Modi’s demonetisation anouncement is an economic disaster

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The media is hailing Modi’s policy of demonetisation as a masterstroke. Yes it is, but the word that is missing in media is “political.” Modi’s policy of demonetisation is a “political masterstroke” and NOT a masterstroke from economics point of view.

Reasons why it is a political masterstroke

1. It would decimate political opposition: The opposition is in a fix- damned if you oppose, damned if you don’t. Any party which would oppose the measure would be immediately labelled by the BJP as a corrupt party, which has lots of Black Money, and that’s the reason why they are opposing it- because they are the ones who have been badly hit by this policy. It would prove BJP’s allegation that “Congress has looted this country for 60 years”. Opposition from Congress would make BJP a hero, that they have decimated the most corrupt political party with a single masterstroke. The “online sainiks” of BJP’s IT cell would be tweeting “Congress ki laggeee”, “Congress ki fatteeeee” and so on

economic disaster
Jammu: Vaishno Devi pilgrims showing demonetized 500 and 1000 rupees notes in Jammu on Wednesday. PTI Photo

2. It would badly hit the regional parties: Though BJP has always been labelled (and quite correctly so) as a baniya-mahajan party, the party has found a NEW ALLY- the Corporate- the Ambanis, Adanis and the like. The regional parties get their funding mainly from the local traders, businessmen. The policy of demonetisation has badly hit this class. This class does its daily businesses in cash and therefore has lots of money in cash. The corporate have their money in estates, projects and investments. The local traders and merchants would no longer be in a position to fund the regional parties. Naa Rahegi baans, naa bajegi bansuri!

So, total hegemonic control in those states as well where regional parties are dominating.

Reasons why it is an economic disaster

1. Rs 500 and Rs 1000 notes account for 86% of the total currency (in value) in market. Currency of lower denomination (Rs. 10, 20, 50 or 100) account for just 14%. The total business would be hit, and has actually been hit badly.

Just go out of your homes and you’d find the markets in a desolated state with empty counters, empty malls, empty restaurants, hotels, shops etc etc. Given the present economic situation where the liquidity has been reduced to 10-15%, people are just buying goods and food for sustenance and daily subsistence. And they are facing difficulty even in procuring their daily necessities.

2. Due to restrictions on withdrawal, there would be shortage of liquidity in the market for many days to come, giving nightmares to business class and daily trouble to ordinary citizens, who will now have to manage between work and bank queues. How many man hours would be lost in the process?

3. The present panic would result in hoarding of a different type- of consumable goods by people, triggering inflation. News of salt and sugar being sold @300-400 Rs/kg have already started coming from various places. There would be complete chaos all around. No wonder, if there would be civil strife in days to come.

The way forward

A Political Masterstroke must be countered with another political masterstroke. The opposition should come out strongly against the move, and give a rational and logical anti-thesis to the policy of demonetisation carried out in haste. It should corner the BJP on the issue of Black Money, exposing its hypocrisy on the issue as well as exposing its link with the corporate. The opposition must realise the situation they are in- Damned if you do, damned if you don’t. So damn it, go ahead and do it.

You have nothing to lose more. In this way, you would not just gain the support of the aam admi, who is reeling under hardships presently, but also from the baniya, mahajans and the local traders who have been badly hit. Remember, the power of Democracy lies in masses, and not just in money. The BJP, through its political masterstroke might have cornered the wealth it requires for political campaigns, but the mass support that you would gather through your opposition to this policy, would be enough to counter the role of money in politics.

(The views expressed here are solely the author’s own. The facts and opinions appearing in the article do not reflect the views of Janta Ka Reporter and Janta Ka Reporter does not assume any responsibility or liability for the same)

10 COMMENTS

  1. It is not demonetisation at all, the word coined is wrong. It is just replacement of 500 and 1000 notes with 2000 notes. Money is not demonetised, in fact money is monetized with a higher currency note to help black money generation…

  2. The Author seems to be a matric pass. He is more worried about empty malls and restuarants but does not seem to be worried about unaccountable money. All developed economies have mostly cashless transactions and here business people are reluctant to go cashless because we are providing them with an option to go unaccounted. Also why would inflation occur when you can always pay but cheque, credit card, debit card, etc. All small items like salt, vegetables, fruits, etc can be brought within ₹20000/- per week. It will be an absolute nightmare for hoarders if all money will get accounted. Do you really think hoarders will sell you salt, sugar, etc for ₹300-₹500 if you use debit cards for payment. We Indians have been spoilt and we dont want to change for the better, even if forced this move will push a lot of people towards online payments which would be good for tommorrow.

    What really needs to be seen is how effectively will the present government will handle the situation. Not only does it need to change notes it also needs to catch people having unaccounted money and fake notes. Add to it the burden of maintaining law and order and keeping in keeping rumor mongers in check

  3. While analysing any situation one should bypass his/her prejudices, but here, i think, auther have failed. His hatred for corporate houses doesn’t allow him to be unbiased analyst. My friend I also hate this capitalism….. But….. Democratic socialism always gives the space for it…. & we don’t have better alternative. Till the time we get better alternative just accept this & try to minimise evils of this system……

  4. The economic implications of the political masterstroke have been gone into at a very shallow level. Economic implications need to be analysed in depth and for the long run.

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