A Botched Experiment

first_imgThe long term impact and political winners and losers of Prime Minister Narendra Modi’s extraordinary decision announced on Nov. 8 to withdraw Rs 500 and Rs 1000 banknotes overnight will not be known for some time. But there is little doubt that the demonetization drive has been executed extraordinarily ineptly and needlessly disrupted the lives of countless millions all over the country, in addition to delivering a short term body blow to the economy.The stated objectives of the extraordinary step are laudable — flush out black money, counter counterfeit currency, and shift India to a cashless, digital economy.But, as the popular saying goes, the road to hell is often paved with good intentions.Economists question whether demonetization is the most effective vehicle to go after India’s black economy since less than 6 percent of the unaccounted money is in the form of cash. The vast majority is squirreled away in real estate, bullion, jewelry, foreign deposits, benami transactions, and the like.Regardless, the incompetence with which the government has handled perhaps one of the greatest economic experiments in modern India is nothing short of mind boggling. Cash accounts for 98 percent of all consumer transactions in the country and nearly four in five Indians work in the informal sector, which pays cash wages. The vast majority of the 641,000 villages in India are only spottily connected to ATMs and banks.The decision, therefore, to remove 86 percent of all legal bills in circulation overnight without a well-crafted plan for replacing the currency was bound to create massive dislocations and suffering, and not just for those it ostensibly targeted.The government neither printed nor stocked the replacement currency with banks in advance. The printing capacity of the country’s mints is reportedly 3 billion notes a month, which means that it will take several months to replace the 22 billion affected notes in circulation.The government has defended this monumental failure by arguing that the exercise required secrecy and advance printing of the notes would have tipped off cash hoarders. But that does not explain why it did not anticipate the need to manually reconfigure the cash drawers of the 200,000 ATMs to accommodate the new notes, which are smaller than the replaced currency. The Wall Street Journal reported that the Reserve Bank was only alerted to the problem by NCR, a Duluth, Georgia, based manufacturer of half the country’s ATMs, after it received the new notes, three days after Modi’s address. Reconfiguring the ATMs alone required over a month to complete, making vast numbers of the machines non or only partial functional.Nor does it explain why the government and the Reserve Bank have been issuing a blizzard of new and contradictory regulations on a weekly, sometimes even daily basis. Cash withdrawals were restricted first to Rs 20,000 weekly, before being increased to Rs 24,000 a week later. Likewise, the exchange allowance for old bank notes was modified from the Rs 4,000 announced on Nov 8 to Rs 4,500 on Nov 14, before being slashed to Rs 2,000 on Nov 18. On Dec 19, the Reserve Bank announced that deposits greater than Rs 5,000 in the old notes would be permitted only once until Dec 30 and would require a “satisfactory explanation” to bank officials why the money had not been deposited earlier. Really? You see that line outside your window?The government also lurched from one move to the next on accepting old banknotes for the purchase of gas, hospitals and railway and airline bookings, announcing first that the notes would be accepted until Nov 11, before extending the deadline to Nov 14 and finally Nov 24. At different stages, exceptions were created for wedding expenses, farmers, etc.Clearly the government had neither planned nor thought through the full implications and impact of this massive economic experiment. For all practical purposes, the Finance Ministry and the Reserve Bank were being run on the fly and operating by the seat of Modi’s pants.The ineptness and callousness of the exercise has needlessly disrupted the lives of millions of Indians, even more so in the hinterland. Tens of millions que up for days on end outside ATM machines and bank branches to replace their old bills or to access their deposits, often to discover the limited money has run out. The cash squeeze has disrupted food supply chains as farm staples rot, because wholesalers are unable to pay farmers for their crop. Real estate projects and small industries, fueled by daily cash labor, have ground to a halt. Tourists have been stranded mid-stream from a shortage of currency. Consumer spending has fallen by 20 to 30 percent and even higher in cash driven retail stores.Prime Minister Modi denounced critics as profiteers and pleaded with Indians to endure the pain for 50 days for the longer and greater good. That time runs out Dec 30 and it is likely that the country will be forgiving should demonetization prove successful.But the early signs are not encouraging.The government considerably overestimated the 20 percent dividend it had hoped to extract from the black money that it assumed would not be deposited. Given the pace of deposits of old notes, however, the proportion will likely be in the single digits. This may explain why the government continuously tightened controls, but that hurts the innocent far more than the crooked. The seizure of large volumes of new and old notes all over the country is evidence that far from snapping up black money, the demonetization exercise may have unwittingly spawned a new money laundering industry, whose scale and tentacles are yet unknown.Analysts are also predicting that the GDP will take a 2 to 3 percent hit in the last two quarters of the year. The government may end up further spooking the economy as it undertakes rigorous income tax examinations, which it pledges to do, of questionable deposits in individual accounts.The next few weeks and months will clarify whether the demonetization experiment has succeeded or boomeranged. The fate of the Modi government may well rest on the verdict. Related Itemslast_img read more

