Demolishing notebandi, brick by brick

The book has a detailed, unbiased analysis of the design as well as the impact of demonetisation

Demonetisation and Black Money

C Rammanohar Reddy 

Orient BlackSwan

272 pages; Rs 261

If you have been a regular reader of this page since the day Prime Minister Narendra Modi announced the demonetisation of high denomination currency notes, chances are you might shriek at the idea of a book recapping and analysing the decision. To be honest, there is little in this book that hasn’t already been said by someone or the other, including the editorials, on this page. But then, just because you have seen all the shots in the game played by different batsmen doesn’t mean you don’t enjoy one particular batsman playing them all in one innings — that is where a Viv Richards or a Sachin Tendulkar or an A B de Villiers take the game to another level. This book is that sort of an effort. 

You would, as I did, be left chuckling and marvelling at the ability of the author, C Rammanohar Reddy, who was till last year the editor of the Economic and Political Weekly, to deconstruct the rationale, implementation and impact (which is still unfolding) of this singularly remarkable policy move. In case you have not been reading this page, be prepared to be surprised by how the author clinically arrives at the central theme: “...whichever way one looks at it, Demonetisation 2016 was not a good idea.” 

That half a sentence is a good example of how Mr Reddy has gone about writing this book. There is not a single phrase that is acerbic, not a single expression that might invite a vitriolic snub of the sort that one expects these days on social media if one criticises any move of the government. For instance, right through the book, the author has repeatedly referred to the decision as Demonetisation 2016 and, while it is true that there have been previous episodes of demonetisation, yet it almost seems like he is gently mocking at the possibility of another demonetisation in the near future.  

Mr Reddy has gone about asking basic, fundamental questions at each stage, citing facts and data that are publicly available, often from government’s own sources, and showing how demonetisation was neither adeptly designed nor properly implemented and, till about mid-February, did not look like having achieved any of the goals that it intended to achieve. 

Some readers might immediately exclaim and point out, “Aha, what does the author have to say now that he knows that, one, the gross domestic product was not adversely affected even one tiny bit and, two, Mr Modi led his party to a unbelievable victory in Assembly elections?” 

There can be but one answer: Complete surprise. Moreover, unlike the GDP data, which could possibly be revised within the next few months (apart from being shown as an inadequate measure of capturing the informal sector of the economy) , the electoral victories are here to stay. 

But, this exactly the kind of warped thinking that this book avoids. Economic policy decisions are obviously aimed at winning elections but popular approval does not either validate or justify the soundness of a policy decision. Supporters of the BJP would know — they lost a general elections not so long ago because the ruling party unveiled farm loan waivers and employment guarantee schemes. It is a different matter that there are several top-notch economists who tend to employ such facetious reasoning.

Coming back to the book, Mr Reddy uses one chapter after another to show how the government hurtled from one inadequacy to the other. For instance, the reasons stated for undertaking demonetisation kept changing from unearthing black money, curbing corruption, stopping counterfeit currency to formalisation of the economy and pushing digitalisation of transactions. Some of these goals, such as dealing with corruption, were mentioned in the prime minister's speech but not in the gazette notification. Legally speaking, demonetisation could only counter fake currency. But if that was the case then was demonetisation required? Was it the right policy instrument? Was fake currency as big a problem? There is data to show that answers to such questions is in the negative. 

Similarly, digitalisation, which has now become the residual goal, as it were, was not even mentioned in the first speech. There is a reason why it matters if the goals changed. Few people who claim that demonetisation was a great move are willing to accept or even realise that the government possibly sold demonetisation’s failure — its inability to extinguish lakhs of crores of black money — as its success by claiming that the goal was to bring back the money into the banks. 

Beyond the goals, the book also has a detailed, unbiased analysis of the design as well as the impact of demonetisation. There is also a chapter that shows how political funding and its links with black money have been further obfuscated by the so-called reforms announced in the Budget. But let me not continue with a running commentary. This is a must-read, especially for those who could only get hold of an argument here and a quote there while an exotic-sounding policy and its bizarre justifications swept across this kind and patient country. The costs of failure, though, may not be small. Remember what nasbandi did to India’s efforts at controlling population. If not successful, notebandi might do that same to India’s efforts at curbing corruption.