Banning the Indian rupee notes really was dumb

 
On a flight from Singapore at the end of 2016 I saw a Tamil film called “Pichaikkaran” (“Beggar”) playing in the row ahead of me so watched it myself. It stars Vijay Anthony as a rich businessman named Arul who is sent off on a religious challenge by a guru as the only way to save his ailing mother: 48 days of poverty in which he is not allowed to use his name, money or connections to shelter from India’s many social ills. It says a lot about India and Indian film that this is a common contrivance for setting in motion a cinematic exploration of poverty because it allows a quick reversion to social order at the end of the film and softens the hard edge of realism that would come from, say, making an actual poor person the protagonist. At any rate, the film’s political sympathies are ambiguous as the beggars Arul falls in with offer social solidarity but are mostly con men working the charity racket. Like Chauncey Gardner in “Being There,” one of the beggars goes through a period in which his pronouncements carry inordinate weight. As shown in the clip above — and you’re going to have to trust me on the dialogue since I can’t find one online with English subtitles — one of his great pronouncements was a “common man” suggestion, framed as a call-in to a radio talk show, that the solution to corruption was to eliminate all 500 and 1,000 rupee notes because only criminals have that much money.
Now, that’s interesting, because the film was released in March 2016 and six months later when Narendra Modi announced he was doing just that — eliminating the 500 and 1,000 rupee notes in a policy they called demonetization — the cash ban took everyone by surprise. It should have been obvious that in a heavily cash-based economy like India’s a ban on high denominations would create a run on small ones so the poor would get slammed; meanwhile, the criminals could change on the black market anyway so would just lose a percentage. Yet Modi stood by the ban even as it was forecast to knock a full percentage point off growth and was made worse by delays in reintroducing more secure large bills. My thought at the time was that some malign and opaque interest was being served by this ban, either political or economic, but I was hard pressed to figure out what it was.
Now, as I’ve written before, Narendra Modi is a kind of Trump figure: no matter how much he abuses the aspirational working and middle classes of India, they cling ever more tightly to him for salvation. So it will be of no great political consequence to Modi that the Reserve Bank of India just acknowledged his cash ban was a mistake on every level. As per the Washington Post:

For months, people lined up at banks and ATMs — sometimes for more than eight hours — to withdraw limited amounts of cash to pay bills or buy daily groceries.

Their troubles were a sacrifice for the nation, Modi said at the time. Old notes would be handed back to the banks, and the vast reserves of untaxed “black money” being used for dodgy deals among fat-cat businessmen, dirty politicians and Pakistani terrorists would be invalidated in one fell swoop.

Now, newly released data from the Reserve Bank of India (RBI) shows that 99.3 percent of high-value notes in circulation — worth about $216 billion — came back to the banks. That means that those illicit hoards that the government was hoping to flush out of the system were not in the form of cash and are still out there.

And the long lines for cash, not to mention the losses in jobs and growth? Not necessary.

“The RBI has in effect said that the prime minister’s premises and claims were dubious, and, in as much words, he didn’t know what he was talking about or getting into,” said Mohan Guruswamy, founder of the Center for Policy Alternatives and a former adviser to the finance minister.

India’s economy runs mostly on cash, so Modi’s demonetization thoroughly shook the country. The New Delhi-based Center for Monitoring the Indian Economy estimated that the shock move caused the loss of 1.5 million jobs, though other economists have put the number lower.

One can safely assume that the creative geniuses behind “Pichaikkaran” did not chance upon this idea for a cash ban on their own, no matter their public protestations. But a massive economic intervention that first needs to be propagandized for in popular culture is not likely to be sound or prudent. And so it has proved.

 

This entry was posted on Thursday, August 30th, 2018 at 8:48 am. It is filed under Travels and tagged with , , , , , , , . You can follow any responses to this entry through the RSS 2.0 feed.

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