Stark and drastic contradictions of political principles arise as we stare deep into Union Government’s now infamous demonetization drive.
It is hard to make out whether government wants to play a pro-market, business-friendly, middle class oriented regime, a role that it had assigned to itself in chest-thumping way, or does it wish to go into a socialist hole by bringing on state’s control on the economy, curtailing cash flow, unleashing a sort of second generation Inspector Raj, things that it was never supposed to do to in the first place.
What anyone can fail to understand as to what exactly government wants to do with it’s economic policy. For instance, wasn’t 7th pay commission introduced to make sure that more and more cash inflow finds its way into the market and government actually had to suffer a massive loss to exchequer as it gave away a large chunk of it’s budget to working middle class. Government had been working persistently to inspire more and more investment and it was instrumental in getting some startups off their blocks quicker than they ever would. It didn’t give an inflation-obsessed RBI governor a second shot at his job and instead brought on one, who it thought will be more consistent with its tax regime, in which it wants to have a repo cut so that more and more capital can be brought into the market.
And what it does, instead, out of an absolute blue? Forget inflation, the economy is instead seemingly getting into a sort of stagflation or deflation mode and cash is being drained out of system. Precisely what Raghuram Rajan would be feeling right now. May be he would be smiling with a tinge of apprehension. Here is a political establishment, which appears to take it’s decisions in whims, is not consistent with it’s own economic principals and, worse still, in trying to appease popular sentiments, only end up enraging the masses most!
The black economy is shattering, yes. The big fake currency is being wiped out in one sweep, yes. The terror nexus has run out of its resources, yes. But at the expense of what? Here we are talking about an otherwise galloping economy suffering an enormous jolt, with it’s consumption level reducing to lowest in recent history. Here we are talking about massive public outrage, which is bound to take it’s toll in elections to come and Modi establishment certainly wasn’t aiming for an own-goal while initiating this demonetization drive. Worse, if economy loses its confidence, it will take long time to recover. This whole episode is bound to bring protectionist impulses out of people and once they start thinking that hoarding and saving money is a better way to go about it instead of spending, well, this will be like draining economy of it’s own sweet blood : The cash flow.
If we go by the reports, than government has demonetized 14 lac crore rupees but haven't injected even 1 lac crores back in the system. It’s ill-preparedness is not giving hopes for any improvement in near future either, while the crisis is immediate and staring into face. It has scrapped 1,658 Crore notes of Rs. 500 and 668 Crore notes of Rs. 1000 while it’s printing capacity is just 100 Crore notes per month of Rs. 500 and 133 Crore notes per month of Rs. 2000. So precisely what they were thinking by taking the bull by it’s horn and initiating such an audacious move? A misplaced heroics? The market is numb. The economy is slowly sliding into a deep freeze. As nation stands in the long queues and organized and unorganized sectors feeling the heat alike, things don’t seem to augur well for the government of the day.
A classic case of punching above his weight for Narendra Modi, is it?
