Project Remonetisation: Apogee of divisiveness amidst effort to paint Dubaiesque picture of India Rising

By Shantanu Basu*
In the myth-making, politics and economics of Project Remonetisation, all cash outside the banking system have earned the dubious moniker of being ‘black’. Nowhere in sight of discussion are fundamental issues of the future control of citizens’ moneys and their security, costs of currency replacement, legality and necessity, even constitutionality and limitations. Instead Indians are beamed TV images of Chief Vitalstatistix astride his throne, carried aloft by his minions, while holding the Roman Empire (of evil) at bay.
Are ‘black’ and ‘white’ moneys as distinct from Rudyard Kipling’s East and the West? Can the twain ever meet? If a housewife saves a precious Rs. 500 over a decade or more from her family’s household expenses and tucks it away in her pillow, her surrendered notes cannot be treated as ‘black’ money. Her spouse cannot be forced to preserve old bank pass books for his monthly household expenses for decades together to prove to the taxman the bona fide of his drawings in cash from the bank to hand over to his spouse.
Similarly, if the spouse funnels part of her notes to pay wages in cash to her domestic helps, that is again not ‘black’ money. A Louis Vuitton crocodile leather bag yields the state’s coffers ‘white’ handsome taxes and duties. Does it not speak volumes of governments’ evident inability to take action against the generation of ‘black’ money when it is, by itself, the greatest generator of illicit moneys and principal sponsor of nationwide corruption in this land?
Media reports this week suggest that about Rs. 10 lakh crore has already been deposited in banks and that another Rs. 2-3 lakh crore could flow in by Dec 30, 2016 and Mar 31, 2017. Further, unspent cash lawfully held by banks and government agencies as of Nov. 8, 2016 could total Rs. 1-2 lakh crore at least. Effectively, that leaves about Rs. 12.50 lakh crore of which already Rs. 11-12 lakh crore has flowed in or are held by banks and govts., PSUs, etc. in cash. Against each deposit, a corresponding promissory liability would arise for the RBI (recall the promise on all notes).
Neither can RBI show it as profit (by arbitrary extinguishment of liability to pay undisclosed notes) nor can Govt. of India claim the same amount as windfall dividend. The only face saver for Govt. of India is thus a repeat of IDS 2016. Media reports that label Project Remonetisation an unqualified success and paint a Dubaiesque picture of India Rising and Shining are evidently escapist and motivated. The premature debate started by BJP spokespersons of treating undisclosed notes as profit for RBI and dividend for GOI to fuel infrastructural deficiencies obviously had the party’s approval.
There are also several apparent constitutional and legal violations. No documented and specific reasons were stated in the notification of Nov. 8, 2016 and in PM’s speech, instead unsubstantiated sweeping statements based upon apprehension and traditional perception was used for justification even where govt. statistics told a contrary tale as in the case of fake notes. If the RBI Act, 1934 allowed demonetisation, the Govt. of India violated Art.300-A of the Constitution by imposing arbitrary limits on drawings and exchange of old notes and poor or no availability of all denominations of replacement currency to the extent demanded by citizens.
The RBI Act, 1934 was promulgated when there was no Constitution. Hence this Act cannot be repugnant to the Constitution, post-1950. If it does, it merits being declared null and void, to that extent. Arbitrarily imposed limits equally violated the fundamental right to life (Art. 21) by causing undue hardships to citizens by sheer incompetent implementation and undue deprivation that also resulted in loss of about 70 human lives.
Compounding these could be charges of violating the right to freedom of trade, occupation and profession (Art. 19) by forcing subsistence-level labour to abandon their work and return to their villages, unreasonable loss of business earnings and repudiation of Rs. 500/1000 notes beyond an arbitrarily determined date, many more.
Did that also not amount to unilateral renunciation of debt held overseas by NRIs and money changers and countries where the Indian Rupee is legal tender? What message would flow to foreign and Indian investors of the security of their moneys? Will the scanty availability of a cheap and working pan-India network of PoS terminals and smartphones particularly barely literate mobile hawkers and small workers, farm labour, etc. deny them their fundamental right to practice their trade, occupation or profession without let or hindrance? The bottom line remains that Parliament was completely ignored even though it was the principal guardian of the nation’s Constitution.
