Narendra Modi’s war against black money just got better in November, when he arbitrarily declared the withdrawal of the currency notes of Rs 500 and Rs 1000 from circulation and announced the replacement of both with new notes of Rs 500 and Rs 2000. The declaration made by Modi on 8 November, created a ruckus in the country and a broad section of the people was made to believe that Modi’s war against black money will actually benefit the poor and will disturb the rich who have stashed a huge cache of unaccounted cash. Through his usual gimmicking techniques, the prime minister packaged the move of demonetisation in the ‘nationalist‘ tri-colour to add the peculiar Sangh flavour of patriotism to it. The urban elites and middle-class cheered and hailed Modi’s war against black money without even understanding an iota of economics. Let’s see in very clear and easy-to-understand terms whether this much-hyped demonetisation exercise will really benefit the Indian economy.
The myth of the black money hidden as cash
The black money is the unaccounted money for which no tax was paid and according to the estimate of the World Bank, the Indian black money economy was 23.2 per cent in 2007, which in the last nine years must have shooted up the roof. However, instead of the popular misconception, which is also fuelled by the actions of the Modi regime, 95 per cent of the black money does not remain in the form of cash, but is converted either into tangible assets like land, shares, debentures, stocks, bonds, gold, or are stashed in the tax havens outside India.
The five per cent of the black money, which can be affected by the demonetisation drive can only affect a minuscule portion of the Indian black money hoarders, namely home-owners in cities who earn rental income, real estate brokers, small traders, and small establishments. Yet, most of these petty black money hoarders will get ample chance to get their black money converted into clean white money through brokers available at every nook and corner of the country. Apart from that, the Modi government will launch one after another scheme for the people to officially cleanse their money by paying a surcharge. The rest of the black money is not in the form of cash because the hoarders are always aware of the vulnerability of the cash money and they prepare themselves for events like the one Modi launched in the name of war against black money.
Where’s the actual black money of India
The actual black money is not only stashed in foreign banks on which the gadflies of the Modi regime train their guns, but they are generally in front of our eyes, in the form of large corporations and their business deals, in the form of big buildings and shopping malls, in the stock markets, in the Rs 5000 crore campaign of the BJP to promote brand Modi, in the anonymous (less than Rs 20,000) funding of several parliamentary parties, in the Corporate Social Responsibility (CSR) campaigns of large corporations, and moreover, in the money stolen by the big corporations from the public sector banks of India. The black money is the money for which no tax was paid and it’s mostly generated under the patronage of the government and its political masters.
The Modi government, one of the most unapologetic servants of corporate interest, gave enough tax sops to the big foreign monopoly capital owned corporations and their Indian comprador subsidiaries owned by the likes of Ambani, Adani, Tata, etc. The Washington DC-based Global Financial Integrity (GFI) estimates claimed an average of US$51 billion was siphoned off from India to offshore locations per year between 2004 and 2013, the heyday of the UPA regime, and most of the money returned back to India as foreign investment by round tripping. We cannot dismiss the fact that Mauritius, one of the most lucrative tax havens on earth, remained the largest source of foreign investment in India. The black money, which is untaxed here and goes out of the country to return back as either finance capital or investment, generates more black money, and this is not a product that can be eliminated from the system rather a process, which will continue irrespective of the currency denominations in circulation.
Earlier this year, the Indian Express reported that more than Rs 114,000 crore (one lakh fourteen thousand crore rupees) of loans were waived off by 19 big public sector banks between 2013-15. Though the defaulters who benefitted from this move remained anonymous, it was doubted that only the big corporations could have benefitted from this move due to the huge amount of loan they have taken. While thousands of farmers commit suicide every year to evade their creditors, which includes public sector banks, the corporate tycoons like Vijay Mallya are fleeing the country under the patronage of the government with a huge amount of unpaid loans. These debts that are waived off by the public sector banks will also transform into black money and will be present in any form other than cash in the very system from which Modi wants to weed away black money, according to the claims of his sycophants.
