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Photographer: Anindito Mukherjee/Bloomberg

Back in 2014, Narendra Modi's landslide victory was hailed by columnists in the Wall Street Journal and the Financial Times, who predicted that he would prove to be India's Ronald Reagan or Margaret Thatcher, modernizing India's economy with a revolutionary program of deregulation and privatization.

Abruptly withdrawing more than 80 percent of the cash in circulation in India, Modi appears today a very different kind of revolutionary: the type that emerged in many non-Western countries in the previous century.

This figure, variously incarnated as Ataturk, Ayatollah Ruhollah Khomeini, Mao Zedong and Chiang Kai-shek, pitilessly uses the power of the state to impose sacrifice and pain upon his compatriots, conscripting their bodies and souls in the all-important task of forging a virtuous new people and nation.

To many eyes, the initial verdict on Modi's radical demonetization policy has been crushingly negative. Both Larry Summers and Kaushik Basu have described it as a blunder amid reports of financial sclerosis and extensive suffering, including dozens of deaths. According to Amartya Sen, "only an authoritarian government can calmly cause such misery to the people." Even some of those who welcomed Modi as an economic modernizer now attack him for callously exposing Indians to unnecessary distress.

But, projecting their own fantasies and disappointments on Modi, they disregard a cardinal rule: "Believe the Autocrat; he means what he says," as the Russian critic Masha Gessen put it in a recent article titled "Autocracy: Rules for Survival."

For Modi plainly has his eyes fixed on a bigger goal. In recent days, he seems to have convinced himself, through a public survey on his own app, that Indians overwhelmingly back his proposal (and it does seem that many among even the poor do). Indeed, Modi was bold enough to announce early on that Indians would have to suffer for at least 50 days. Soon after plunging India into chaos, he left for Japan, where he exhorted his countrymen to learn from the Japanese. Indians, he urged, should come together and make national interest paramount, just as the Japanese had in the aftermath of the devastating 2011 earthquake and tsunami.

This obsession with the Japanese spirit of self-abnegation is no passing fad. Modi's ideological movement of Hindu nationalism was inspired by ultra-nationalists of the early 20th century, who saw widespread suffering as necessary, and not just inevitable, in the urgent endeavor of creating a new ethical and spiritual community and a sense of cohesion. Looking for likely models, V.D. Savarkar, Modi's greatest hero, came to admire Turkish nationalists as well as the Nazis.

These nation-builders believed, along with Nietzsche, the intellectual godfather of many early 20th century ideologies, that "what doesn't kill you makes you stronger." I pointed out in an earlier column on Modi's fascination with Japan that Hindu nationalists were especially admiring of the first Asian nation to become economically and military powerful through harsh self-sacrifice.

The Japanese project, in which citizens were expected to ransom their personal interests to the glory of the nation, obviously has little appeal for Western or Westernized liberals. Certainly, the consequences of a national culture in which hara-kiri and kamikaze were exalted became grotesquely clear during World War Two. But then, rationally calculating liberals always underestimate the ever-renewed political appeal of what they call "irrationalism."
Q&A: India's Scramble to Switch 23 Billion Banknotes
Khomeini may have seemed daft to many economists when in 1979, as Iran faced a severe economic crisis, he declared that donkeys concern themselves with economics and that his Islamic Revolution was not about the price of melons. Khomeini knew that it is individual and collective sacrifice and suffering that binds people and forges a collective ethos. The extraordinarily bloody and prolonged Iran-Iraq war, which ideologically strengthened Khomeini's struggling regime, proved him right.

Modi belongs to this line of autocratic ideologues rather than the Western tradition of revolutionary neoliberalism, or Marxist rationalism. And, though his critics are surely tempted, it's too early to say that demonetization spells political disaster for him.

Another revolutionary nation-builder, Mao Zedong, led his people into a much bigger calamity with such amateurish economic projects as making steel in backyard furnaces. Surrounded by sycophants and time-servers, Mao convinced himself that his policies were a wild success. When their terrible consequences could no longer be hidden, he launched a witch-hunt against his opponents in the guise of a "cultural revolution." Yet Mao Zedong's name today is invoked piously by ruling elites and the masses alike in China.

There should be no doubt: Modi is advancing a similarly ambitious and long-term experiment in India that aims to re-engineer human souls and minds as much as socioeconomic realities. Success and failure in this grand endeavor cannot be measured through the conventional terms of technocrats.

Demonetization seems right now like a kamikaze mission for the Indian economy, and political hara-kiri for Modi. But India's ideologically driven prime minister is likely to undertake even riskier gambles with an eye on posterity. And, to adapt the words of a recently departed revolutionary, history, as unreliable as ever, may even absolve him.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Pankaj Mishra at pmishra24@bloomberg.net

To contact the editor responsible for this story:
Nisid Hajari at nhajari@bloomberg.net

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Back in 2014, Narendra Modi's landslide victory was hailed by columnists in the Wall Street Journal and the Financial Times, who predicted that he would prove to be India's Ronald Reagan or Margaret Thatcher, modernizing India's economy with a revolutionary program of deregulation and privatization.

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It was the straw that finally broke the camel's back. I am referring to demonetization, of course.

Two weeks ago, driven to insanity by the non-stop analysis of demonetization on a whole host of WhatsApp groups that I am part of, I muted almost all of them for good. Except for a few groups comprising very close family, I have relegated all my other groups to complete and utter silence. I have no idea what is going on in these groups.

Occasionally, I rapidly scroll through them to see if anybody has specifically targeted a question or comment at me. Otherwise I participate not at all in the constant ruminations ongoing in these groups.

Why did I do this? Was it because too many people had opinions that I did not agree with? Not at all. For the better part of the past decade I have spent time at work, in real-life meetings, on blogs and on social media vehemently disagreeing with people.

There is a certain lack of privacy in the life of a columnist and editor. Having to deal with disagreement comes with this territory. Was it because people were being abusive or rude? Nope. I have spent far too long on Twitter engaging with all kinds of people to wilt at insult. (Twitter is useful like that. It numbs many sensibilities including the sense of numbness.)

No. What put me off was the astounding lack of empathy that permeated most analyses in these groups. Day after day I was subject to people passing opinion on "groups"-Muslims, poor people, the unbanked, Syrians, Dalits, Trump voters, Hillary voters, black people, migrants, Brexiteers, Bremainers-with an astonishing lack of empathy.

Mind you, I say "empathy" and not "information" or "insight". Nobody can truly understand what it means to be somebody else, let alone somebody who is oppressed or in peril or at the sharp end of bad politics. Factual inaccuracies or generalizations are inevitable and also part of the tone and texture of public discourse.

No, I am referring to an astonishing lack of empathy. A lack of empathy that manifests itself in ways that I found mostly unbearable and often depressing.

