Demonetisation is a Big Bang reform: Surjit Bhalla


Demonetisation is a Big Bang reform

By: Surjit Bhalla

One of the more endearing, and enlightening, acronym that the Indian upper class has come up with is PLUs—People Like Us. Both the Indian, and Western PLUs have been clamouring for Big Bang reforms for the last two and a half years. The demand had a lot of merit—for the first time in 25 years, there was a government with a clear majority in the Lok Sabha. While several economic reforms were initiated since May 2014, and by my calculation more than the cumulative set of reforms since (but not including 1991), the PLUs were not satisfied and bayed for more—yeh “liberal” maange more. Finally, when PM Modi delivered the Big Bang, the PLUs were so deafened that they refused to see the writing on the reform wall.

DemonetisationBut why did the intelligentsia and mainstream media (domestic and especially foreign) did not see that demonetisation was (obviously) part of a BIG Bang reform? For one simple reason—the battle is ideological, and has precious little to do with the content of reform. And PLUs ideology dictates that whatever any non-Congress government does, has to be wrong, immoral, and illiberal. Soon after the May 2014 election, I suggested that the big story of the election was the forthcoming battle between the old elite, and the new, yet to be formed, elite. A battle between the established middle class, and the new middle class. A battle between the amoral naam-ke-waste liberal policies of the last 70 years, and a vision, and accompanying policies, for a transformed India.

Demonetisation 2016 only confirms that the battle of the elites is the one forecast I did get right. The old elite keeps stating three arguments in support of their defense that demonetisation has been a failure. The first, Rottweiler like, that demonetisation has failed because most of the old banned notes have been deposited in banks. The purpose of demonetisation, according to PLUs and their voting outlet, the Congress, was that a large chunk (possibly R2-4 lakh crore) of banned notes would not return to the system. The fact that money not returned is likely to be lower than the lowest estimate means that D-policy has failed. But who said that this was even a minor goal of demonetisation? The old elite, of course.

The second focus of the ideological view that D-policy has been a failure is the botched-up implementation. To repeat this as the reason to reject D-policy is myopia of the worst kind. Of course, implementation has been bad; even the government (and RBI) admits to it, as revealed by the much noted fact that the government has changed policy on a daily basis. Having noted this dog bites man fact, let us proceed. If the government had all the time in the world, of course the implementation would have been as perfect as the Kumbh Mela or the annual Republic Day parade. Secrecy was required, and there is a near certain likelihood that D-day was preponed because the secret was getting out. So, can one really call it a botch-up? If you are the old elite, then what other weapon have you got to disagree, complain, and question?

But there is a third option. Document and rightfully complain about the fact that people, especially poor people, have been inconvenienced—they have to stand in queues with no return (all puns intended). This is not surprising, even though it is revolting. The Left-liberal apologists for the rich have always shot-off the backs of the bottom half. This half has been hurt by D-policy in terms of jobs lost, and income not received. What is remarkable is that not only have they not complained about this genuine loss, but they have verbally, actively, and in the poll booth supported the Big Bang initiative.

The bottom 90% realises that those hurt by D-policy are the old elite, amongst whom are a large proportion of those gaming the system by laundering their black money via the other 90 %. A truly shocking fact just revealed by the government is that 6 million units (individuals, small firms and NGOs) have deposited a total of R7 lakh crore of the banned notes. That is an average of R11 lakh (or $15,000) per unit.

I would like to hear from the PLUs—how many elites do they know in the Western world who keep an average of $15,000 of cash at home? These very same elites had opposed demonetisation on the grounds that there was very little black cash in the economy because the bad rich were too smart to have any black cash. The fact that there was a lot of extra cash in the economy has two immediate implications. The government must continue with its policy of limiting cash withdrawals after December 30—no more than R1 lakh per individual and no more than R5 lakh per firm. Second, that no more than say R11 lakh crore of new cash (a comfortable excess of what is really required) of the banned R15.4 lakh crore should be printed. These are important steps to foil any attempts to keep the old order, and to encourage the ringing of the new.

India 2016 is very likely to go down in history as comparable to China 1978. Fifty days later after D-day is too soon to pass judgement. One hundred and fifty days later the transformative power of D will (hopefully) become obvious.

Courtesy:,  December 31, 2016