A influential international business news giant, based in New York, avidly followed by the corporate world across the world, has said that India’s “sudden” decision to demonetize 500- and 1,000-rupee notes on November 8, initially seemed a “masterstroke”, is proving to be a “grave miscalculation.”
Published as Bloomberg View, the editorial arm of the top media company headquartered in Midtown Manhattan, the commentary says, the step has plunged the Indian economy “in chaos”, even as pointing out that Modi appears to be increasingly getting nervous.
“His recent speeches on the subject have been frankly bizarre. In one, he seemed to laugh at those inconvenienced by the ban; in another, he broke down while speaking of the 'sacrifices' he'd made for India, and warned that he might be assassinated by 'forces' desperate to protect their 'loot',” says Bloomberg View, authored by Mihir Sharma, a known columnist.
“It’s become clear that the government was simply too cavalier in its planning”, says Sharma, adding, “Now that 86 percent of India’s currency is no longer valid, the central bank has struggled to print replacement denominations -- and the new notes are the wrong size for existing ATMs. Modi’s asked people to be patient for 50 days, but the process could take as long as four months.”
Wondering whether Modi at all “sought expert advice, or relied once again on a small and trusted set of politicians to determine policy”, Sharma says, “India’s simply too big and complex for shock and awe. Large parts of the rural economy use cash for 80 percent of transactions and have been hard-hit.”
The Bloomberg View, titled, “India's Great Rupee Fail” underlines, “In seafood-mad West Bengal, for example, the fishing industry is in a state of near-collapse; in the wheat-growing states of the northwest, farmers halfway through the sowing season have run out of cash to buy seeds.”
The comment says, “Few villagers have access to an ATM. Most have to trek to a bank branch to change their cash, which means losing out on crucial days of labor. Many Indians, particularly women, still don’t have an active bank account.”
Suggesting that the government had no idea of all this, Sharma says, “Finance Minister Arun Jaitley wondered aloud how many poor people would even have 1,000-rupee notes -- probably a rhetorical question, but surely it shouldn’t have been. Someone should've sought the answer before shutting down India’s financial system. ”
Agreeing that among India’s middle class, Modi’s step “still appears to be popular”, Sharma, however, emphasizes, “It’s a moral project, not an economic one.” People are told to “stand in line” as a proof of “honor” to the “brave soldiers at the border.”
Questioning whether this support will last, Bloomberg View predicts, “The government’s plan is likely to be ineffective in the long term. Economists agree it will have no effect on the generation of black money through corruption.”
Pointing out that the optimists “wrongly” think enough of black money cash will be destroyed by hoarders, the comment says, one should remember that “a very small fraction of black money tends to be held as cash and that there are a dozen ways still available to launder that fraction.”
“The government has largely failed to close these loopholes”, it says, adding, “Worse, rumors of the demonetization were reportedly circulating before Modi’s announcement, leading to suspicions that the well-connected may have had time to dump their cash piles. ”