Oh, those people standing in line all day to change their money? They should stop complaining and see the bigger picture. Oh, those estate workers struggling without pay because they don't have bank accounts? They should just suck up for some time and open bank accounts. Government has made it very easy for them now.

Instead of reporting on people who are upset by all this, why don't newspapers write about how good this is for the economy in the long run? Oh, those people dying in Aleppo? Well sorry about that but nobody told you to... umm... be born there...

Partly, this lack of empathy is reflective of the kind of groups I am part of. Most of these groups are full of people with an engineering degree, a business degree or, mostly, both.

Most of these groups comprise people who come from middle- and upper-middle-class backgrounds and have since moved into high wealth brackets by virtue of their jobs or businesses. Few of them, I suspect, have any real exposure to the communities and groups that they seem to have such little empathy for.

What, then, makes people like these-people like me-lack empathy?

I have some theories.

Firstly, I think it is because many of us live extremely hermetic lifestyles.

We go to schools with people like us, we train for entrance exams with people like us, we eventually go to engineering colleges and business schools where there is greater heterogeneity, but where we eventually end up making friends with people like us. We then go to work in my companies where once again we tend to draw most closely to people like us. And then at home we usually marry people who are also mostly like us.

There is little chance, or incentive, for us to break this pattern. Is it little wonder, then, that when demonetization was announced the nearest, and in some cases only, "poor" person we could reach out to was the guy who drives our car or the lady who cleans our house?

Our entire engagement with another much larger section of society out there was through the eyes of the two people in our lives who were not like us: maid and driver. So if my maid thought demonetization was a great thing, then surely it is. If my driver was struggling to feed his family, then how many other millions were in the same predicament. (However, at least you are empathetic towards your domestic help. Which is something.)

Hidden in this is also the assumption, entirely unfounded, that all "poor" people are alike. And have the same feelings and ideas about everything.

Empathy, or a tendency towards empathy, at least partly depends on trying to engage with people out there who are not like us. Who do not share the same values, aspire for the same things or are prepared to make the same compromises.

This is not easy. And in fact is only getting harder. As I have written before, things like the Internet and the collapsing scope of electronic news coverage only helps to strengthen our sense of collective identity and commoditize the "other" people all around us.

Secondly, I think it is difficult to feel empathy when we have not lived lives that depend on empathy ourselves. By which I mean that many of us like to think that we have achieved everything we have thanks to our participation in a seeming meritocracy.

We cleared entrance exams, thumped through group discussions, aced interviews, won seats, cleared exams, secured job interviews, and now everything we enjoy is the fruit of our intellect and timely efforts. Nobody has done us a favour.

Which may well be true. But this also makes us oblivious to the lives of people who depend much more broadly on empathy, favour and generosity. It makes us blind to the lives of people who simply do not have access to the same "meritocracy" that have greased our career trajectories.

It often makes us blind to the role that empathy has played in our own lives. It makes us forget that once upon a time our grandfathers or great-grandfathers were socialists or communists-ha, ha, ha, stupid lefties-not because they believed in Marxist theories or in the inevitability of revolution, but because they were fed up of crushing servitude, unfair taxes, a foreign overlord and a broken spirit. And the man with the red flag treated them like a human being.

It makes us forget that once upon a time our father lived in the backroom of a petrol pump in Dubai, near the old Plaza Cinema, because he could not get a job. But then the guy who owned the pump wouldn't let him work there because "how can I let you work in my pump, my mother used to work on your farm once upon a time and your father was so kind to her, I cannot allow this".

So Hamza fed your father appams with honey so that he looked healthy during job interviews. Of course, none of this makes economic sense. Why should one give people free appams and honey? But one does. And remembering this will perhaps make us more empathetic.

Ah yes, economics. That is perhaps the third problem. There are few exponents with greater devotion in models and theories and textbooks than an engineer with an MBA and several copies of The Black Swan.

Because how can something be good if the Sensex is going down? How can the poor be miserable if bond prices are going up? What is this crying and tears and melodrama? Have you not read Hayek?

Combine this complete certainty in the seemingly empirical with utter disregard for the humanities and the value of asking people not only what they feel but why they feel that way, and you have a potent antidote for empathy.

This is not a manifesto for the revival of communism, the debunking of economics or the exaltation of the humanities. Not at all. But it is a claim for the value of empathy. For the value of listening to people, especially people who are not like us. And listening to them not as data points but as human beings. And being open to the idea that there may be people out there who disagree with us for reasonable reasons. And knowing that listening is not agreeing.

Empathy is both easy and hard. It is easy because often you just have to shut up and listen. It is hard because you often hear things you wish you didn't have to.

But it is worth giving a shot. Except if you are an insufferable WhatsApp group. I had empathy for you. But now I am using it elsewhere.

Letter From... is Mint on Sunday 's antidote to boring editor's columns. Each week, one of our editors-Sidin Vadukut in London and Arun Janardhan in Mumbai-will send dispatches on places, people and institutions that are worth ruminating about on the weekend.
Comments are welcome at feedback@livemint.com

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It was the straw that finally broke the camel's back. I am referring to demonetization, of course. Two weeks ago, driven to insanity by the non-stop analysis of demonetization on a whole host of WhatsApp groups that I am part of, I muted almost all of them for good.

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Vijay Shekhar Sharma's Twitter feed has come alive these past two weeks. From a roadside egg-seller in Bhopal to a soda hawker in Bangalore, the founder of Paytm has posted snapshots of the unusual array of merchants who ply the teeming streets of India -- and are now turning to his digital payments startup for help.

Those fishmongers, vegetable vendors and rickshaw drivers count among the thousands who've signed onto India's largest digital payments service since Prime Minister Narendra Modi triggered a nationwide cash crunch when he scrapped the country's two largest note denominations. While the aim was to vanquish "black money," it could end up being the best thing to happen to its nascent online finance industry and haul its antiquated economy into the 21st century by making digital payments mainstream.

Sharma sensed the opportunity in a country where over 90 percent of the transactions are cash-based. Within hours, Paytm designed full-page ads to run in the biggest newspapers, proclaiming "Ab ATM Nahi, Paytm Karo" -- no ATMs now, use Paytm. On Wednesday, the startup -- which counts Alibaba Group Holding Ltd. as a backer -- outlined plans for what it called India's first mobile checkout service, updating its app to accept credit and debit card payments.

"It is as if the black fog has lifted. The fintech opportunity in India is now looking huge," said Sanjay Swamy, managing partner at Bangalore-based venture fund , which has invested in seven financial technology startups. "The market size question has gone away and lead incumbents will become very big very fast, and their valuations will jump in a big way."

