Monday, November 14, 2016

The Demonetization Derby

It is tough on us bloggers. If you ignore current happenings, especially when they are on top of everyone's mind, you are not being socially conscious. If you do write on them, you are hungry to ride the current fad. Hitherto I have done the former and been the chap who is utterly self-centered. This once, maybe, I should try the other one and ride my horse into the demonetization derby, alongside all those other opinions. The advantage is that there is this serious possibility that the one side that I decide to favor would share the post and the other side with all sorts of name-calling will make it go viral. (Yes! Negative publicity IS the best publicity on social media)

Unfortunately, though, I am a middle-of-the-roader - a vanishing species that still believes that one should make up your mind on an action based on the merits of the action and not based on who is doing it. Once upon a time, it was called a neutral view and lauded for its impartiality. NOW it is mere fence-sitting causing that unpleasant feeling in the crotch. The problem is that to assess any action on its merits you need to get neutral information and THAT is rarer than a unicorn's horn.

I cannot even make up my mind entirely on whether demonetization is good or bad. It is easy to dress up a thing as being necessary for things like fighting corruption or terrorism and get people to feel good about it. It is as easy to oppose it, since no action is a magic wand that will make problems go away, and, thus, there is enough scope to attack it on the basis of those portions of a problem that it will not tackle.

I see these views about how it did not work before - in 1978, most recently - and I think 'Hey! It is a bad move. Why don't people learn from History?' Then I remember that, in 1978, there really was no IT sector and no means of really tracking who exchanged how much, at least to the extent of identifying who is worth pursuing with raids and who is not. Now, since such tracking is possible, the lessons of History are not all that clear. AND no-one tells me exactly WHY it will not work NOW or, indeed, HOW they will make it work.

I see views about how black money is mainly stashed in Real Estate, Gold and foreign accounts. Sounds rather stupid to be attacking it with demonetizing currency notes. But if someone HAS bought Real Estate and Gold with cash, then THAT cash would still be lying around somewhere - with that seller, perhaps. I mean, I do know that the recipients COULD have brought it back into the so-called 'White Economy' but could they have brought it ALL back? Maybe they could, maybe not, but no-one is really telling me about that. No-one is really claiming that ALL the cash transactions currently happening are NOT the so-called 'black economy' transactions and no-one is also making ANY legitimate statement of HOW much of that cash would BE unclaimed because it IS black. AND no-one is also saying how likely is it that the people from WHOM this real estate WAS/IS bought by the big sharks would willingly deal in cash going forth - after all, not ALL of them are seasoned black money operators. OR what would be in place to track gold sales/purchases going forth.

Everyone talks about Hawala transactions as a modus operandi for getting money in and out of the country and claim that the big sharks would not be holding cash. But, exactly how much money do the Hawala dealers actually have to keep for operational requirements in order to do these transactions? No-one speaks about that or about what would happen to that money, now. The Hawala dealers will now approach a super-Hawala dealer or what?

But, really, it HAS got to be a political conspiracy since this move has served to destroy the campaign money of opposition parties. But...tell me, please, HOW much money has it destroyed? I mean, yes it is political and all that, but THAT money would still count as black money, would it not? If it can somehow be converted, please let me know how and how much is practically possible, and not things like 'They will find a way somehow' which any idiot can say, while sitting in a tea-shop, to his cronies. I don't need an 'expert' opinion in order to get THAT piece of wisdom.

It is quite possible that ALL this money would amount to a pittance and hardly worth the trouble. AND, even where there ARE benefits of a move, it has to be set off against the costs of the move. AND the costs - financial, social and economic - can be very high. The pain of transition is something everyone IS facing now, some far more than others, obviously. But where is any neutral stance on whether the transition is worth it? I do know that it probably is not ALL good but, unfortunately, any opposing view portrays it as ALL bad and THAT is not something that I can accept either.

If someone would ADMIT to the good AND the bad, weigh both without being dismissive about either side of the coin, then I may be able to believe him. Unfortunately, even where someone is willing to admit the good (or the bad) it is on the lines of 'Yes, this may happen but...' You can dismiss anything that way. I mean I could say, "Yes, studying at IIT may give you a great job and prospects but imagine having to spend almost all the year away from home for four years, facing the pressures of a competitive academic environment etc etc" and make it sound like it is totally worthless to do it...to those who know not much about it. AND, of course, do it in the reverse, "Yes, you may have to starve for a few months but at the end of it you will be a millionaire." AND ALL opinions are patterned after this sort of one-sided crap, if not outright ignoring anything that is seen to favor the 'other side'.

The issue is that there is NO way of assessing the benefits and the costs, from any of the current reports/opinions. Rhetoric is merely mud-slinging unless when backed by facts; and, in cases of finance, facts are important only based on numbers. Every move has its pros and cons. Thus the mere existence of the cons cannot create the idea of the inadvisability of a move AND, of course, the mere existence of the pros does not make a move advisable. Any opinion on any action can only be made by weighing the pros against the cons and 'weighing' implies that you need to be able to put numbers to them.

Otherwise, it is like that hoary old question in probabilities - "The fan above your head can fall or not fall. Considering the risk, how can you sit beneath the fan?" The risk, in this case, is in the probability of the fan falling - which would be less than one-in-a-million, say. The question, though, asks you to implicitly assume that it is 50:50.

THAT about sums up the way people, on all sides of a debate with no exceptions, seem to discuss anything these days. Which is what makes the middle-of-the-roader throw up his hands, take up gardening, and leave all these socially relevant write-ups to other hands.

