Politics of Currency

This blog is not how good or how bad the demonetization move is. It is not an opinion about how the Prime Minister has killed growth and is reneging on his promise of “Achche Din’. This piece is about reading the tea leaves. In trying to do so, I am trying to post facts in a dispassionate manner with some opinions thrown in.

8^th November 2016 will be a watershed day in Indian history. On this day, the Prime Minister of India announced the withdrawal of Indian currency notes of Rs. 500 and Rs. 1000.

Since then life has changed for everybody. Right from a street vendor, to a senior corporate executive to a top notch businessmen, to a politician life changed for everybody. Across the spectrum, everyone has been subject to hardship. People who had little money, were scrambling to change notes. People who had too much colored money, were wondering what to do.

One thing is sure, the decision has been bold. I am sure it has been unpalatable even for the BJP. It is a known secret that the political machinery runs on cash. This move has just cut out the funding tap not only for other parties, but also for the BJP. There are accusations that BJP people knew about this beforehand, but these accusations are rubbish. Narendra Modi is too suave politically to commit this kind of error. In an operation like this, secrecy was the key, and there is a report in public domain that only 6 people knew of this and the cabinet were told only hours before the announcement, and were allowed to leave only after his television address ended.

The jury is out whether this is a good move or a bad move. You have one section of the opposition crying coarsely from rooftops about how it hurts the common man. On the other hand reports about the resiliency have started coming in. I have seen street vendors move to Paytm and turn cashless. Last week I was in Faridabad and spoke to a whole lot of people from taxi and auto drivers, waiters, daily wage earners etc. Everybody is happy about the decision and is backing the Prime Minister on this.  On the other hand there are reports about how people are suffering at the mercy of hospitals in rural areas. There are also reports about people willing to stand in queues for money, while there is another shocking report (unconfirmed) about people being hired to stand in queues and make them look longer in order to give an impression that the common man is suffering.

The most interesting response has been from the media. A lot of the English media is already predicting this as a Waterloo moment for Narendra Modi. 20 days after the event, media is still talking about unending queues and how if cash is not supplied fast, public patience will shift to anger. They talk about possible riots on the streets and one Chief Minister publicly warning about the same. On the other hand there are quite a few surveys which says that more than 70% of the public is backing Narendra Modi on the same. One of them is a survey by the PMO itself on an app which is called the Narendra Modi app. Do I see a hint of megalomania? The media response, is that the survey is not well designed and have criticized it from a technical point of view. As if the respondent cares!

There are three events that lead me to believe that the media lives in a cocoon of its own making. During the 2014 Lok Sabha elections, most predictions presented a BJP majority but very few predicted an NDA landslide with BJP getting a simple majority. In 2015, in UK even the Brexit vote was predicted wrongly. And the 2016 US Presidential elections took the cake. Nobody gave Donald Trump even a small chance, they predicted a landslide win for Hilary Clinton. Does the media hear and listen to only what it wants? Has it become so elitist that it cannot listen to the voice on the ground? I sometimes think so.

Now let us look at the timing of this decision by Narendra Modi. It is middle of his term and two and and a half years to go to the next general elections. Diwali is just over and no major festivals in sight. Christmas is 45 days away. Some economists are saying that this demonetization is at a time when the economy is in a take off mode. There is 7% growth, we have had a good monsoon and inflation is coming weaning. By demonetizing 86% of the currency, the PM has shot at speeding tyres. Here’s where the economists get it wrong.  A radical measure like this has to come when the going is good and there are shock absorbers in place. Imagine trying to do this when inflation is high and the economy is struggling for growth. The timing of the move is completely countercyclical which is good. If the pain subsides in three months and some good comes out of it, Narendra Modi will be an absolute hero. Remember public memory is weak and the recency effect is massive. I personally will give Modiji a 10 on 10 for getting the timing perfect.

A small voice tells me, that this is Narendra Modi’s defining moment and biggest political gamble. If he pulls this off, I am sure there are other tricks in his bag of a populist nature which he will unleash closer to 2019 General Elections. Something tells me, that 2019 is already in the bag.