Known as demonetization, the scrapping of 500 and 1,000-rupee notes sent businesses into firefighting mode and drove panic-stricken citizens to banks to exchange old cash for new. It also sent millions scurrying to digital cash, as daily growth numbers of online payments startups illustrate.

In a country where there're fewer than 25 million credit cards for a population of over a billion, ' Paytm and rivals such as FreeCharge notched up astounding growth within days. MobiKwik, which has 40 million users and 250,000 enrolled merchants, said it's seen a 75-time surge in transactions in just the past week.

Airtel Payments Bank went live on Wednesday in the western state of Rajasthan. The unit of the country's biggest phone company, , said its 10,000 retail outlets in towns and villages will function as banking points and offer services such as 7.25 percent interest rates on savings accounts.

"This time will never come again," said Upasana Taku, co-founder of Delhi-based MobiKwik, whose backers include Sequoia Capital, and . "All the reluctance and friction in adoption of digital payments has vanished overnight. We are updating our numbers every day as usage is going through the roof."

Even before demonetization, Indian digital payments had been expected to shoot up. The market could be worth $500 billion by 2020, or 10 times current estimates, Google and Boston Consulting Group said in July.

While the situation's still developing, India could end up a rare bright spot for financial technology investors. Funding and deals for fintech fell globally for a second straight quarter in the July to September period, according to KPMG and CB Insights. In contrast, Taku said investors are now asking her: "How much money do you want?"

Paytm -- last valued at $5 billion by investors including payments affiliate and MediaTek Inc. -- says it's just getting started. It's rolled out its app in 10 Indian languages and continues to sign up merchants by the thousands. It announced a zero-transaction fee for merchants on mobile payments and no-fee money transfers from Paytm to bank accounts we well as a DIY kit for novice neighborhood merchants and hawkers.

Its user base has now hit 150 million and daily transactions have averaged 7 million since Modi's move, more than the "combined average of all credit and debit cards in India," the company said. Its gross merchandise value has reached $5 billion so far this year, already outpacing 2015's $3 billion.

On Tuesday night, the central bank gave the industry another boost, temporarily increasing limits on pre-payments and introducing measures to encourage smaller merchants and consumers to adopt e-payments.

"Customers can do day-to-day transactions using prepaid wallets. Small merchants will be able to receive digital currency without deploying physical POS terminals or other infrastructure," said Naveen Surya, chairman of the Payment Council of India and Managing Director of ItzCash.

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India's Cash Ban the Best Thing to Happen to Digital Payments

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Vijay Shekhar Sharma's Twitter feed has come alive these past two weeks. From a roadside egg-seller in Bhopal to a soda hawker in Bangalore, the founder of Paytm has posted snapshots of the unusual array of merchants who ply the teeming streets of India -- and are now turning to his digital payments startup for help.

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Just as a matter of pure political analysis, it has to be said that we are now entering the politics of "permanent revolution." Gambling on demonetisation commits the government, one way or the other, to come up with new and radical moves with increasing frequency. If demonetisation fails, the government will have to come up with something equally radical to make up for this loss. If by some chance demonetisation is considered a partial success, it will whet the appetite for more gambling. Either way, expect new googlies from the government with increasing frequency, whether it is on expenditure or the taxation side or institutional reform proposals. The government has stepped on the escalator of seemingly radical disruption; it can only now continue on that path. Whether it is for good or for ill, we shall see.

These disruptions will have more than passing association with the language of permanent revolution. For Marx, permanent revolution was the thought that the working class pursues its interest without compromise. Except now the state will wear the mantle of a discourse where it will present itself above compromise. And the only way to establish this is disruption, often for the sake of it. This permanent revolution of the state will also have a Trotskyist feel to it. For Trotsky, permanent revolution was about force feeding history. It was about how one could create a socialist revolution where conditions for it did not pre-exist. Similarly, the nature of proposals: Cashless economy, for instance, will be about force feeding the march of history. The whole point of this form of politics is to immobilise those pedantic social questions about whether the preconditions exist for success.

Like all revolutionary talk, this doctrine will have nothing but contempt for all bourgeois institutional forms. The fact that there is no governing legislative or statutory provision for rationing money (as opposed to demonetisation of particular series), will not give anyone pause. There is no ordinance, no declaration of a financial emergency. That the RBI's credibility has been severely decimated will not matter much. It should be truly alarming that a secretary to the government of India, by fiat, can stand up every morning and issue more than a hundred and fifty directives regarding your own money. In the history of independent India, we have not seen this arbitrary a use of state power when it comes to the sanctity of money. The promise on your note "I promise to pay the bearer a sum of X rupees" did not say "only if you keep it in a bank account or only if you withdraw a certain amount a day or spend it in a certain way or in the case of marriage withdrawals give it only to people who you can prove do not have a bank account." Whatever your substantive moves on demonetisation, the fact that you have rationing without accountability, seems not to bother us. It is not an infringement of liberty or exercise of mad discretion. In the age of permanent revolution, law does not matter, form does not matter. Even the sovereign's breaking of a promise does not matter; after all, if a sovereign promises, he can also withdraw the promise.

Like permanent revolution, there will be constant switch and bait. So, very subtly, the discourse from government is now shifting from unearthing black money to the fantasy of a cashless economy. The language of permanent revolution works by a constant mobilisation. First, it is mobilisation against anti-nationals. Then we had a new move: A seeming revolution in our Pakistan policy, a claim to a new form of surgical strikes. Never mind the fact that it has done nothing to diminish cross-border shelling and killing of both military personnel and civilians. But the revolution moves on to the next big act of total mobilisation. And there will be more to come. The opposition will be foolish to assume that we are now in an era of conventional politics, whether in form or substance. In fact, one of the challenges of permanent revolution is that combating it by the standard repertoire of arguments - the preconditions do not exist, the law might not permit it - comes across as nothing but an apology for the status quo. That is the magical alchemy that permanent revolution produces.

There will be a new moral language: Permanent revolution is always Janus-faced about the virtues of the people. On the one hand, the people can overcome the absence of initial conditions for a revolution. On the other hand, those who don't will be enemies of the revolution, and therefore inherently suspect. We cannot decide whether the act of lining up in queues is an act of civic commitment on the part of citizens, or does it reflect widespread complicity and cheating. The revolution started out by declaring the people as virtuous; government directives then ended up declaring them cheats. Permanent revolution begins by appealing to virtue, it ends up using state power.