Unsung Heroes

first_imgNow that the war is over, we can reflect. A handful of insistent reports from the war front keep coming to mind. Several reporters on CNN and NPR made a passing, but acute, observation during the war on their lives in Doha, Qatar. This is where the U.S. armed forces based its operational and media headquarters (CENTCOMM). It is also where most reporters, who could not and did not go as embedded reporters, stayed and reported. The contingent included reporters from Al Jazeera as well as Fox networks, among others. The glitz and glitter and the slickness and suave character of the media center in Doha, Qatar, built by a Hollywood media genius, became a casual topic for conversation when reporters ran out of the usual stories of patriotism and freedom and the French.Some other times they would reflect on their life in Qatar and one of their most striking observations has stuck in my mind.When these reporters went back to sleep in their hotels, they encountered a completely different crowd. Not Iraqis, or Saudis or Qataris, but our own folks from South Asia. In between filing reports on the imminent dangers of the Weapons of Mass Destruction (the immortal WMDs) and the advances of the 3rd Infantry division, the reporters met Indians and Pakistanis of all sorts. The labor class, employed in these hotels, from the chefs to cleaners to waiters, these reporters encounter are an “extraordinarily” generous and hospitable group of people.Doha, Qatar, is a rich fiefdom or a sheikhdom like many others in that region and the low class labor in that country is drawn from India and Pakistan, but mostly from India. It is a relatively safer place and now that the U.S. armed forces are making it their home, moving from Saudi Arabia, the demand for labor is growing. The Indian Embassy in Qatar provides elaborate guidelines for Indian businesses and labor contractors on business and work opportunities in that country.There is something else to this picture. Thanks to the interminable pontifications of our anchor-leader on CNN, Aaron Brown, and equally reflective observations on NPR, I gathered that the life of reporters was rendered surreal by the confluence of the riches and luxuries of the fiefdom as evidenced in hotels and posh restaurants, the polite, extra-hospitable labor from the subcontinent, the now-you-see-now-you-don’t weapons of mass destruction, the harsh sandstorms and the worrisome difficulties that the coalition of the willing faced in the early days of the war.Often, history is written for the victors and by the victors. Rarely do we see accounts of how houswives struggled at home while the men of valor fought the battles and won the wars. Even rarer do we see how the grocery stores were kept stocked and how the neighborhood flower shop collected flowers each morning, not knowing what they would be used for. This is the underside of life and indeed the underside of the war too, unsung, unpleasant, unromantic, but very real nevertheless.This is also the unsung dimension of diaspora around the world, especially our own. While the big men fight wars with their big weapons, the labor class works with different, if not indifferent priorities. While the bombs were falling on Baghdad and the country was being pushed once more to the pre-industrial age, the labor class from India was worried about sending money home, about pleasing the hosts beyond the expectation of tips or promotions. They were there for their duties, nothing noble, just to feed their families and hoping the madness in the world will play itself out maintaining their world of work safe and secure.The divide between the working class and those in the drivers’ seats while history marches is alarming, tragic and instructive at the same time. It is easy to see how the lives of the reporters and the commanding officers would have to be comfortable for the war to go on without pain, for the decisions to be made without physical discomfort or distraction. It is the support in their hotels, in their meals and in the lavish spreads of fresh fruit, and impeccable maintenance that drove these men to their glorious hour. All the while, the pain of the working class, uprooted from their homes to keep others happy continued. But it is this role that makes the valor possible, and this contribution that demands our attention.Once during a long stopover at the Munich airport, I met two men working behind the cafe counters in the terminal. As I struck up a conversation, we realized we were from India and that gave rise to an intense camaraderie for some ten hours. These two men, speaking fluent German, French and English had come from Kerala and were living in an apartment in Munich with eight others who also worked at the airport.I commended their fluency in multiple languages and they responded simply that it was necessary for employment. They