I will not start with the historic fact about the date and political figures involved in it. These facts are known to all who are reading this article.
This article is mostly about my understanding of the socio-economic and political situation that I found myself on 9th Nov 2016 in Delhi.
Global scenario USA, China and India
Demonetization as was announced on the day after the confirmation of Donald Trump winning the presidential election in USA, the first question that came to me as a reaction to the speech by PM of India was why this declaration immediately after the winning of Donald Trump?
I had not followed the US presidential elections as I didn’t feel inspired by both the candidates and had only a vague idea of their political agenda.
Trump’s anti immigrant propaganda, bringing back the jobs, cutting outsourcing and other populist programs were an indication to create a distance from China, in fact, just after few days there was direct confrontation on political and then economic terms with China, first the call to the Taiwanese President, which made the Chinese authorities irk and complain about it. It was all well planned and had the desired effect.
Now, one would say, why would Trump wish to create a rift between USA and China, economic partners?
My understanding is that over the last three decades China has become an economic powerhouse as most of the world’s manufacturing is happening in PRC, this has given China a political leverage in the geo-political scenario. China commands many decisions and intervenes on global political affairs and mostly makes it intervention to be respected.
In 2014 Dalai Lama wished to meet the Pope Francesco but China objected this meeting and Pope Francesco who is seen as revolutionary Pope didn’t gave an appointment to the Dalai Lama saying that this will create a political situation between China and the Vatican. (Ref.)
Chinese presence in the UN Security Council as a permanent member, gives it enormous power which it has been using and there has been many events related to this over the years.
Conclusion, China has economic, political and military power which makes it a threat to the western world which have wielded these powers over the last century, mostly USA, after demolishing the Europe and Japan during the second world war. Most of the world industry was based in the USA, and the American middle class expanded and thrived on this monopoly.
Now this has shifted as a result of capitalism, a society based on profit and low production cost, creating an ever growing divide between the rich and poor. The western companies moved to developing countries to produce their goods and increased their profits on the basis of cheap labour and production costs, resulting in shut down of many industries in the USA and unemployment level started to rise. Obviously some would ask why the industry didn’t moved to India in those years, the answer is before the end of the USSR India was an allie of the USSR, so USA ignored India.
China came in forefront of this and became the world’s manufacturing hub, this has been possible in China as it being a dictatorship, the government could decide without any opposition to dictate and make decisions which were pro industry. On the other hand India also provided a major part of the production but could not build the infrastructure that the Chinese were able to build as India being a democracy could not dictate its people to leave the agriculture and move in a factory or invest heavily in the industry or issue a one child policy (forced sterilization happened in 1975 during the Emergency, which was condemned).
India moves slowly being a democracy. India excelled in service based industry, as many of its young growing in the major cities are university graduates and there has been a growing affluent middle class which worked for multinational companies, mostly white collar jobs. But the poor remained poor, there has been very little growth in the industry as it was outdated and couldn’t compete with the Chinese products. Which are produced by modern industrial plants, this resulted in the shutdown of many small industries which were catering to the internal market. The effects are visible on almost all the industrial sectors from textile to heavy industry.
China and India has its share of armed conflicts and a continuing dispute on territory which keeps the relations sour and a constant rivalry.
On the world scenario as I wrote above China has enormous power and its growing day by day. This worries USA as it could lose its dominion. As both China and Russia are gaining political influence.
Trumps’s policy of cornering China has started on economic level and also on other fronts. It’s not a war but again territory, just few days ago China captured an American underwater drone and Trump’s statement was “That the USA should let the Chinese keep the drone”. Shows exactly the political stance that the Trump administraton wishes to keep with the Chinese.
But USA does need an allie in Asia and none better than India, so the presidential campaign towards the Indian origin electorate in USA was done in a way which was copied from the campaign done by the Indian PM during his election campaign in India. The present government in India is a right wing fundamentalist government which goes hand in hand with the Republican President.
This explains my perception of the declaration of demonetization just after the winning of Trump.
In the coming months it will be more clear that India will become a strong partner with USA and China will be left behind.
So the situation on global right wing political scenario is to corner China, and create in India a new industrial infrastructure that will keep China out of the game. But India is not prepared both on infrastructure and skilled workforce and its banks are out of liquidity to finance the infrastructure.
Industry, skilled workforce and banks
My other observation has been on government of India’s two pet projects first namely “Make in India” and the second “skillful India”. Both the campaigns have great intentions but there actually is no concrete plan to make these realize. These are just empty slogan and no nationwide investment done as had been done by the Chinese in the past decades, there are more Chinese students in higher education in the west then the Indians. There are not enough government run universities or skill centers where a skilled labour for the modern industry can be prepared. For making a skilled India an enormous effort is needed as the education level is very low, so to create a skilled workforce which can work in present day modern industrial setup is a long distance project which requires lot of investment and planning, but the geo-political situation requires it to happen very soon (5 years at the most).
Banks, the Indian banks have been going through a rough time as during the economic boom many huge loans had been guaranteed to the industrialist which went bad and caused serious hemorrhage to the banking system.
Middle class and undisclosed savings
We do know that India as a people has tendency to save in form of cash, real estate or gold (highest consumer of gold). Most of the middle class has savings in one form or another. The savings are done for many reason from education of the children, most of the education in India is private and is very expansive. Weddings and settlement of children or helping them start a small business, a shop or industry as loans are not easy to get for middle class. Health, again the most of the health in India is run by private sector and it doesn’t come cheap. Having no assurance from the government for the education of children and the health of their elders, people tend to save on taxes and keep undisclosed savings at home. This is a fact everyone who is a small entrepreneur in India does it. I don’t consider this as an unethical practice.
I will not talk about the black money which is generated from doing illegal and illicit activities, as they are to be condemned and brought to justice.