Shattered Accountant

I qualified as a Chartered Accountant more than 20 years ago. At that moment it was a matter of absolute pride in qualifying in an examination, where the passing rate is in single digits. A long and bright career awaited me. The entrepreneurship bug bit early and I started my Chartered Accountancy practice. Fate however had other ideas. 

It is said that a lot of  juices flow in washrooms including the creative type.  In my case, that was the place where I chanced upon a great opportunity. While relieving myself, I found myself standing next to a person three years my junior. He casually mentioned that their college was looking for someone to teach them financial management. One thing led to another and next day I was in the B-School meeting the director, and in three days, started teaching. Not bad for someone who believed he had pathetic public speaking skills at that time.

It was a good way to get some money in to supplement the practice. I might have done a decent job, as now more colleges called me to be part of the faculty. I realized I was liking teaching and at one point of time was teaching 12 hours a day.  Life was co-existing as a faculty and as a Practicing Chartered Accountant.

One fine day, the pivotal moment happened. An Income Tax Officer asked me for a bribe and I had to pay to save my client. My client was right, however the ITOs argument was irrebuttable. I paid the cash and moved to the Pizzeria at Churchgate. At 4 in the afternoon, with a muddled head, I had a couple of beers and a couple of pizzas. Alone… looking at the Arabian sea. I asked myself the question, “Is this what I want to do? What use is education, if you are going to have a lifetime paying bribes? “ That evening on Marine Drive, the sun set simultaneously in the Arabian sea and on my Chartered Accountancy practice.

Twenty five years later, I am training a bunch of fresh Chartered Accountants in a technology company. I accompany a dozen of them to dinner and the news arrives. The Prime Minister has declared that notes of Rs. 500 / 1000 are invalid. The rest of the dinner conversation focuses on the appropriateness or otherwise of this move. Some of them are euphoric that this is a great move. One shows me a whatsapp message, where his acquaintance, has 5 cr. in cash and looking for options. One girl comes up to me and asks me for a solution. Being a lady, I have to maintain my composure and 

tell her that I no longer do this business.

There are multiple views about whether this move is right or wrong. There are talks about people not having bank accounts. Small traders are having very little or no business. Who is to blame? People have embraced technology for communication but stayed away from the same when it comes to financial dealings. The Government has been persuading people for financial inclusion. Do you know why financial inclusion is not successful? It is not due to lack of efforts by Government, it is due to people not wanting to transact through the financial system.

A lot of small businesses, who make a lot of money, have not switched to banking systems or credit cards. They do not want to get into the accounting system and pay the necessary taxes be it Service tax or VAT or Income Tax. They are happy to do business in cash.

Gentle persuasion, as a strategy did not work for more than two years. A ‘’Gun to the Temple’’ move was required and is good for everyone. People will suffer for a few days, but definitely the normal has changed. The economy will take a different shape from now on and there are really interesting things in store.

It has been a week now, and I have come across quite a few Chartered Accountants. Apparently they are busy advising clients how to save their ‘’hard earned’’ money from turning into smoke. The more I see these things happening around me, the more I wring my hands in despair. I have mixed emotions. On one hand I am extremely happy that the people with huge cash on their hands have been squeezed. On the other hand, I am sad to see, qualified, educated, people helping these people to work out ways to ‘’protect their losses.’’ Sometimes I feel that a prostitute’s job is more honorable than what these qualified people are doing.  When we educated people participate in the creation of black money, we should not complain if we have some hardships.

Today, twenty years after I left practice, I am ashamed by the behavior of some of my fellow professionals. A lot of them will say, that this service is the need of the hour. From their perspective, they are just meeting the client’s needs. I wonder whether they are trapped in their own success from which they cannot escape. Will these people participate in nation building by discouraging creation of black money, or advising clients how to avoid taxes? I have very little hopes.

Today in a true sense, I have turned into a Shattered Accountant.