You hope to god some of this succeeds. For, permanent revolution, as it fails, is usually followed by war of some kind, the last switch and bait. We are a long way from that. But Marx's warning may not be inappropriate. In the Holy Family he wrote of Napoleon, "Yet at the same time he still regarded the state as an end in itself and civil life only as a treasurer and his subordinate which must have no will of its own. He perfected the terror by substituting permanent war for permanent revolution. He fed the egoism of the French nation to complete satiety but demanded also the sacrifice of bourgeois business, enjoyments, wealth, etc whenever this was required by the political aim of conquest. If he despotically suppressed the liberalism of bourgeois society - the political idealism of its daily practice - he showed no more consideration for its essential material interests, trade and industry, whenever they conflicted with his political interests. His scorn of industrial hommes d'affaires was the complement to his scorn of ideologists. In his home policy, too, he combated bourgeois society as the opponent of the state which in his own person he still held to be an absolute aim in itself."

So far we have only gone as far as declaring that the prime minister can even pronounce on what public opinion is, on his own app, by his own methodology. But soon the drumbeat of mobilisation will demand more. Uma Bharti is quoted as saying that Modi is fulfilling Marx's ideas. Perhaps there's more truth in that characterisation than we realised.

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Just as a matter of pure political analysis, it has to be said that we are now entering the politics of "permanent revolution." Gambling on demonetisation commits the government, one way or the other, to come up with new and radical moves with increasing frequency.

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It is time for a mea culpa on demonetisation. This writer has been largely positive on the medium-to-long-term benefits of notebandi, as opposed to its short-term downsides, including a fall in gross domestic product (GDP) growth rates for one or two quarters. Now, and especially after the farmer agitations for loan waivers, I believe that the negative side of the ledger on demonetisation (DeMo) is larger than the positive. It has failed.

The critics have been right for the wrong reasons. They did not have a better crystal ball on DeMo's side-effects than the optimists; but they did have a deeper animus against the Narendra Modi government that the optimists, including me, did not have. Thus, they were faster to pick up the negative signals than the rest of us.

The bottom line on DeMo, seven months after Modi announced that he was withdrawing the legal tender status of Rs 500 and Rs 1,000 notes from 8 November, is that the costs are outweighing the benefits. And the rising demand for fiscally ruinous farm loan waivers surely has a direct link to DeMo. Maybe loan waivers would have happened anyway in the run-up to 2019, but it is equally clear that DeMo has emptied many mandis of cash, and the demand for ready harvested crops has collapsed in many parts of the country, as Harish Damodaran notes in his column in The Indian Express.

Damodaran admits he was wrong in assuming that DeMo would impact farm production - which did not happen - but the damage came later. He writes: "Where demonetisation did have an impact, however, was in the prices received during harvest: Potatoes in Farrukhabad, Uttar Pradesh, fetched below Rs 350 per quintal this February, compared to Rs 600 or more last year. The same goes for rabi onions in Lasalgaon, Maharashtra, that traded at an average of Rs 450 per quintal in May, as against Rs 750-800 and Rs 1,200 in the same month of the preceding two years. Farmers, likewise, sold tomatoes at Kolar, Karnataka, in early May for Rs 300-400 per quintal, down from Rs 1,500-1,600 a year ago. When was the last time we saw all three - potatoes, onions and tomatoes - wholesaling at less than Rs 5/kg, and even retail prices within Rs 20/kg? And this, in peak summer! The above "fire sale" - the evocative term used by the Reserve Bank of India (RBI) in its latest bimonthly monetary policy review statement - has been repeated across a range of other crops too: Garlic and methi (fenugreek) seed prices at Mandsaur - the district in Madhya Pradesh's Malwa region that's become synonymous with the ongoing farmer unrest - averaged Rs 3,400 and Rs 3,100-3,200 per quintal in April, whereas these ruled at over Rs 4,100 and Rs 4,700-4,800 respectively during the same time last year. Farmers in Nashik, which has also witnessed large-scale street action, along with the rest of Western Maharashtra, had to dump Sonaka grapes at about Rs 12/kg in March, having sold the same green seedless variety for Rs 45 or so last year."

I have quoted Damodaran at some length here because it details the damage done to the farmer, who epitomises the informal part of the economy like no one else. While all critics said that the informal economy was hurt the most by DeMo, now we know how that happened.

In late November 2016, the Centre for Monitoring Indian Economy (CMIE) had estimated the loss to the economy and various players at Rs 1.28 lakh crore. Since then we have had more data on GDP losses in the two quarters immediately affected by DeMo. If we assume that at least 0.5 per cent of the GDP drop was due to DeMo, the CMIE loss figure would at least double.

But now we have the unstoppable juggernaut of farm loan waivers: UP (Rs 36,000 crore-plus), Maharashtra (Rs 30,000 crore-plus), and Chhattisgarh (Rs 3,200 crore of interest waivers) have already taken the loss to state exchequers close to Rs 70,000 crore, and we haven't even begun. Bank of America-Merrill Lynch estimates that the total size of loan waivers could hit Rs 2.57 lakh crore by 2019. They note in a research report: "We grow more confident of our call that farm loan waivers will spread across states after Maharashtra followed Uttar Pradesh in waiving farm loans on Saturday (10 June). This begs the question, how much of farm loans will eventually get waived? $40 billion, or 2 per cent of GDP, in our view, in the run-up to the 2019 general elections. This covers bank loans to farmers with up to five acres of land."

Even if we assume that only half the waivers are directly due to the DeMo impact, we are talking of a tripling of the figure first put out by CMIE - at the very least, with most costs yet to show up. This means the DeMo damage could be in the region of Rs 3.5-4 lakh crore at the minimum. Since the wildest estimate of gains from black money not coming back to the banking system do not exceed this latest ballpark estimate of loss, it is clear why DeMo has failed its cost-benefits test.

It can also now be clearly said that DeMo was the last straw that broke the farmer's back, leading to a cascade of farmer protests and political demands for loan waivers. DeMo will damage the fisc like nothing else before this. Two consecutive droughts did not do as much damage as DeMo. All the fiscal prudence shown by the Modi government in the last three years will be washed away now in one huge burst of state government populism.

Here's a counter-factual: if the UP elections, which happened before farm produce started coming to the markets, had taken place in June and not February-March, would the BJP still have won its big majority? In retrospect, the loan waiver may well have been the political sweetener offered well in advance to prevent farmer worries from boiling over into the ballot box.

So, mea culpa, once again.

The other bits of evidence that support the claim that DeMo did more damage than good are already in the public domain - or assumed to be.

One, the fact that even five-and-a-half months after the demonetisation window for old notes closed on 31 December we don't know how much money has come back to the system tells its own story. The total value of Rs 500 and Rs 1,000 notes outstanding on 8 November was Rs 15.44 lakh crore. If the deposits have hit this number or even exceeded it, it would mean not only a major embarrassment for the government, but also the RBI. It would imply that fake notes got exchanged for new notes. I had raised this possibility in early December, but didn't press it when some bankers assured me that they had mechanisms to detect fake notes. But I should have pressed the point: in the rush to clear queues, it is unlikely that cashiers were doing anything more than just count notes. Now that the notes are in, it will be impossible for anyone to link any specific bundle of fake notes with any particular depositor. DeMo may also have validated some fake notes, possibly with the connivance of bankers.