The government’s justification of demonetization: Black money, strike on terrorism, strike on corruption, cashless economy etc etc.
The PM announced in his speech that the demonetization will eradicate black money and black money hoarders by demonetizing high denomination currency notes, will eradicate corruption and the same will do a harm to terrorists which use black money to arm themselves. All good intentions, but no one thought of the real economic fall back that was to come.
I would like to give a thought on the term High Denomination Currency. In Europe there are currency notes of 100, 200 and 500 Euros which a working class rarely sees. Even if you withdraw 1500 euros from an ATM the ATM gives you notes of 20 and 50 euros. So actually the market and the cash economy is run in the currency notes of 50 or lesser notes. So I will consider that 100, 200 and 500 notes are something that may be I need to have 50,000 euro in cash and for that I will need to go to the bank and bank might ask me a few questions before handing me that much cash and might hand the said amount in 500 euro notes. Now this I call a HDC note where you use a note for really high amount and not just your everyday purchase. For example : I fill my motorcycles tank in 20 euros, and if I will fill the tank of my motorcycle in India it will be around Rs. 1500, now would you consider a 1000 Rs and 500 Rs note that I used to fill a tank HDC? I don’t think so.
If someone is hoarding money in mattresses in Europe will be hoarding in 500 Euro currency notes and not in 50 euro notes, why I m writing about all this, just to make clear that in India actually there is no HDC notes, if there had been a Rs, 10,000 note I would consider that a HDC. Another concrete example, when in 1978 a 1000 Rs note was banned at that time my father earned a respectable salary of Rs 300 a month, now that I call a HDC note.
RBI and the government of India was well aware that 86% of the present currency in circulation was in 500 and 1000 Rs notes and the government knew well that India has a huge non organized sector where people work in cash from daily worker to established business in its various markets.
So by demonetizing the 500 and 1000 Rs notes the government crippled this workforce and economy which on percussion will create problems also to the organized sector both small and large.
Already after more than 40 days there are many small industries shutting down, this will create a dominos effect which will affect also the larger industry. The story “For want of a nail” fits completely.
Now the question is why would a government of a nation which has been doing very well economically and not suffered the impact of the 2008 global crisis (thanks to the unorganized cash economy) would harm its economy? For me this is the BIG QUESTION ?
The answers given by the government has no solid grounds you cannot uproot the black money unless you uproot the system which generates it. To make people pay taxes either reduce taxes or provide services, both of these solutions are the prerogative of the government, there is no other way you can make people pay taxes.
To uproot corruption even if you fire an officer (mostly in government) you don’t uproot the corruption as the system of corruption created over has corrupted from peon to PM only a handful might save. This corruption has seeped also in the private sector, a whole revamp of the cultural values and morals need to be put in place and even here it requires generations.
Just going to any government office to get a certificate or any document that you might need you are obliged to pay a bribe, even to the cop, or may be worst would be the income tax or the sales tax officer which will call you before he gives you a visit in your small office and will let you know his price to close an eye on your documents. Your chartered accountant will try to keep your income low so that you are under the radar even when you are willing to pay taxes, because his experience says if you show that you are earning more it simply means that the IT department personnel presumes that you are making double in undisclosed transactions, and would hassle you for bribe. So even an honest person gets screwed in the process.
Strike on terrorism, I don’t think that terrorists can be stopped by demonetizing and the daily news confirms it. You need to fight it on war scale and on the same time work on the cause which creates terrorism, I m not talking about state sponsored terrorism in case we talk of Pakistan there the solution is a full-fledged war, but you cannot go on a war as both the countries have nukes.
Cashless economy : are we serious or it’s a joke ? A country of 1.2 plus billion which has high illiteracy rate, has no full coverage of banking systems and forget about the telecommunications and its costs is thinking of going cashless in two months time. I think some god from 3.3 million gods in the Indian pantheon should come down and do the job. I would like to know executive plan of the government on this and its timeline.
Coming back to the global power balance or the old Great Game of Empires
India needs infrastructure to become a global industrial hub and needs the skilled work force immediately to fill the modern industry, but it doesn’t even have the economic resources to put up modern industry. How to do it ?
By demonetizing and forcing the nation to deposit its savings in the banks, the government filled the banks which had been without the liquidity as the result of bad loans. The banks in India right now have so much money that the shares of these banks are going way high then any expectation. Also the government limits on cash withdrawls to keep this money as long as possible. Apart from saying that all this is a broad day light robbery by a government in its own people’s homes, I would say that the money deposited in the banks will be used to finance the new industry, and will be given to same industrialists who have defaulted on their earlier loans. Creation of an oligarchy, with political collusion. The creation of new masters and its industrial slaves.
This is the immediate effect of demonetization in next two years we might be seeing foundation for new industrial implants, and at the same time high unemployment of university educated young people between the age of 25 and 35. The younger of these will be new graduates and the older ones are those who have lost their small businesses and are forced to find a job because of the demonetization. That will be second effect of this. The “skilled workforce” created without spending a single rupee on the creation of institution or training centers. To run a computerized CNC machine you need someone who is qualified. In fact the people will be financing the same industry in which they will be doing a job, there is already a control on thought, people are afraid of saying what they really feel. Just imagine the situation after few years if the above mentioned happens.
Sacrifice is what is being asked
All the people who died in the queues in front of the banks, all the other miseries that the poor and the middle class is going through are disposable side effects. The government is asking for the sacrifice to the people to have its big plan executed and as the PM said it’s a puring fire a Yagna where the helpless illuded of better days, are being the wood and the sacrificed.
make the people deposit their savings > shut down their business > make new industry with people’s money run by large corrupt and colluded corporate > make the people slaves in the same industry.