Voice from the Rooftop

Blog of Vincent Augustine D'Souza

Category: India

Demonetisation Disaster

Demonetisation is a Disaster. No amount of sugar-coating or whitewashing can hide that. It was pain without gain. This decision was similar to that of Mohammed Bin Tughlaq introducing brass and copper coins.
For eight months government and RBI avoided giving figure of money that came back. RBI gave figures till the amount reached 12.44 lakh crores in mid-December 2016. After that it was silent. Unofficially it was known that 14.97 lakh crores had come back as on 30/12/2016. Now it is official that 99% of demonetised notes came back. On 30/8/2017 the figure was out. Out of 15.44 lakh crores, 15.28 lakh crores came back as on 30/6/2017. It means 31,000 crore rupees came back after 30/12/2016 and up to 30/6/2017. The remaining 16,000 crores would have come back if the government had not stopped RBI from accepting demonetised notes except from Non-Resident Indians who were out of the country from 9/11/2016 to 30/12/2016 and accepted money with co-operative banks and Nepali banks and money deposited in courts. It is said 8,000 crore rupees are with co-operative banks. When NABARD completes its exercise of checking the genuineness of customers a decision will be taken about acceptance.
Demonetisation was remonetisation. Rules of exchange and withdrawal changed several times. People who trusted the government or Prime Minister and believed they can exchange with banks till 30/12/2016 or with RBI till 31/3/2017 lost. For people who had marriages the dream turned into nightmare. They did not have enough cash. Later withdrawal of 2,50,000 rupees was allowed for marriages. Banks did not have enough cash. Patients could not pay for medical bills or treatment. At least 120 people died waiting in queues.
On 8/11/2016 the three purposes of demonetisation were ending black money, ending corruption, and ending fake notes and terrorism. Fake notes were said to be fuelling terrorism. Attorney General Mukul Rohatgi said in the Supreme Court the government expected 4-5 lakh crore rupees will not come back. Some economists wrote 2-3 lakh crore rupees will not come back. All were proved wrong.
The talk of cashless or less cash or digital economy was an afterthought when people suffered due to lack of cash. It was making virtue out of necessity.
Some say demonetisation was a success because BJP won elections after that. They do not mention elections BJP lost. BJP’s victory in UP was due to various factors. Leaders of Congress, BSP and SP joined BJP and contested on BJP tickets. Congress-SP alliance did not have credibility and members of both parties at local level did not support each other. There was infighting within SP between Akhilesh Yadav and Shivpal Yadav which damaged SP greatly. Shiv Sena attributed BJP victory to money and muni (monk).
Black money continues. Corruption continues. Election Commission countermanded an election in R. K. Nagar because voters were bribed. Some Gujarat Congress MLAs switched to BJP. Those who were shifted to Bangalore claimed they were offered 15 crore rupees each to switch to BJP.
It was said 400 crore rupees were fake currency. RBI says it found 41 crore rupees of fake currency.
On 31/8/2017 GDP figures were out. GDP growth was 7.5% in July-September 2016. In October-December 2016 it was 7%. In January-March 2017 it was 6.1%. In April-June 2017 it was 5.7%.
Spin doctors of BJP and their supporters claim success. They quote various figures. One of them is 25% increase in the number of Income-Tax Returns. They do not mention most Returns are Nil Tax.