Two, there is not much evidence that tax collections have spiked due to DeMo or even that the tax base in expanding. The poor collections under the Pradhan Mantri Garib Kalyan Yojana indicate that no big disclosure of black money was witnessed, and even if we assume that a large chunk of the deposits made during November and December may have been unaccounted money, the government will have to unleash a tsunami of tax terrorism that will surely be counter-productive. The need of the hour is to bring normality to economic activity. The last thing we need, as we stand on the threshold of the implementation of the goods and services tax (GST), is an unchecked taxman let loose on unwary taxpayers when GST is likely to create its own fiscal chaos and disruption.

Third, it is clear that nationalised banks played a key role in implementing notebandi. But the fall in interest rates following large inflows into the banking system will constitute only a pyrrhic victory unless credit demand picks up - of which there is little sign. While rates can be cut, credit growth is muted. And with loads of bad loans to resolve, banks have had more costs piled onto them due to DeMo. This can hardly be good for them.

Fourth, perhaps the one big gain from DeMo is the still rising trend in digital payments. But this gain in intangible, and benefits will come only over the long term. Moreover, while DeMo made non-cash modes of payment necessary and vital, the popularisation of digital payment modes could have been done even without the disruption of notebandi. DeMo at best provided the government an opportunity to make necessity the normal mode of payment.

Fifth, even the implementation of DeMo could have been better thought out. With hindsight, one can say that the best way to demonetise would have been to limit it to the Rs 1,000 note, and then withdrawing the old Rs 500 notes in stages - by not returning those notes that came back to banks as part of normal cash deposit operations. The disruption was maximised precisely because this two-stage approach was not adopted.

The lessons the Modi government needs to learn from this costly experiment gone wrong are the following:

#1: Don't rely on economic charlatans and a small group of babus in the Prime Minister's Office (PMO) and the advisers brought over from Gujarat when taking big decisions like DeMo or even GST. Modi needs to widen the circle of experts in his government, even if he chooses not to finally listen to their advice. This is one redeeming feature of Indira Gandhi, who too had a strong PMO, that Modi could now seek to rectify.

#2: Empower more ministers, and make it a point to regularly listen to your own chief ministers who may have ears closer to the ground than the PMO. Shivraj Singh Chauhan and Vasundhara Raje could well have told Modi what may be a problem with DeMo, but this kind of political feedback loop does not seem to exist in the Modi government.

#3: A white paper on the larger effects of DeMo and the lessons learnt is important. While it may not show the government in good light, it will at least demonstrate that it is learning lessons from the misadventure. To brazen it out - pretending DeMo was not a failure - is the worst thing that can happen to a leader who is clearly one of the best India has produced in a long time.

#4: The damage on loan waivers has been done, but nothing stops Modi from holding a special parliament session and creating a multi-state group of chief ministers to recommend how to fix farming without waivers in future, and also to agree on a code that no politician or state government will henceforth demand a waiver except in exceptional circumstances, and that too on a selective basis.

In the past, Modi has proved he is a good learner from defeat. After Delhi and Bihar, he recovered quickly to win in Assam and UP. But DeMo is his ultimate test. If he learns from this, his next two years may still be his best.

Leadership is most needed when the country is down. Right now, banks, farmers, small and big businesses are all down - though not out. The economy will not recover easily without great economic and political leadership. Modi's second term depends on him getting the economics right, and not just the politics.

It is great to be thought of as a bold leader who can take tough decisions to break the back of black money. But it is not so great to go about it in a hamhanded way and breaking the back of the Indian economy in the process.

Good politics begins with accepting that DeMo did not work. Hiding the truth can hurt Modi more than acknowledging it - directly or indirectly.

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Modi's DeMo Gambit Failed: Costs Exceed Gains And Farm Anger Is The Final Piece Of Evidence

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It is time for a mea culpa on demonetisation. This writer has been largely positive on the medium-to-long-term benefits of notebandi, as opposed to its short-term downsides, including a fall in gross domestic product (GDP) growth rates for one or two quarters.

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Evidence is mounting of the disruptive effects of the recent move to renew currency notes, known as "demonetisation". Disruption is actually a mild expression. What is happening is a catastrophe for large sections of the population. Farmers have dumped vegetables by the roadside for want of a remunerative price. Migrant workers have returned home after losing their jobs. Street vendors are struggling with a slump in demand. And, of course, many people have died while waiting in queues outside banks or committed suicide after unsuccessful attempts to get cash from the banks.

The disruptive effects of demonetisation also have other dimensions. The banking system, for instance, has been severely disrupted. For one thing, the constant flip-flop on rules and stringent restrictions on people's access to their own accounts have undermined the confidence of the public in the banking system. For another, it would be surprising if the considerable powers that were given to bank managers in recent weeks had not led to a spread of corruption in the banking system.

What is astonishing is how little concern this catastrophe is causing in the corridors of power. Smug reference is made from time to time to the "inconvenience" faced by the public, and people are asked to grin and bear it for the sake of the nation. Little is being done to alleviate their pains.

To understand this inertia, it helps to remember that the word "disruption" has a positive connotation in some circles, particularly that of technological innovation and especially software innovation. For instance, when Nandan Nilekani stated in an interview with Business Standard last August that "disruption is waiting to happen" in the banking system, he saw that as a very positive prospect - an opportunity for new financial technologies to step in.

One possible reason why disruption is so popular among software developers is the role of "network effects" in this field. New software typically becomes viable only if a sufficiently large number of people use it. This may require displacing the dominant product, and that, in turn, often involves a disruption of some sort. Displacing Google, for instance, would definitely require some kind of tectonic shift in the world of search engines. Similarly, cashless payment systems like Paytm and Mobikwik work best when large numbers of people adopt these new products at the same time.

Seen in this light, there is something miraculously providential in the demonetisation move as far as the cashless payments industry and its offshoots (including on-line security services) are concerned. This must have been beyond the wildest dreams of the wizards of cashless payments. Just a year ago, the idea of a cashless economy sounded like utopian waffle. Today, it is the buzzword. Not only are cashless payment systems riding on the wave of demonetisation, the government is also throwing its weight behind the technology, mobilising numerous departments for this purpose and lending its advertisement powers to the industry.

