Modi and Downhill - A Masterstroke in Futility

        Over the years Modi-bhakts have been relentless to the point where they ridicule any accusation made by the opposition of Prime Minister Narendra Modi being too authoritarian in his approach. Even today as his on-going poorly executed demonetization scheme is causing millions of Indians difficulties, his call for nationalism resonates with majority of Modi-bhakts. The idea - that you will be hailed for your gallantry if you stand in a queue outside ATMs and banks doing mala-japa (name chanting) of Modi and that you will be remembered as a martyr for eons to come if you die in one. On the other hand, if you oppose the demonetization scheme, you have black money! - is a conspicuous con job. This propagation of overly-frenetic jingoism will dearly cost both Modi and India. His is another of the many cases in history where a sane right-winger, in the name of nationalism, develops authoritarian tendencies which snowballs by his own success, only to bloat to an extent where even his once-upon-a-time staunch supporters and close allies repent for not restraining him when the time was right.

        In 2.5 short years in his office, Modi took enough strides that all previous Prime Ministers could not even imagine to take, cumulatively! Given his goodwill and credibility, he had more than just three strikes before being declared out. But regarding his demonetization scheme - what for some is a 'historic masterstroke' is an 'exercise in futility' for others. Here is why - 

        Demonetization primarily seeks to purge India of two evils 1) fake currency and terror funding, and 2) black money / tax evasion.

        For the evil of fake currency and terror funding through fake currency, demonetization has successfully bought India essentially 6 months of time (kudos!) before these hostile foreign forces start producing new fake notes. Demonetization, a one-time event, neither has the ability to hunt down these external perpetrators (who print fake money and fund terrorism) and bring them to justice nor does it have the ability to enlighten the terrorists and eliminate the very school of thought. Demonetization also is not a foreign policy change which will bring about a compromise to any of the bickering issues with our hostile neighbors and some agitating insiders. This means before you go around celebrating peace in Kashmir in the last few days, realize that this is just a temporary phenomenon and demonetization cannot and will not solve the underlying issues! Let alone the important questions - how much fake currency is floating around anyway? Are we seriously saying that moving forward we intend to fight terrorism passively like this?

        For the evil of black money and tax evasion, I want to discuss a factor less discussed otherwise - the reversal of burden of proof. 

        I count with borrowed fingers the number of times Finance Minister Arun Jaitley has said that the government is not able to act against the 800 odd individuals (whose names have been acquired from disparate foreign entities and tax havens) because it takes time to build up a case and gather evidence, and that there is a procedure that governments must follow lest the foreign entities will stop cooperating. Critiques have also raised questions as to why is it that Income Tax or CBI raids can't be conducted on these 800 odd individuals (who belong to the ultra-influential super league) based on prima facie evidence? But Jaitley, being the lawyer that he is, always maintained that there are various legal complexities and challenges in taking that route. 

        What was yesterday the prerogative of the government of building a case, is today made a compulsion for all citizens. Throughout these yesterdays, the government said it was difficult for them to prove the super league black money owners guilty. But today that same government's logic is that all regular citizens should queue up to prove their innocence. Why can't this be reversed where these super leagues are forced to prove their innocence based on prima facie evidence? Do you really think putting the onus on 1.3 billion citizens, 98% of whom have no black money and of the 2% who do have black money, it is safe to assume that 80% are mere tax evaders (out of systemic loopholes) and remaining 20% have criminal intent of smuggling, corruption, etc., is the best method?

        Regardless, let us focus on how much of the 'black money' can this scheme actually recover. Black money is but a combination of all illegitimate assets both liquid and fixed. As we see in the matrix below, there are four ways how an individual can possess illegitimate assets. Non-INR (Indian National Rupee) assets include gold, property, other currencies, etc. By definition, demonetization can do nothing about the non-INR assets (red boxes). Demonetization can only invalidate INR if not exchanged for new currency notes in the given time-frame. Estimates suggest that INR - black money is only 6% of all the black money. How much will the country have to go through in terms of 1st order, 2nd order, etc. negative cascading effects in the economy and lost opportunities / reduction in national output for this? RIP ROI!

        Further, before the elections Modi made 2 promises - I will bring back black money into the mainstream economy because this money belongs to the nation and I will catch hold of all these super league thugs. As it turns out, Modi decided to take the third route - I will not target the super league, I will not even bring back the black money! Rather, I will impoverish all thugs by invalidating their black money.

        Say Mr. X has INR 1000 of black money. If Mr. X decides that he does not want to exchange his INR with new currency notes (because his INR black money is anyway close to only 6% of all his black money), this INR 1000 which Modi said belonged to the nation, just vanished! While this is a simplistic case, give it a thought. This INR 1000 was once legitimate output of some activity in our nation and this step instead of bringing it back, threatens to invalidate it. National losses anyone?

        In this piece, I have not even touched upon the poor execution strategy, government's investments into executing this whole fiasco, number of lives lost (even 1 life lost is 1 life lost too many), and the challenges that cash dependent sectors like agriculture, fisheries, transport, daily wagers, etc. have experienced. Our nation was not ready to go in this direction and sustain so much disruption. If you really were open to having such disruptions in just 2.5 years, Dr. Subramanian Swamy was a better choice any day! While Modi’s intent is right, given the timing and the execution of this scheme, it clearly was not a decision taken through due consultation and was definitely not a masterstroke! 

        Of course it is too late to repeal it! Of course Modi will showcase some histrionics on January 1st 2017 and declare victory! Of course this scheme will deter potential defaulters (any other scheme would have done that too)! Of course they will come up with all kinds statistics - 92 % of people are okay with the inconvenience! (A sample set of 5 lakh Modi-bhakts who have Narendra Modi App on their smartphones, in a nation of 1.3 billion people); thousands of crores of rupees have now entered into the banking system (as if people had an option, and let us see how much of that stays in the banks after January 1st, 2017).

        As a nation, we can either choose to ludicrously do a disservice to our PM (out of ignorance or cowardice) and go downhill in excessive nationalism, or we can choose to ask ourselves a very touching question - the soldiers stand on the border in all circumstances for years and can't we even properly execute one sane monetary decision?