This apart, the legality of mandatory and coercive retrospective taxation/penalties passed by the Lok Sabha on Nov. 29, 2016, that too beyond the middle of the current assessment year, when these were not part of the notification of Nov. 8, 2016, appears to rest on similarly sandy foundations. If mandatory penalties, limits on drawing, lock-in periods, etc. were to be notified, these should perhaps have been incorporated in the gazette notification of Nov. 8, 2016 or legislation done on Nov. 8, 2016 itself, before announcing Project Remonetisation. Indeed retrospective taxation was at the heart of the Vodafone case. Can the Govt. of India change the goal post after the game has commenced? Chartered Accountants and taxation lawyers may well have their best business prayers answered as waves of litigation overwhelm the Govt. of India’s taxation administrators.

What is even more intriguing is the effort to provide replacement currency within the 50-day window as promised by PM Modi. In its Annual Report for 2014-15 , RBI estimated that 1313 crore notes of Rs. 500 denomination worth Rs. 656400 crore and 561 crore of Rs. 1000 notes valued at Rs. 561200 crore were in circulation as on Mar 31, 2015. These were part of the 8358 crore notes of all denominations worth Rs.142890 crore with Rs. 500/1000, constituting 85.30%. In 2014-15, India’s state currency printers supplied 502 crore Rs. 500 notes (against indent of 540 crore) and 105 crore (against indent of 155 crore pieces) Rs. 1000 notes. Clearly, they do not have the capacity to deal with such massive remonetisation.
To replace 1874 crore notes plus a 25-33% annual disposal (replacement) rate of these two denominations may arithmetically take at least 15-18 months and 60% (about 1125 crore) of notes in at least 9-12 months (my back-of-the envelope calculation) working 24x7 and without down time, a physical improbability.
From where would about 750-800 crore notes be sourced from after 300-350 crore are supplied domestically? The answer is printing overseas. De la Rue, a closely held Swiss company with bases in UK and Germany (with NM Rothschild & JP Morgan as advisors), is the biggest overseas end-to-end currency solutions provider, except for ink whose Indian business was a third of its annual turnover. In 2010-11, De la Rue was suspected of supplying fake notes to the ISI to funnel into India (while supplying real ones to India at the same time) and their orders cancelled by UPA that hushed up this matter after blacklisting this company.
The blacklisting was ended by NDA 2.0 in 2014 without specific reasons and no reference to that company’s past track record in India. If PM Modi’s 50-day commitment is to take shape, then De la Rue and other smaller overseas printers must produce at least 60% of replacement currency or about 750-800 crore. Coincidentally, De la Rue’s stock price rose by over 33% from Apr 11-Nov. 9, 2016 and is slated to rise much more in the coming months, maybe by up to 60%. Coincidence is never a stranger to our land!
Project Remonetisation as a concept in India failed to distinguish between a cashless and a no-cash economy. It may reduce Govt. of India’s ability to stabilise the Indian Rupee by printing more notes. Moreover, if any of its banks sink, the worst sufferers would be customers since Govt. of India would not be theoretically able to print currency for such eventuality. National calamities that often require giant amounts of cash for relief and rehabilitation would be hard hit by the absence of cash. If at any later date state-owned banks are divested of their majority govt. shareholding, Govt. of India may find it difficult to rein private operators that buy out the govt.’s share.
Plastic money is far cheaper and safer but has little or no control over burgeoning debt either for its user or from hackers. Weak telecom networks, maintenance of equipment, 3G/4G tariff affordability and reliability and uncertain power supply in remoter areas of India are major grey areas that needed to be addressed before launching into a ‘cashless’ economy. Least of all, even in a highly developed economy like the US and Germany, cash is liberally available and frequently used. US dollar bills, particularly the frequently counterfeited $100s, are regularly replaced by newer and more secure ones but not demonetised. Demonetisation is a measure of the last recourse when a currency fails as in Zimbabwe or Weimar Germany.
India’s corruption and terrorism grounds for remonetisation owe entirely to layers of corruption-enabling colonial laws, rules and regulations, weak enforcement and punishment. Why should our PM deride possessors of ‘black’ money, hard-earned/saved, or over/under invoiced moneys and paint them in the same shades of grey as charlatans and conjurors even when ‘black’ and ‘white’ converge? The NDA’s corruption-nationalism binary offence on remonetisation has dangerously fractured the nation as never before, all for the elusive vote, and reduced the Opposition to Hamelin’s infestation. All attention is now justifiably riveted on the
Hon’ble Supreme Court on Dec 2, 2016 and onward to adjudge Project Remonetisation in the best interest of the nation.
---
*Senior public policy analyst and commentator. Source: https://www.facebook.com/notes/shantanu-basu/project-remonetisation-apogee-of-politics-of-divisiveness/1281804208536631