The problem with the disruption lingo is that it easily becomes a licence for inflicting hardship on ordinary people and making a virtue of it. Bank premises are overcrowded? Wonderful, that's disruption at its best. ATM queues are getting longer? Nothing like it. People are losing jobs? Well, disruption can afford some short-term collateral damage. In fact, objectively speaking, the more the disruption, the better for those who are trying to use this situation as an opportunity to promote their new products. I am not saying that they are responsible for creating the disruption, or applauding it, but it is a fact that they benefit from it. Considering the tremendous power of the software industry in India, this may help to explain why the disruptive effects of demonetisation are taken lightly.

Among the leading lights of this lobby is the Indian Software Product Industry Round Table (iSPIRT) mentored by Mr. Nilekani, an association of black-belt innovators and entrepreneurs. Take a look at their website (and also at indiastack.org) if you have time - it is an eye-opening exercise. These guys (and they are mainly guys) are smart, they think big, and they have ideas. The question remains - ideas for whom? The website makes no secret of the fact that the ultimate purpose of iSPIRT's work is to create business opportunities for the Indian software industry, not just at home but in the entire world. Under the title "Our Game Plan", for instance, the site explains that "our ambitious goal is to create an adoption wave for software products within the Indian SMB sector". And guess what, the way to do this is to "create a new generation of software product companies" and "disrupt global markets", no less.

The first step, still according to the iSPIRT website, is "smart demand side evangelization" (sic). Presumably, this involves things like selling Aadhaar to the public as a "voluntary facility", or claiming that the purpose of Aadhaar is is to improve welfare programmes. In fact, as Reetika Khera has lucidly explained in a series of articles, it is Aadhaar that has benefited from welfare programmes (by using them to push people to Aadhaar enrolment centres), not the other way round. Quite often, the impact of Aadhaar on welfare programmes has actually been disruptive, in the literal sense of the term. For instance, the recent imposition of Aadhaar-based biometric authentication on the Public Distribution System has caused havoc in several States, notably Jharkhand and Rajasthan.

What is disturbing is how government policy is now aligned with the interests of these business lobbies. The government's advertisements for cashless payment systems read like a rehash of the private companies' own rhetoric (as a private consultant recently confided, "our marketing costs have gone down" because the government is doing the advertising). The revolving door between government and corporations is getting wider every day. And as mentioned earlier, the entire demonetisation drive is an uncanny miracle for the software industry, as if the industry itself had written the script.

None of this is to deny that cashless payments may have some merits. But there is no reason for state power to promote them single-mindedly, that too by crashing the economy.
Jean Drèze is Visiting Professor at the Department of Economics, Ranchi University.

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Evidence is mounting of the disruptive effects of the recent move to renew currency notes, known as "demonetisation". Disruption is actually a mild expression. What is happening is a catastrophe for large sections of the population. Farmers have dumped vegetables by the roadside for want of a remunerative price.

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In early November, without warning, the Indian government declared the two largest denomination bills invalid, abolishing over 80 percent of circulating cash by value. Amidst all the commotion and outrage this caused, nobody seems to have taken note of the decisive role that Washington played in this. That is surprising, as Washington's role has been disguised only very superficially.

US-President Barack Obama has declared the strategic partnership with India a priority of his foreign policy. China needs to be reigned in. In the context of this partnership, the US government's development agency USAID has negotiated cooperation agreements with the Indian Ministry of Finance. One of these has the declared goal to push back the use of cash in favor of digital payments in India and globally.

On November 8, Indian prime minster Narendra Modi announced that the two largest denominations of banknotes could not be used for payments any more with almost immediate effect. Owners could only recoup their value by putting them into a bank account before the short grace period expired at , which many people and businesses did not manage to do, due to long lines in front of banks. The amount of cash that banks were allowed to pay out to individual customers was severely restricted. Almost half the Indians have no bank account and many do not even have a bank nearby. The economy is largely cash-based. Thus, a severe shortage of cash ensued. Those who suffered the most were the poorest and most vulnerable. They had additional difficulty earning their meager living in the informal sector or paying for essential goods and services like food, medicine or hospitals. Chaos and fraud reigned well into December.
Four weeks earlier
Not even four weeks before this assault on Indians, of October 14 says that the next phase of partnership between USAID and Ministry of Finance to facilitate universal financial inclusion". The statement does not show up in the USAID had announced the establishment of „ Catalyst: Inclusive Cashless Payment Partnership ", with the goal of effecting a quantum leap in cashless payment in India. The press statement Catalyst "marks list of press statements on the website of USAID (anymore?). Not even filtering statements with the word "India" would bring it up. To find it, you seem to have to know it exists, or stumble upon it in a web search. Indeed, this and other statements, which seemed rather boring before, have become a lot more interesting and revealing after November 8.

Reading the statements with hindsight it becomes obvious, that Catalyst and the partnership of USAID and the Indian Ministry of Finance, from which Catalyst originated, are little more than fronts which were used to be able to prepare the assault on all Indians using cash without arousing undue suspicion. Even the name Catalyst sounds a lot more ominous, once you know what happened on November 9.

Catalyst's Director of Project Incubation is Alok Gupta, who used to be Chief Operating Officer of the World Resources Institute in Washington, which has USAID as one of its main sponsors. He was also an original member of the team that developed Aadhaar, the Big-Brother-like biometric identification system.

According to a report of the Indian Economic Times, USAID has committed to finance Catalyst for three years. Amounts are kept secret.

Badal Malick was Vice President of India's most important online marketplace Snapdeal, before he was appointed as CEO of Catalyst. He commented:

Catalyst's mission is to solve multiple coordination problems that have blocked the penetration of digital payments among merchants and low-income consumers. We look forward to creating a sustainable and replicable model. (...) While there has been (...) a concerted push for digital payments by the government, there is still a last mile gap when it comes to merchant acceptance and coordination issues. We want to bring a holistic ecosystem approach to these problems.
Ten months earlier
The multiple coordination problem and the cash-ecosystem-issue that Malick mentions had been analysed in a report that USAID commissioned in 2015 and presented in January 2016, in the context of the anti-cash partnership with the Indian Ministry of Finance. The press release on this presentation is also not in USAID's list of press statements (anymore?). The title of the study was "".

„ Merchants, like consumers, are trapped in cash ecosystems, which inhibits their interest" in digital payment it said in the report. Since few traders accept digital payments, few consumers have an interest in it, and since few consumers use digital payments, few traders have an interest in it. Given that banks and payment providers charge fees for equipment to use or even just try out digital payment, a strong external impulse is needed to achieve a level of card penetration that would create mutual interest of both sides in digital payment options.

It turned out in November that the declared "holistic ecosystem approach" to create this impulse consisted in destroying the cash-ecosystem for a limited time and to slowly dry it up later, by limiting the availability of cash from banks for individual customers. Since the assault had to be a surprise to achieve its full catalytic effects, the published Beyond-Cash report and the protagonists of Catalyst could not openly describe their plans. They used a clever trick to disguise them and still be able to openly do the necessary preparations, even including expert hearings. They consistently talked of a regional field experiment that they were ostensibly planning.