Lack of surprise element in Modi’s war against black money
The demonetisation news was not as discreet as Modi and his coterie would want us to believe. Months back, on 8 April 2016, Mayur Shetty wrote a report in Times of India stating that the SBI is crediting the ‘rumours’ regarding the possible demonetisation of Rs 500 and Rs 1000 notes and not to the election season for the hefty cash withdrawal, suspected to have happened in the currency denominations of Rs 100 or lower. The Hindu Business Line published the news of the introduction of Rs 2000 notes on 21 October, in a report written by G Naga Sridhar and NS Vageesh, published from Hyderabad and Mumbai; the report also contained this line:
“The move assumes significance in the wake of a demand from some quarters that notes of ₹1,000 and ₹500 denominations be withdrawn to prevent hoarding of black money.” *
Therefore, even the banks agreed in the past that there were ‘rumours’ about the very clandestine move of the government and thus there remain quite high chances that the sharks of the black market, the Hawala dealers, the Hundi dealers, the stock brokers, and the chartered accountants of the big money laundering entities, got their black money and ill-gotten cash baptised into the currency notes of lesser denominations long ago than the hapless daily wage earner who is standing in the queue in front of the banks with their ‘ill-gotten’ money.
The hoarding of a huge cache of lower denomination currency notes by the unscrupulous elements created a new class of touts and brokers who are demanding anything between 5 to 40 per cent commission for converting old currency notes of Rs 500 and Rs 1000 into new Rs 2000 or Rs 500 notes. A report published in The Hindu on 11 November gives a better glimpse into the picture and is raising the doubt about the credibility of the Modi government’s claim that the move was a clandestine move with only a few people privy to the information.
Also, there’s a big possibility of the new Rs 2000 notes getting out in circulation through the Sangh leaders and activists, much before the official release, which may be a reason for the BJP youth leader from Punjab, Sanjeev Kamboj, to tweet the pictures of someone holding the new Rs 2000 notes before the Prime Minister making the declaration. Mr Kamboj claimed that he got the picture and the information from a lawyers group in WhatsApp, where members of Congress, AAP, and CPI(M) are present apart from thos of the BJP.
There is still no way to check the credibility of his claim and still the news of the new notes circulating much before a formal announcement on the same makes the situation murkier and the government cannot escape the responsibility of releasing a classified information to selected people of the ruling clique. We cannot even ignore the recently leaked video of the BJP MLA of Kota, Bhawani Singh, where he was heard saying that corporate tycoons and Modi’s closest people like Ambani, Adani, and others knew about the decision before anyone else in the nation.
Probably this is the one big reason why we didn’t see any corporate tycoons or rich people standing in the queues in front of the banks to get their old money reconverted, despite the tall claims by Narendra Modi that his masterstroke has rendered the rich ‘sleepless’. We have not seen that rich victim whom the prime minister and his party despise so much.
The process of ‘evil’ generation continues
Apart from direct and indirect tax evasions or round trip foreign investments, the another big source of black money is crime and corruption, through which a minuscule portion of the people amass a lot of wealth and then use the same to either expand their nasty deeds or invest the wealth to mint more wealth. The bureaucrats, politicians, ministers and criminals of all size and denomination fall in this category. It’s true a lot of them own lot of cash, however, their cash doesn’t remain cash for long and gets converted into real estate, bullion, stocks, debentures, shares, debts, and other instruments very quickly. Since the time of the Bangaru Laxman exposure by Tehelka tapes, the parliamentary political parties gradually turned reluctant in taking in much cash and over years they have converted their money by building assets.
Even if one assumes that the much hyped Modi’s war against black money brought turbulence in the lives of the criminals, ranging from the petty thugs to mafia entrepreneurs, then they must understand that the government’s move may have turned a section of the money owned by these unscrupulous characters (if we go by the book and unconditionally believe that the criminals will never try to get their money cleansed) useless, but the process to earn money through crime, extortion, cheating, bribery, and other corrupt practices will continue at every nook and corner of the system, as the medium is not the evil, but the system in which it works is the evil generator.
Pure economic nonsense
In a country where 95 per cent transactions happen through cash, withdrawing 85 per cent of the cash in circulation without preparing a proper road map and without printing enough cash for replacement, the government initiated a total chaos, which will eventually cast a gloomy shadow on the Indian economy.
The impact of the demonetisation drive under the garb of Modi’s war against black money and rhetoric of transition to a cashless economy will not only jeopardise the living standard of the poor people of the country, where six states host more starving people than 26 sub-Saharan countries, but the drive will also affect the generic economic activities and lower the GDP growth, which each consecutive governments in the neo-liberal phase consider the yardstick of success.
Unavailability of cash and the system of cash rationing will affect the demand curve for goods and services and will eventually create a bigger crisis, which can even engulf the rich and that is why capitalists like Adi Godrej or World Bank deputed economists like former prime minister Manmohan Singh or Nobel Laureate Amartya Sen are training their guns aggressively at the government.