Rupee and Bitcoin

Rupee should be equal to Bitcoin or 4,500 American dollars, whichever is more.
A strong rupee is in national interest. Those who do not want a strong rupee are anti-national.
Recently RBI reduced repo rate by 25 basis points. Some say RBI should have reduced repo rate by 50 basis points. Repo rate is the rate at which banks can borrow money from RBI for short durations. Lower repo rate pushes up growth. Higher repo rate lowers inflation. Lower repo rate allows banks to lower their interest rates and encourages entrepreneurs to borrow and invest in long term projects.
The reality is that entrepreneurs do not worry about interest rates. They borrow whatever is the interest rate. Officially the borrowing is for investment in long term projects. Unofficially money borrowed is spent or other things including buying foreign properties. Then they default. Banks go for corporate debt restructuring or strategic debt restructuring which is advantageous to the borrower. He pays less interest. His shares are bought at higher price. In some cases no restructuring happens. Banks are left with bad loans of lakhs of crores of rupees which are known as non-performing assets. Reliance Communications has borrowed 45,000 crore rupees and has defaulted. Essar, Bhushan Steel and many other companies have borrowed and defaulted. Banks do not mention the borrowers. They keep their identity secret. Borrowers default to one bank and go to another bank. After borrowing from a dozen or more banks the situation is irredeemable. Public sector banks are looted and robbed without consequences. It is kleptocracy and lootocracy. Public sector banks belong to the people of India and they are the losers.
Zero inflation is good and right. Those who say India should have an inflation rate of 3-4% are wrong. It is wrong to say low inflation can cause stagnation and compare India to Japan. Japan is a dying country. More people die in Japan than are born. In five years Japan’s population declined by a million. Japan’s economy was once first in the world. With decline in population came decline in economy. Now Japan’s economy is third in the world. There is exploitation in Japan. Employees are made to work long hours. Some have committed suicide. One of them was a doctor. Few entrepreneurs have lot of wealth. Vast majority of employees do not earn enough to marry and have children. Some companies have cheated for long and now are on the verge of bankruptcy.
Drop in investment-to-GDP ratio from 35% in 2003 to 28% now is not due to interest rate. It is due to retrospective amendments to laws regarding taxes and what some called tax terrorism during P. Chidambaram’s time as Finance Minister. There is uncertainty about the rule of law. When a company wins a tax case in Supreme Court and the government amends the law retrospectively to nullify the judgment there is no faith left in the country and government. Vodafone case kept investors away.
Some say the world today is caught in a low-interest regime and therefore RBI should reduce repo rate. European Central Bank cut its overnight deposit facility rate to below zero, to -0.1% in June 2014. Central Banks of Sweden, Denmark, Switzerland, Japan and Hungary followed. Bank of Japan cut its current account deposit rate to -0.1% in January 2016. India with high interest rates attracts capital flows causing rupee to be stronger than it should be and this stunts exports and growth.
There are two counter-arguments for the above argument. First, the world is not caught in a low-interest regime. Bank of England increased interest rate by 25 basis points during the same period. Federal Reserve Bank of USA increased interest rate thrice in a year. If many countries are doing something foolish does not mean we should do the same. By the way, most European countries are dying countries.
Second, there is more to exports than interest rate or exchange rate. What is necessary is bought irrespective of the price. It is said in 1917 one rupee was equal to thirteen American dollars. Now, 64 rupees are equal to one American dollar. The rate fluctuates on a daily basis. When India became independent it was 3.36 rupees per dollar. India devalued rupee in October 1949 and it was 4.76 rupees per dollar. On 6/6/1966 it became 7.50 rupees per dollar. After that the rupee has seen downside. Its low point was 68.80 rupees per dollar. Now it hovers around 64 rupees per dollar. This has not helped exporters. Exports don’t go up when rupee value comes down. Any benefit is of short time. Exporters get less after that. Imports cost more. Most exports have import components. There is no gain by low interest and low exchange value. Exporters have profited many times. Any loss due to strong rupee is temporary. If exporters suffer for some time due to a strong rupee, so be it. The country is greater than all exporters put together. Vested interests of a section of the people should not hinder country’s progress.
In spite of Modi’s Make in India slogan, India imports Apache helicopters from USA and defence requirements from many countries. Exchange rate does not matter.
A strong currency commands respect. Devyani Khobragade would not have been humiliated if rupee was strong. As Deputy Consul General in New York she would have paid minimum legal wage to her maid if rupee value was equal to one dollar or more.
In 17 years the government of USA has borrowed 21 trillion dollars from FRB. FRB has printed notes valued at 85 billion dollars per month for five years or so and after that it gradually reduced the printing. This was done in the name of stimulus. Rupee value against dollar should have gone up many times. That did not happen shows lack of self-respect and hold of vested interests.
In January 2009 when Bitcoin transactions began a Bitcoin value was 10 cents. Now a Bitcoin value is around 4,500 dollars. Rupee should equal Bitcoin progress and move forward. Bitcoin is dominant among cryptocurrencies.
India should make rupee a global currency. There should be no sudden demonetisation so that there is no inconvenience to people all over the world. Any demonetisation should be after a minimum of one year of announcement and notes should be accepted by RBI or other banks without time limit. People should be free to take rupees out of India without limit.
Shiv Sena is critical of BJP for offering 15 crore rupees each to Congress MLAs in Gujarat to switch sides. It shows demonetisation has failed and BJP has black money.