"The goal is to take one city and increase the digital payments 10x in six to 12 months," said Malick less than four weeks before most cash was abolished in the whole of India. To not be limited in their preparation on one city alone, the Beyond-Cash-report and Catalyst kept talking about a range of regions they were examining, ostensibly in order to later decide which was the best city or region for the field experiment. Only in November, did it become clear that the whole of India should be the guinea pig for a global drive to end the reliance on cash. Reading a statement of Ambassador Jonathan Addleton, USAID Mission Director to India , with hindsight, it becomes clear that he stealthily announced that, when he said four weeks earlier:
"India is at the forefront of global efforts to digitize economies and create new economic opportunities that extend to hard-to-reach populations. Catalyst will support these efforts by focusing on the challenge of making everyday purchases cashless." Veterans of the war on cash in action
Who are the institutions behind this decisive attack on cash? Upon the presentation of the Over 35 key Indian, American and international organizations have partnered with the Ministry of Finance and USAID on this initiative." On the ominously named website Beyond-Cash-report, USAID declared: " http://cashlesscatalyst.org/ one can see that they are mostly IT- and payment service providers who want to make money from digital payments or from the associated data generation on users. Many are veterans of what a high-ranking official of Deutsche Bundesbank called the "war of interested financial institutions on cash" ( in German). They include the Better Than Cash Alliance, the Gates Foundation (Microsoft), Omidyar Network (eBay), the Dell Foundation, MasterCard, Visa and Metlife Foundation.
The Better Than Cash Alliance
The , which includes USAID as a member, is mentioned first for a reason. It was founded in 2012 to push back cash on a global scale. The secretariat is housed at the United Nations Capital Development Fund (UNCDF) in New York, which might have its reason in the fact that this rather poor small UN-organization was glad to have the Gates Foundation in one of the two preceding years and the MasterCard Foundation in the other as its Better Than Cash Alliance most generous donor s.

The members of the Alliance are large US-Institutions which would benefit most from pushing back cash, i.e. credit card companies MasterCard and Visa, and also some US institutions whose names come up a lot in books on the history of the United States intelligence services, namely Ford Foundation and USAID. A prominent member is also the Gates Foundation. Omidyar Network of eBay-founder Pierre Omidyar and Citi are important contributors. Almost all of these are individually also partners in the current USAID-India-Initiative to end the reliance on cash in India and beyond. The initiative and the Catalyst-program seem little more than an extended Better Than Cash Alliance, augmented by Indian and Asian organizations with a strong business interest in a much decreased use of cash.
Reserve Bank of India's IMF-Chicago Boy
The partnership to prepare the temporary banning of most cash in India coincides roughly with the tenure of Raghuram Rajan at the helm of Reserve Bank of India from September 2013 to September 2016. Rajan (53) had been, and is now again, economics professor at the University of Chicago. From 2003 to 2006 he had been Chief Economist of the International Monetary Fund (IMF) in Washington. (This is a CV-item he shares with another important warrior against cash, Ken Rogoff.) He is a member of the Group of Thirty, a rather shady organization, where high ranking representatives of the world's major commercial financial institutions share their thoughts and plans with the presidents of the most important central banks, behind closed doors and with no minutes taken. It becomes increasingly clear that the Group of Thirty is one of the major coordination centers of the worldwide war on cash. Its membership includes other key warriors like Rogoff, Larry Summers and others.

Raghuram Rajan has ample reason to expect to climb further to the highest rungs in international finance and thus had good reason to play Washington's game well. He already was a President of the American Finance Association and inaugural recipient of its Fisher-Black-Prize in financial research. He won highly endowed prizes of Infosys for economic research and of Deutsche Bank for financial economics as well as the Financial Times/Goldman Sachs Prize for best economics book. He was declared Indian of the Year by NASSCOM and Central Banker of the Year by Euromoney and by The Banker. He is considered a possible successor of Christine Lagard at the helm of the IMF, but can certainly also expect to be considered for other top jobs in international finance.

As a Central Bank Governor, Rajan was liked and well respected by the financial sector, but very much disliked by company people from the real (producing) sector, despite his penchant for deregulation and economic reform. The main reason was the restrictive monetary policy he introduced and staunchly defended. After he was viciously criticized from the ranks of the governing party, he declared in June that he would not seek a second term in September. Later he told the New York Times that he had wanted to stay on, but not for a whole term, and that premier Modi would not have that. A former Minister for Commerce and Law, Mr. Swamy, said on the occasion of Rajan's departure that it would make Indian industrialists happy:
"I certai nly wanted him out, and I made it clear to the Prime Minister, as clear as possible. (...) His audience was essentially Western, and his audience in India was transplanted westernized society. People used to come in delegations to my house to urge me to do something about it." A disaster that had to happen
If Rajan was involved in the preparation of this assault to declare most of Indians' banknotes illegal - and there should be little doubt about that, given his personal and institutional links and the importance of Reserve Bank of India in the provision of cash - he had ample reason to stay in the background. After all, it cannot have surprised anyone closely involved in the matter, that this would result in chaos and extreme hardship, especially for the majority of poor and rural Indians, who were flagged as the supposed beneficiaries of the badly misnamed drive for "financial-inclusion". USAID and partners had analysed the situation extensively and found in the Beyond-Cash report that 97% of transactions were done in cash and that only 55% of Indians had a bank account. They also found that even of these bank accounts, "only 29% have been used in the last three months".

All this was well known and made it a certainty that suddenly abolishing most cash would cause severe and even existential problems to many small traders and producers and to many people in remote regions without banks. When it did, it became obvious, how false the promise of financial inclusion by digitalization of payments and pushing back cash has always been. There simply is no other means of payment that can compete with cash in allowing everybody with such low hurdles to participate in the market economy.

However, for Visa, MasterCard and the other payment service providers, who were not affected by these existential problems of the huddled masses, the assault on cash will most likely turn out a big success, "scaling up" digital payments in the "trial region". After this chaos and with all the losses that they had to suffer, all business people who can afford it, are likely to make sure they can accept digital payments in the future. And consumers, who are restricted in the amount of cash they can get from banks now, will use opportunities to pay with cards, much to the benefit of Visa, MasterCard and the other members of the extended Better Than Cash Alliance.
Why Washington is waging a global war on cash
The business interests of the US-companies that dominate the gobal IT business and payment systems are an important reason for the zeal of the US-government in its push to reduce cash use worldwide, but it is not the only one and might not be the most important one. Another motive is surveillance power that goes with increased use of digital payment. US-intelligence organizations and IT-companies together can survey all international payments done through banks and can monitor most of the general stream of digital data. Financial data tends to be the most important and valuable.

