The present news trend, and expert opinions, are very confusing. You have a marked improvement in agricultural growth, and you have farmer riots in two large states, Madhya Pradesh and Maharashtra. You have an economy that has been slowing since June 2016, and inflation now at historical lows, and you have economic experts stating that the RBI/MPC decisions have been valid because the wise MPC is looking beyond the “temporary decline” in inflation to 2% brought about by demonetisation.
One of the major objectives of demonetisation was to diminish the role of cash (read black money) transactions. However, if the expert headlines are to be believed, the volume of digital transactions is contracting.
What we are witnessing in India is a historic transformation and one that occurs rarely in most countries. It has never occurred in India before, NEVER. But it is happening now. It is a changing of the guard—more appropriately, a changing of the elites.
The single most critical factor in Indian politics from its independence in 1947 until the birth of the Modi administration in 2014 was that the same elite ruled the country. Regardless of political affiliation, this elite had broadly the same political and economic philosophy, characterised by Western style social liberalism and Fabian economic socialism. In addition, traditionally, the elite was heavily anti-American.
The dominant arm of the elite was, of course, the Congress Party which was in power from 1947 until 2014, except only for 13 years (1977-1980, 1989-91, and 1996-2004). And except for five years (1991-1996), a Gandhi family leader was the PM or in charge (as was the case during the 2004-2014 period when Manmohan Singh was the PM but Sonia Gandhi was in control).
The influential English-language press shares the basic Congress worldview. Thus, they could not possibly believe Modi, an unabashed Hindu leader, would win in 2014. There was a parallel belief that the BJP could not possibly win in the largest state of Uttar Pradesh (UP) in 2017.
Of course, the rise of new cosmology represented by Modi wasn’t an overnight phenomenon, as things were gradually changing. Starting with the first non-Congress PM Narasimha Rao, India began to distance itself from heavy state involvement in economic activities. Economic reforms (especially for industry) were introduced in 1991, tax reforms in 1997, and the beginning of disinvestment in 1998. With the signing of the nuclear deal with US president Bush in 2008, the first major step towards the American camp was taken by India.
As time went on, however, it became increasingly clear that the old elite had failed to notice and respect that India has changed from the illiterate and feudal order prevalent at the time the Nehru dynasty assumed control in India. There are complex factors feeding into each other to explain the public’s increasing mistrust in the old elite, but it can safely be pointed out that (i) the educational level of average Indians has risen, (ii) the old elite mismanaged the economy and (iii) power corrupted the old elite.
The Indian people are asking more questions and demanding greater accountability from dynastic political leaders. But the old elite—the politicians, the corporates, the left-intellectuals, the academics—cannot be expected to give up their privileges so easily. They will try to derail the transformation, object at every turn. If that means fake analysis, they will do so. If that means intellectual gymnastics, they will do so. The key point is that they must do so.
This is a long drawn out battle, and a healthy battle. This is what checks and balances are all about. Should the new elite emerge without being questioned? No. Can the new elite just be allowed to roll over the old elite? Definitely not. Will the old elite use all its instruments, and cash in all the old I-owe-you(s) in order to influence the debate even with fake news and even flakier analysis if need be? You bet. This is one movie India has never seen before. Sit back, learn, comprehend, and enjoy. The battle is joined from all sides.
Even from within the BJP. The new elite wants to rewrite history. That is its privilege. But do they have to distort history as much as they claim the Congress did? And do they have to ban documentaries just like Indira Gandhi did with the banning of Louis Malle’s nine-hour documentary Phantom India? Or the later banning of Satanic Verses?
It is important that history be re-written—all new-born elites have done that since time immemorial. But why write history in as distorted a manner as the previous 70 years—by obliterating any mention of Nehru? And will you next sink as low as previous historians who find that the actions of General Rawat (parading an innocent as a human shield) and General Dyer (Jallianwala Bagh massacre) are comparable? And invoke Sarvarkar if you will, but also mention that he was not opposed to cow slaughter. And remember your Hindu Vedic ancestors who not only did not infringe on the diets of others, but also ate beef.
In my previous article (Farmer riots amidst rising prosperity?, June 10, The Financial Express), I documented that because of good weather, agricultural growth in 2016-17 was much better than the previous two years (4.9% in 2016-17 versus an average of 0.5% in 2014-15 and 2015-16). Farmer incomes had improved; so, why riots now and not before? Some experts pointed out that flower sellers suffered because of demonetisation—true; some others pointed out that vegetable sellers had suffered, especially those cultivating potatoes, onions, and tomatoes. And many, indirectly or directly, attributed all of the price decline to the disruptive policy of demonetisation.
The same experts are silent on what happened to fruit prices, also a perishable crop and subject to bad demonetisation—fruit prices (wholesale and consumer) up 5 % y-o-y. And they are silent on sugar, rice and wheat farmers—their prices are up 10-15 %. How many vegetable farmers in India—less than 4 million. How many rice, wheat, sugar and wheat farmers—close to 90 million.
And now, demonetisation. This is a parallel to the farmers-are-justified-in-rioting-with-record-crop-output flake news. And that is that demonetisation was a comprehensive failure because its simplest goal—reduce cash transactions—has not been achieved. The evidence offered by several experts—RBI data on cash and non-cash transactions since November 2016.
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There is a basic flaw in this lazy approach to ideological analysis. The “experts” only process data from November onwards, and are not willing (because of the results?) to look at the change in non-cash transactions over the last three years. They compare April to March 2017, find the volume of transactions lower, and conclude that demonetisation was a failure. The old elite could not possibly do a worse job!
The accompanying table below documents RBI data on all non-cash transactions (by volume) since 2014. For each year, the data reported is an average for the months January-April.Note, that card usage is only for PoS transactions—as emphasised by RBI in its (now) weekly releases. You be the judge. Total non-cash transactions have increased by 53% over last year, January-April. And the non-cash transactions “induced” by demonetisation—debit and credit cards (PoS), prepaid and mobile—are up 173%. Your sixth-grade daughter will tell you that that is doubling every eight months. And you maintain that demonetisation has failed to move India rapidly towards less cash (less black money) transactions?