Amit versus Ahmed

Usually elections to Rajya Sabha are tame affairs. Number of candidates is equal to number of seats and candidates win unopposed. Rarely there is a contest. One candidate loses when there is a contest.
Elections to three Rajya Sabha seats from Gujarat on 8/8/2017 saw interesting twists. There were four candidates. BJP had fielded Amit Shah, Smriti Irani and Balwantsinh Rajput. Congress had fielded Ahmed Patel. The contest was seen as Amit Shah versus Ahmed Patel. Narendra Modi wants Congress-Free India. Amit Shah is BJP President. Ahmed Patel is political secretary to Sonia Gandhi.
Balwantsinh Rajput was a Congress member. BJP got him to quit Congress and join BJP and fight against Ahmed Patel. It is said Amit Shah holds Ahmed Patel responsible for his imprisonment in Sohrabuddin Shaikh encounter case. Congress leaders were jittery about TV channels mentioning Ahmed Patel as political secretary to Sonia Gandhi. They said Ahmed Patel is contesting as a Congress member and not as political secretary to Sonia Gandhi.
Congress had 57 MLAs in Gujarat Legislative Assembly. Ahmed Patel was a sitting MP of Rajya Sabha from Gujarat and his victory was taken for granted. Then Shankarsinh Vaghela quit Congress. Some Congress MLAs followed him. Some Congress MLAs resigned from Legislative Assembly. Congress accused BJP of offering 15 crore rupees bribe to its MLAs and intimidation of MLAs who did not except bribe. It shifted its MLAs to Bangalore. Some channels were critical of Congress. They said Congress MLAs were enjoying in Bangalore while Gujarat was flood-affected. Congress MLAs replied they were not safe in Gujarat. The MLAs stayed at Eagleton Golf Resort owned by Karnataka’s Energy Minister D. K. Shivakumar. Income Tax Department raided his properties.
After voting on 8/8/2017 Shankarsinh Vaghela said “As Ahmed Patel is going to lose, I have not given my vote to him.” Congress leader Ashok Gehlot said “Out of our 44 MLAs, one of them has cross-voted.”
In the evening the action shifted to Delhi. Congress leaders Randeep Surjewala and Ratanjit Pratap Narain Singh went to Election Commission and met CEC A. K. Joti and EC O. P. Rawat. They presenteda video and said Bhola Gohel and Raghavji Patel had shown their ballot papers to unauthorised persons and their votes should be quashed. Then BJP delegation headed by Arun Jaitley approached Election Commission. Ravi Shankar Prasad, Piyush Goyal, Dharmendra Pradhan, Mukhtar Abbas Naqvi, P. P. Choudhary and Nirmala Sitharaman were in the delegation. BJP contended that once votes are cast nothing can be done and the process was fair and EC should reject Congress plea. Returning Officer is the statutory authority for polling and counting. EC has no power.
Then Congress delegation returned, this time led by P. Chidambaram. Chidambaram wanted rejection of the two ballot papers and cited precedents. He said “The most recent precedent in Haryana on June 11, 2016. On that day, in the election to the Rajya Sabha, a Congress MLA’s vote was rejected on the ground that the ballot paper has been seen by a person other than the authorised person…”
BJP delegation returned and demanded immediate counting of votes. Congress delegation was back for the third time and BJP delegation followed. EC said it would not meet more delegations. EC viewed video footage. It invoked Article 324 of the Constitution and overruled Returning Officer’s decision and ordered that the votes of Bhola Gohel and Raghavji Patel be invalidated. It is rare for EC to overrule RO. Ahmed Patel won. Balwantsinh Rajput lost. Victories of Amit Shah and Smriti Irani were not in doubt.
It was Randeep Surjewala’s vote that was disqualified on 11/6/2016 after BJP objected he showed it to Congress Legislature Party leader Kiran Choudhary who was not the authorised person while Congress leader and AICC General Secretary B. K. Hariprasad was the authorised person. That time BJP benefitted. This time Congress benefitted.
The election had side shows. Nitish Kumar wanted JD(U) MLA Chhotu Vasava to vote for BJP. He voted for Ahmed Patel. Nitish Kumar sacked Arun Srivastav as general secretary for appointing an authorised agent of behalf of the party. Of the two NCP MLAs, Kandhal Jadeja said he voted for BJP against party whip. BJP MLA Nalin Kotadiya said he had voted for Ahmed Patel.
It is victory of Ahmed Patel and defeat for Amit Shah at personal level and victory for Congress and defeat for BJP at party level.

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