26 comments:

  1. Yeah - was thinking the same thing. The supporters of the move are dismissing the troubles of the common man as lies which it is not - I can imagine people really having serious trouble and even deaths resulting out of this kind of a major change in the country. But then the question is because of this, do we totally avoid any kind of major change at a country level because it will cause serious suffering to some innocents.

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    1. I'm afraid that in national level economics, there can never be a situation of no victims, though most cannot be as starkly linked to the policy decision. FDI in retail will take toll, possibly, on the small traders; Automation took toll on unskilled labor etc. The issue is, mainly, whether the costs are worth the benefits - and no-one is willing to neutrally assess the issue.

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  2. A well thought out piece, Suresh. I stood in one of those queues recently and it wasn't an altogether unpleasant experience. Yes, there were tempers raised. Yes, there was some yelling at the bank staff for not allowing them in. Having to stand outside for no fault of theirs, having to listen to all the rumours floating around, being annoyed by the 'line' jumpers who jumped shamelessly and even had the temerity to tell the honest queuers that they themselves should jump--all these things were there. But, and this is a Big But--there was no real anger at the Government. Yes, they would have much preferred not being put this hardship, but they were willing to take it in their stride. I (the cynic though I am) could not stop myself from reluctantly admiring this resilience of my countrymen. I might have even saluted them (in my mind).

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  3. I have long forgotten (mostly because of my own choice) all that Economics I studied for 7 years, and to be honest I haven't read too many detailed analysis of the pros and cons of this move. But from whatever little I have read I do get this sense (you may call it a feeling) that there are bound to be some difficult times ahead for the economy and some settling-in time will be needed as more people opt to go for more cashless options for their necessary transactions. It will remain to be seen how things will play out in the future. But it is also quite obvious that some of the terrorist funding and inflow of counterfeit currency have been seriously hit, and that's a good thing in my book. It is also obvious that more measures, more serious measures may be needed to fight black money and corruption. But it is also true that for the first time such a gutsy measure has been taken, and while this may be a political move, it also has the potential to become a move for political suicide for PM Modi. This kind of risk that he has taken makes me admire him and his sincere intention even more. Thanks Suresh for writing this piece!

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    1. Thanks Beloo! The effectiveness generally hinges on how much money gets flushed out. The range of the 'How much' is what everyone seems to be vague about. Given the 'How Much', I have retained a sufficiency of my own economics lessons to estimate the good that could come of this.

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  4. Pertinent questions. How much is the key phrase. We will know the answers in Feb March perhaps. As of now, this is one chaotic painful Derby.

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    1. By Feb/March we may know if the transition pains have been overcome, maybe, and how much money has gone out of circulation, if any. The impact on the economy will take longer to play out - there may be near-term negatives on economic growth due to reduced flow of money and uncertainty in prices, esp in Real Estate. The impact on black money, if any, will not only take longer but shall also depend upon follow-up steps.

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    2. You are right Suresh. Btw, I read your post again. A lot to chew for someone like me who is challenged by numbers.

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  5. It will definitely be a while before we get our hands on any kind of stats on How much and was it even worthwhile. But, as a political move, Modi scored a 9/10 with thuping support he is garnering from Thailawalas to Autowalas.. It is a unanimous sweep for the BJP. Only if the babus had done their job and well, things could have been better if not create history. Like you said, "At national economics, there is no scene without victims." Absolutely true in wold history not only in India. I personally view everything objectively and would welcome the change. I am doing my it by helping those without a card to buy groceries and such along with using my card where and when possible... In fact, I am powerless in a situation that claims to give more power to commoners!

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    1. The extent of success is always post facto. But what I want reports to delineate is not things like 'Most of black money is in foreign exchange/real estate/Gold' but how much IS in cash in India. Once you tell me HOW much can potentially be eradicated, THEN tell me estimates of how much WILL be eradicated and WHY you think so - whether you believe ALL of it will OR none of it will. THEN I have something to chew on while forming MY opinion.

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  6. You have covered all aspects Suresh.I am hopeless in financial matters but I do feel a surge o pride for Modi because he had the courage to take this initiative and face the brouhaha.It will definitely have some positive results--even if at a cost.

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  7. True. I think we did discuss this topic the other day, on the aspect of how it's no longer possible or considered respectable to take the middle ground where in, if one is not aware of all the facts, one waits for events to unfold and facts to reveal. The proof of the pudding is in seeing how this whole thing translates into real benefits in black money reduction or sponsoring of terrorism or other nefarious activities seeing a decline.

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    1. On occasion, though, we may want to make ourselves heard before a decision is taken, Ash! AND for us to KNOW how we should opine, we need the facts as impartially presented as possible. Something that is sorely lacking in reporting today.

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  8. I am the middle roader.. At workplace when people are debating this whole day I try to scamper away to some quiet corner, preferably the corner most washroom which less people will frequent.. Such noise around..

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    1. Yes, where we seek a discussion we get only noise :) Best to run away.

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  9. Opinions! Easiest to give and distribute and people waste no time when its a click away! Being outside the country i am not witnessing as much as you guys do but i feel only time will say how far it has helped.... Yes some action is definitely better than no action

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    1. Media,Social media, everywhere...people with no facts, no knowledge but overflowing with opinions :)

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  10. I will want to see how this move pans out after 6 months. I feel it is a good, gutsy measure. It had caused a lot of inconvenience but the rabid debates on both sides and the hyperventilating by politicians is just distasteful and confusing. Is anyone really giving answers without biases? I doubt so.

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    1. Bias is something human beings seem incapable of avoiding. But this being totally blinded by bias is intellectually dishonest.

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  11. Good article Suresh! (I would have been more comfortable with less usage of CAPITALS though!).

    Cinema Virumbi

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