu­tions is of ut­most im­por­tance to In­dia’s sus­tained growth and de­vel­op­ment. It is these in­sti­tu­tions that en­sure the na­tion is ac­corded greater im­por­tance than in­di­vid­ual lead­ers. Any at­tack on an in­sti­tu­tion’s in­de­pen­dence or cred­i­bil­ity is a di­rect at­tack on the na­tion and her cit­i­zens. His­tory is re­plete with les­sons of the vi­tal­ity of in­sti­tu­tions for long term de­vel­op­ment of a so­ci­ety. Em­i­nent econ­o­mists and his­to­ri­ans have doc­u­mented in great de­tail, the piv­otal role played by in­sti­tu­tions that es­tab­lished and up­held jus­tice and free­dom, in the re­mark­able suc­cess of Western Europe and North Amer­ica.

In­dia’s de­mon­eti­sa­tion saga is also a saga of in­sti­tu­tions and their en­trenched place in our so­ci­ety. The Re­serve Bank of In­dia (RBI) is an in­sti­tu­tion of ut­most im­por­tance with care­fully nour­ished in­de­pen­dence and cred­i­bil­ity. The de­mon­eti­sa­tion de­ci­sion was an im­pinge­ment on RBI’S in­sti­tu­tional author­ity. It is quite likely that RBI was not given a chance to ex­er­cise judge­ment or opine in the de­ci­sion to de­mon­e­tise cur­rency. I am not in­sin­u­at­ing com­plic­ity but am merely high­light­ing the im­por­tance of in­sti­tu­tions to act as checks and bal­ances to ex­ec­u­tive power. I have the ut­most faith and con­fi­dence in the gov­er­nor of RBI and sin­cerely be­lieve that he will up­hold the high­est lev­els of in­tegrity, trust and cred­i­bil­ity of the in­sti­tu­tion in the re­main­der of his term. Re­cent in­ci­dents such as the in­ex­pli­ca­ble de­lay by the Elec­tion Com­mis­sion in its an­nounce­ment of elec­tion dates for the state of Gu­jarat fur­ther add to grow­ing con­cerns about the so­lid­ity of the na­tion’s in­sti­tu­tions. In­sti­tu­tions such as the Elec­tion Com­mis­sion are the very foun­da­tion of our repub­lic with a rich and sto­ried le­gacy. Any at­tempts to thwart the free­dom of such in­sti­tu­tions por­tend grave dan­gers for the na­tion.

The in­de­pen­dence and in­tegrity of the me­dia, in­ves­tiga­tive in­sti­tu­tions, ed­u­ca­tional in­sti­tu­tions and cul­tural in­sti­tu­tions are all be­ing tested and sub­ject to in­tense pres­sure. In­dia to­day is ex­pe­ri­enc­ing a clash of the might of ex­ec­u­tive power against the re­silience of its hal­lowed in­sti­tu­tions. The lead­ers of In­dia’s pan­theon of stel­lar in­sti­tu­tions shoul­der an enor­mous re­spon­si­bil­ity to de­fend their in­sti­tu­tions with all their might for the sake of the na­tion’s fu­ture. Ev­ery po­lit­i­cal leader is faced with a temp­ta­tion to over­ride in­sti­tu­tional pro­ce­dures in the garb of speed and ef­fi­ciency. Lead­ers with a po­lit­i­cal ma­jor­ity even have the abil­ity to ful­fil those temp­ta­tions. But suc­cumb­ing to such temp­ta­tions will be a be­trayal of the sac­ri­fices made by our free­dom fight­ers and found­ing fathers in es­tab­lish­ing the sov­er­eign repub­lic of In­dia.

I sin­cerely hope de­mon­eti­sa­tion was just an eco­nomic blun­der and not a har­bin­ger of in­sti­tu­tional ero­sion. Over­rid­ing in­sti­tu­tions, cir­cum­vent­ing con­sen­sus, and haste are what made the de­mon­eti­sa­tion de­ci­sion pos­si­ble. Therein lies the les­sons of gover­nance and na­tion-build­ing. A truly lib­eral so­ci­ety is one that strives to en­sure that not even a sin­gle in­no­cent is pun­ished un­fairly. The role of in­sti­tu­tions is vi­tal in en­sur­ing such or­der. It is in­deed time to move on from de­mon­eti­sa­tion but not move away from in­sti­tu­tions, pro­ce­dures and pro­cesses. Jai Hind!

Man­mo­han Singh was prime min­is­ter of In­dia from 2004 to 2014.

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