"Once you publish a book, it is out of your control. You cannot
dictate how people read it."
—Margaret Atwood (Canadian, 1939)
Word
for the day
Incipient (adj)
Beginning to exist or appear; in an initial stage, e.g., an incipient cold.
Malice
towards none
In twelve days of
demonetization drive, the government must have found that it's not all Black
& White. There are more than fifty shades of grey in Indian economy!
First random
thought this morning
The execution of demonetization process since 8th November, and
the rail accident near Kanpur last Sunday have made one thing amply clear - 'Planning'
is something we are still not used to. The following five simple steps could
have made the demonetization a relatively painless step:
1. Print new notes
equivalent to at least 50% of old currency in advance. Double credit limit of
all Kisan Credit Cards for three months.
2. Announce demonetization
on the night of 28th of October or Nov. Provide enough cash to all bank
Branches on 29th with instructions to all employers to withdraw enough cash to
pay salaries on 30th in cash.
3. Announce one week holiday
for schools. Deploy all teachers, Aadhar enumerators, and Banking
Correspondents to go door to door with biometric devices and exchange 2k-4k
cash. Each person covering 100 households every day. (Pulse polio volunteers
have done this often)
4. Open 24*7 cash exchange
counters at all police stations, & other civic offices; besides the
facilities at bank branches and ATMs.
5. Engage all market
associations for exchanging valid cash of their members with appropriate
disclosures and undertakings.
Don't underestimate the power of a common man
Many highly learned fund
managers, analysts, strategists, economists, and market observers have
commented adversely about the demonetization of HDNs by the government. One
famous fund manager has likened it to a running car (Indian economy) crashing
into a wall. A very popular strategist with a brokerage house sees FY17 GDP
growth rate falling to 3.5%. One popular economists and a regular weekend
columnist finds it an exercise in futility. A global analyst of Indian origin
finds it unprecedented in annals of global economic history; counterproductive
and hence completely undesirable.
I have no issues with none of
these experts. But my faith in the adaptability of fellow Indians to the change
remains unflinching. I see no chance of trade disruptions due to demonetization
lasting beyond 2-3months. There is no denying that the GDP of FY17 could be
somewhat impacted. But I do not see any impact of this beyond this.
I would like to cite the
following five examples in support of my view:
(a) Till 1994, the stock trading in India was done on the floor of
stock 20 odd exchanges. The stock brokers were usually not professionally
qualified & trained. OTCEI experiment had mostly failed. The clearing &
settlement process of stocks was cumbersome, constricting, unsecured and
totally non-transparent. NSE took off as BSE closed for two days due to MS Shoe
fiasco. In next 3yrs India was the first country in the world to have 100%
electronic trading. All dhotiwalla brokers were well trained in computers.
Professionals were inducted as new members by the elite club called BSE. All
floor boys (jobbers, market makers, traders, etc.) and many more got better
employment.
(b) The doubts were cast on viability of Indian stock markets after
trading in dematerialized stocks was introduced in late 1990s. All experts
opined that since a majority of stocks are held as black money, no one would
want it to be dematerialized and open up for scrutiny. Within 3years India
became the first country to have 100% dematerialized trading. Everyone knows
the story of capital market growth after that.
(c) With Rs18/min for incoming call in 1995, many wrote the epitaph
of Indian mobile telephony industry even before it opened its eyes. Even in
2003, most optimistic investors were estimating two decades for full
penetration. People were skeptic how the illiterate villagers will adopt to the
technology and English. India achieved near full penetration in no time. I need
not say anything further on this.
(d) Alarmed by the air pollution, in 2002 the Supreme Court ordered
all public transport vehicles in Delhi to be run on CNG. There was utter chaos.
The State Government tried it best to subvert the SC order. Bus, auto and taxi
operators struck work. There were maddening queues in front of CNG pumps. But
within one year the city was proud to win the US Department of Energy’s first
‘Clean Cities International Partner of the Year’ award in 2003 for ‘‘bold
efforts to curb air pollution and support alternative fuel initiatives.’
(e) In 2003, the then home
minister L. K Advani announced launch of a pilot project to issue Multi-purpose
National Identity Card Project (MNIC) in a few selected sub-districts in
various districts of 13 States namely Jammu & Kashmir, Gujarat, Uttranchal,
Rajasthan, Uttar Pradesh, Assam, Andhra Pradesh, West Bengal, Tripura, Goa,
Tamil Nadu, Pondicherry and Delhi.
Many (including the one economist mentioned at the begining of
this post) saw this as a communal agenda aimed against Muslim and illegal
Bangladeshi immigrants. The project was promptly abandoned by the UPA government
as unfeasible. But six years later in 2009, the UPA government launched the
UIDAI, which started issuing Aadhar ID cards in 2011. In less than 5years, over
85% population has an multipurpose ID card that is being efficiently used for
opening bank accounts, taking mobile telephone connections, direct transfer of
subsidies etc.
All the above five cited developments that sought to change the
status quo were seen as financially unviable and causing avoidable
inconvenience. The success and benefits are there for everyone to see.
I do not see any reason, why the demonetization shall not result
in a revolutionary change in the ways of doing business in India.
One, adoption of electronic payment methods will not only
accelerate the efficiency of smaller businesses and trade; it will also enhance
security, scalability and their compatibility with larger businesses.
Two, with materially higher money multiplier in place, the economy
may get the big push it has been looking for.
Three, everyone had been expecting better compliance standards
with implementation of GST. This move may only prepare people in advance for
whole hearted adoption of GST.
Four, those ruing the inconvenience to the people may please note
that in past 30years, Mamta Banerjee and CPM have organized thousands of Bandhs
in West Bengal. These Bandhs caused irreparable loss to the daily wage earners
for three decades. The likes of JDU, AAP and Shiv Sena have also caused similar
disruptions on many occasions.
Five, insofar as rural economy is concerned, (a) the media reports
about rural distress due to demonetization are highly exaggerated; (b) Two
years of drought did not impact GDP by more than 50bps. Real estate is down for
past three years at least. How come demonetarization will cause 4% dent in the
economic growth?
I am actually worried about the worsening global economy. Rising
US yields and USD, collapsing CNY and trade are indicating towards a season of
deflation - irrespective of Trump, Demonetization or Brexit.
These three in fact, I see as saviors for the global and Indian
economy. Amen!
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