The claim of the Modi regime that bringing the money into the banking system will get rid of black money in circulation is a sheer nonsense, as the entire money laundering work is done digitally in the present era. The banks are an inalienable part of the money laundering process and the privately owned banks lead the rank and file of money launderers, most of whom either own shares of these banks or their holding companies or investing corporations. An ED investigation in 2015 reported the involvement of seven banks, ICICI, ING Vysya, Kotak Mahindra Bank, IndusInd Bank, Dhanlaxmi Bank, YES Bank, and DCB Bank, in a money laundering racket.
Even the Cobra Post exposed the unholy nexus between the private bankers and black money owners through a series of sting operation in 2013, which caused a lot of upheaval among the banking moguls of India and the RBI imposed a small penalty on three largest money laundering partners, Axis Bank, HDFC Bank, and ICICI Bank, and let them go scot free.
The low cash inflow in the economy will hurt the poor most, especially those who earn daily wages by selling their labour and the contractual workers of the factories, who are the major part of the Indian working class. The low cash is also going to affect the rural economy, which survives on the remnant semi-feudal production relations, and a lot of landless peasants sell their labour for hard cash and food during the cultivation and harvesting seasons. As the Rabi crop cultivation time is approaching and as the rural cooperative banks remain stripped of the power to change the old currency notes to new one in a war footing, there is a large scale food crisis in the making, which will pinch the poor hard during the summer months.
Reports of crop loss are pouring from all parts of the country due to unavailability of cash with the cooperative banks and the feudal landlords to pay the farm labourers. The low output of crops will eventually lead to a massive black marketing drive.The hoarding and black marketing of food items are in full swing all over the nation and the central and state governments are providing their silent support to these black marketers. Apparently, this food crisis and an inflation will further deteriorate the economy and a larger crisis will eventually overshadow the Indian economy.
Time for corporate world to rejoice
As more people will deposit money in the PSU banks, the financial capacity of the banks will increase manifold and they will be sitting on a huge pile of money. This is the money for which the entire corporate sector of India, owned by foreign monopoly capital and Indian comprador entities, are drooling. The big corporations will enjoy the fruits of demonetisation as the banks will certainly lower interest rates during the crisis hours of cash crunch and it will help these corporations to borrow more money from the PSU banks and spend them on their projects. Most of the money will never be repaid by the corporate houses.
As the historic trends show, more bad debts will pile up in the course of time as the corporations will be reluctant to return the money. The PSU banks will bear the brunt of these debts turning into bad debts as the government will not let them chase the corporate tycoons like Mallya & co. to recover the money, rather more PSU banks will write off those debts as bad debt and they will be a permanent loss for the nation.
As per a report of Mayank Jain published in Scroll.in on 5 July 2016 quoting the report of Livemint, in the month of March 2016, 58 per cent of the loans were taken from the banks by people “who have an aggregate fund-based and non-fund based exposure of Rs 5 crore or more”, yet their loans account for 86.4 per cent of the non-performing assets (NPA). Jain mentions Reliance Industries, Tata Steel, Vedanta, Jaiprakash Associates and Bharti Airtel, as the top most defaulters following the data of a report by India Ratings. In this report, the India Ratings analysis showed how the corporate houses are in dire need of refinancing, and the mining corporations that are waging a war against the tribal people of India to evict the latter from their land and forests, are seeking the highest refinancing.
The pushing of public money and the opening of numerous new bank accounts will only enable the corporate houses to get more loans and will help the big banks to reduce their NPAs. It will be a win-win situation for both parties in the corporate vs bank hide and seek game, however, for the people, it will be a real hard time as their money will be used arbitrarily by the big banks to bail out themselves and big corporate enterprises.
Modi’s war against black money is certainly not targeting the black money stashed in tax havens, invested in the stocks and bonds, or locked in as real estate projects. It cannot even target the known sharks of India like Ambani and Adani, who overtly supports the prime minister and his party, and hence, Modi’s war against black money remains as much as a rhetoric to hoodwink people, as much his other such campaigns have been.
Packaged in tri coloured label with nationalistic fervour, this move will certainly fool a large section of the middle class and urban lower middle class to believe that the rich will be suffering and to aggravate that very suffering the poor must sacrifice a little more for the nation; however, in the long run, when these very support bases of the BJP will feel the heat, it will not be a happy moment for the Modi government.
Probably the PR team of Modi government will bring a new gimmick in the market to divert the mass attention from the crisis created by the government through the demonetisation process when they will see the situation taking an adverse turn.
All reference hyperlinks used in this article were last accessed on 28 November 2016.
* Italics mine