had learned it all within a year, quite a functional fluency, which my language teachers have warned me, is difficult to achieve beyond a certain (old) age. In the course of conversations, which they embellished with an Indian style tea made for one of their own, they told me that they preferred Germany to the United States because the “social welfare” systems was great, especially the health care system.Although I should know better, that statement caused a tremor in my consciousness. This land of plenty, which boasts the highest immigration from around the world, still lacks some of the basic benefits for anyone, but especially for immigrants and that too for poor immigrants. All that risk taking and all that effort learning languages for jobs at the airport cafe so that the social safety net can protect them if they needed it. In my narrow mind of a jet traveler, this was a strange, but believable rationale.We hardly know how this underclass thinks or how it works. But it is working hard and working for the same dreams but with a different set of difficulties. But the kind of hard work this class is capable of is a realm of unthinkable legends or grim, unavoidable realities of working class lives.Almost every comedian I know has made fun of the cab drivers in New York City. In fact, their “strange” accent and broken English have become steady fodder for everything from everyday chatter to television comedies. The economic burden and hardships notwithstanding (I once read that it is easy to begin a new business in America’s heartland than it is to be a cab driver in New York), the cab drivers from the subcontinent remind us of physical endurance that other locals or natives will not be able to put up with.When someone made an observation that so many of the endurance records in the Guinness Book of Records come from South and South East Asia, who would have thought such qualities would create a passport to employment for immigrants. But remember the vitriol generated by then Mayor Guiliani’s stance against cab drivers in 1998, a move for discipline motivated by a perception about the immigrant working class and its own ethics of survival than any prudent fiscal motives. And yet, it is the working class that makes this city move, makes it breathe and makes it so uniquely New York.This working class of cab drivers in New York, as legends have it, is made of Ph.Ds., masters and engineering degrees. These are not romantic, but sad stories in the annals of immigrant experiences. They speak of fundamental inequalities in talents and resources of labor and less about how individuals carve a space for themselves in an unfair economy. Whether you are taking your girlfriend to a hotel or moving to meet a partner in a Wall Street deal, you are moved by this working class, whose quirks are visible, but their pains are not. Very few talk about how the life of this working class forms the basis of the glory that is visible every day in the city.Going to an Indian restaurant is a cultural tour. The decor and the smells tell you a lot about the class, about the owner and about the food. Some seasoned visitors know this when they see it and some pass by taking it for granted as one of the normalcies of life. The most striking aspect of this internal world of the restaurants is the waiters. True in many cases, these are family members themselves, but often they are employees. Whether the owner is Indian or American, the class of the restaurant shows in the waiters that appear in front of us. In one such encounter I noticed that waiters in Indian restaurants don’t get much of a tip. I am not about to offer a lesson in Manners or hector you as the William Bennett of virtues. This is partly cultural, I believe, and as such, one can spare that discussion for another time.What is striking now is that restaurants in respectable areas, owned by respectable owners and in some cases, owned by non-Indians, this is a cultural given, an economic assumption. Waiters in more scores of such establishments have made it clear that there is no tipping in Indian restaurants and that it has become a norm of sorts. The logic is immutable. Since Indians do not offer tips to the waiters, Indian restaurants do not pass on any tips to waiters even if it is collected at the cashiers. This is an open robbery of working immigrants. Those of us who know college-going kids know how “waitressing” or “waitering” helps many a kids through college. How many times have I been prodded by the motherly conscience to tip the waiter/waitress simply because it is their principal source of income.One can well imagine what would happen with poor immigrants whose sense of money takes them farther than it does an inexperienced grown teenager. What Barbara Ehrenreichs book Nickel and Dimed: On (Not) Getting by in America, says about the working class in this country, that it is still exploited by newer means, holds even truer for the working class of immigrants whom we ignore.Indeed we have come a long way from the motels and Patels of Indians. We know the story of how we have struggled against all odds and have become a prominent and successful immigrant group in this country. But the picture is not complete unless we pay close attention to the hard work, the pain and the unseen contribution our brothers and sisters are making to the global economy and to what we call the march of history. Their lives are as important as those of the millionaires and the successful. Related Itemslast_img read more