Demonetisation 2016: Different perspectives – economics, sociology, law…

One is having a great and strenuous time as well. You are learning a lot but it requires a lot of reading.

There are just so many  different perspectives that one is losing track. Here are a few different and interesting ones:

Being middle-class in India has always been about moral claims to being certain kinds of people. In the current period, this has taken on new dimensions.

First, there is remarkable resurgence of anti-poor sentiment. As the idea of citizenship transforms from a political ideal to one defined by the market – the consumer-citizen, as some call it – there is great antipathy for the poor and their everyday lives. They are seen to be bad consumers: stealing electricity, encroaching upon valuable urban spaces with their slums and not allowing corporate conglomerates a free run over their lands for mining and industrial activity. The moral middle class, on the other hand, has achieved its success through sheer hard work and intrinsic merit.

Second, claims to morality are built around the idea that answers to complex social and economic problems lie in technology. The moral middle class defines itself through a deep attachment to the idea that we do not need to disturb the existing structures that make for social malfunction. All that is required is an overlay of technology. So, urban problems can be solved through Smart City programmes, better governance equals more computer kiosks, mobile apps can address the problem of women’s safety in public spaces and e-wallets (such as Paytm) will lead to a better financial infrastructure. Technology is clean. Morality is about adherence to cleanliness. Addressing social messiness is, frankly, far too threatening.

And finally, there is the new morality of violence that is seen as a purifying agent. The language of finance now builds upon that of war and matters of money are now part of the militarisation of the national sentiment. Casting nationalism in the language of violence is a moral enterprise as it rids us of the apparent cowardice of earlier eras. We are a new people and in this normalisation of violence, those who suffer are collateral damage.

Just as black money is only the symptom of a deeper process, the Great Event is an outward sign of a deeper, inner, malaise: the acts of defining the moral high ground through ever-narrowing ideas of the public good. So, the Great Event is not really all about money. The residents of Valmiki Colony and national spaces beyond them are now the contexts of a morality play that is the sign of a social neurosis. Individual neurosis can be identified by others in the community, but what happens when we are all afflicted?

  • Prashanth Reddy questions whether demon exercise is backed by law:….Bahujan Samaj Party supremo Mayawati termed the decision an undeclared economic emergency, which has ended up hurting poor people and farmers.

    While there is a tendency to dismiss Mayawati’s statement as political rhetoric, she does have a point regarding the Emergency narrative because the government notification authorising the demonetisation has also effectively frozen property rights by placing limits on cash withdrawals. While it imposed a restriction of Rs 4,000 on the exchange of banknotes (which was increased to Rs 4,500 on Sunday night), the notification restricted account holders from withdrawing more than Rs 20,000 per week (this limit was increased to Rs 24,000 also on Sunday.)

    In effect, the Modi government has interfered in the account holder’s private contractual relationship with her or his bank and suspended the individual’s constitutionally-guaranteed right to enjoy property under Article 300A of the Constitution. And it has done so in a manner that lacks legal sanction.

    …..The government could have perhaps circumvented this problem by enacting an Ordinance, as was done in 1978. However, unlike a notification, an Ordinance has to be approved by the Cabinet as per the provisions of the Government of India’s Transaction of Business Rules, 1961. Given this prime minister’s style of functioning, it is possible that he wanted to limit the number of people who knew about this decision in order to stop any leaks. From media reports it appears that the Cabinet was not consulted on this issue.

    The more important question, however, is whether even an Ordinance of such a nature would have been constitutional because if the government can be given the power to freeze cash withdrawals from bank accounts for 15 days, what is to stop it from imposing such restrictions for 50 days or 500 days? The answer most likely is that such a move would violate the constitutional right to property under Article 300A. But that is a topic of discussion for another day.

  • Then there is economics of course. Here is perhaps the most detailed cost benefit analysis of the decision:

On November 8, the US elected Donald Trump, and our government decided to trump black money. The move to discontinue the higher denomination notes in circulation is bold. However, boldness is not a virtue in and of itself. It needs good company. The decision creates some benefits, but it is also intrusive and disruptive.

In 1978, when the government demonetised high denomination notes (Rs.1000, Rs.5000 and Rs.10000), they were really high denomination notes: Rs.1000 in 1978 is the same as Rs.18000 today. They were a minuscule portion of currency in circulation, and only a handful of people held those notes. In contrast, today, Rs.500 and Rs.1000 are small bills. About 86 percent of currency in circulation is in these denominations. The action has consequences for almost all citizens who have cash in their wallets. How should public policy analysis think about this action? It’s useful to break this up into three components:

  1. Ex-ante analysis: Is the decision sound at the time it was taken?This is a forward-looking assessment that may be proven wrong on hindsight.
  2. Concurrent assessment: Is there sound execution? This is a concurrent assessment of all the actions that are undertaken to see the idea through – maximising benefits and minimising costs.
  3. Ex-post evaluation: Did the decision achieve its objectives, and at what cost? Once the dust settles, we should look back and ask the extent to which the objectives were achieved, tote up the costs actually experienced.

In the use of the coercive powers of the State, a sound policy process starts with a good ex-ante analysis, using all the facts and logic available at the time, and then ensures proper execution. The policy process then looks back and introspects, and wonders if things could have been done better. All of us as citizens are part of this three-part thought process.

The move has banned notes but generated a lot of ideas from so many walks of life. Money after all is not just about economics alone…


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