Even more importantly, the status of the dollar as the worlds currency of reference and the dominance of US companies in international finance provide the US government with tremendous power over all participants in the formal non-cash financial system. It can make everybody conform to American law rather than to their local or international rules. German newspaper Frankfurter Allgemeine Zeitung has recently run a chilling story describing how that works ( German). Employees of a German factoring firm doing completely legal business with Iran were put on a US terror list, which meant that they were shut off most of the financial system and even some logistics companies would not transport their furniture any more. A major German bank was forced to fire several employees upon US request, who had not done anything improper or unlawful.

There are many more such examples. Every internationally active bank can be blackmailed by the US government into following their orders, since revoking their license to do business in the US or in dollar basically amounts to shutting them down. Just think about Deutsche Bank, which had to negotiate with the US treasury for months whether they would have to pay a fine of 14 billion dollars and most likely go broke, or get away with seven billion and survive. If you have the power to bankrupt the largest banks even of large countries, you have power over their governments, too. This power through dominance over the financial system and the associated data is already there. The less cash there is in use, the more extensive and secure it is, as the use of cash is a major avenue for evading this power.

About this blog: This is the English-language section of a weblog, which is mostly in German. If I deem a subject particularly important for an international audience, I either write in English outright, or provide an English translation. There is an E-mail-newsletter that will inform you only of new English language entries. If you would like to subscribe, just click on "keep me informed" on the left. You can unsubscribe easily any time.

Dr. Norbert Haering is a German business journalist and blogger. His best-selling book on "Abolishing cash and the consequences" was published in 2016 by Bastei-Luebbe (in German). About the author: More ...

German version of this article.

Follow up article: More evidence of early US involvement in Indian demonetisation

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A well-kept open secret: Washington is behind India's brutal experiment of abolishing most cash

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In early November, without warning, the Indian government declared the two largest denomination bills invalid, abolishing over 80 percent of circulating cash by value. Amidst all the commotion and outrage this caused, nobody seems to have taken note of the decisive role that Washington played in this.

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I recently found myself facing a vending machine in a quiet corridor at the Delft University of Technology in the Netherlands. I was due to speak at a conference called 'Reinvent Money' but, suffering from jetlag and exhaustion, I was on a search for Coca-Cola. The vending machine had a small digital interface built by a Dutch company called Payter. Printed on it was a sentence: 'Contactless payment only.' I touched down my bank card, but rather than dispensing Coke, it beeped a message: 'Card invalid.' Not all cards are created equal, even if you can get one - and not everyone can.

In the economist's imagining of an idealised free market, rational individuals enter into monetary-exchange contracts with each other for their mutual benefit. One party - called the 'buyer' - passes money tokens to another party - called the 'seller' - who in turn gives real goods or services. So here I am, the tired individual rationally seeking sugar. The market is before me, fizzy drinks stacked on a shelf, presided over by a vending machine acting on behalf of the cola seller. It's an obedient mechanical apparatus that is supposed to abide by a simple market contract: If you give money to my owner, I will give you a Coke. So why won't this goddamn machine enter into this contract with me? This is market failure.

To understand this failure, we must first understand that we live with two modes of money. 'Cash' is the name given to our system of physical tokens that are manually passed on to complete transactions. This first mode of money is public. We might call it 'state money'. Indeed, we experience cash like a public utility that is 'just there'. Like other public utilities, it might feel grungy and unsexy - with inefficiencies and avenues for corruption - but it is in principle open-access. It can be passed directly by the richest of society to the poorest of society, or vice versa.

Alongside this, we have a separate system of digital fiat money, in which our money tokens take the form of 'data objects' recorded on a database by an authority - a bank - granted power to 'keep score' of them for us. We refer to this as our bank account and, rather than physically transporting this money, we 'move' it by sending messages to our banks - for example, via mobile phones or the internet - asking them to edit the data. Money 'moves' to your landlord if your two respective banks can agree to edit your accounts, reducing your score and increasing your landlord's score.

This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries - like Visa and Mastercard - that work with them. The data inscriptions in your bank account are not state money. Rather, your bank account records private promises issued to you by your bank, promising you access to state money should you wish. Having '£500' in your Barclays account actually means 'Barclays PLC promises you access to £500'. The ATM network is the main way by which you convert these private bank promises - 'deposits' - into the state cash that has been promised to you. The digital payments system, on the other hand, is a way to transfer - or reassign - those bank promises between ourselves.

This dual system allows us the option to use private digital bank money when buying pizza at a restaurant, but we can always resort to public state money drawn out of an ATM if the proprietor's debit card system crashes. This choice seems fair. At different times, we might find either form more or less useful. As you read this, though, architects of a 'cashless society' are working to remove the option of resorting to state cash. They wish to completely privatise the movement of money tokens, pushing banks and private-payments intermediaries between all interactions of buyers and sellers.

The cashless society - which more accurately should be called the bank-payments society - is often presented as an inevitability, an outcome of 'natural progress'. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge.

The first is the banking industry, which controls the core digital fiat money system that our public system of cash currently competes with. It irritates banks that people do indeed act upon their right to convert their bank deposits into state money. It forces them to keep the ATM network running. The cashless society, in their eyes, is a utopia where money cannot leave - or even exist - outside the banking system, but can only be transferred from bank to bank.

The second is the private payments industry - the likes of Mastercard - that profits from running the infrastructure that services that bank system, streamlining the process via which we transfer digital money between bank accounts. They have self-serving reasons to push for the removal of the cash option. Cash transactions are peer-to-peer, requiring no intermediary, and are thus transactions that Visa cannot skim a cut off.

The third - perhaps ironically - is the state, and quasi-state entities such as central banks. They are united with the financial industry in forcing everyone to buy into this privatised bank-payments society for reasons of monitoring and control. The bank-money system forms a panopticon that enables - in theory - all transactions to be recorded, watched and analysed, good or bad. Furthermore, cash's 'offline' nature means it cannot be remotely altered or frozen. This hampers central banks in implementing 'innovative' monetary policies, such as setting negative interest rates that slowly edit away bank deposits in order to coerce people into spending.

Governments don't really mention that monetary policy agenda. It isn't catchy enough. Rather, the key weapons used by the alliance are more classic shock-and-awe scare tactics. Cash is used by criminals! People buy drugs with cash! It's the black economy! It supports tax evasion! The ability to present control as protection relies on constant calls to imagine an external enemy, the terrorist or Mafiosi. These cries of moral panic are set in contrast to the glossy smiling adverts about digital payment. The emerging cashless society looms like a futuristic sunrise, cleansing us of these dangerous filthy notes with rays of hygienic, convenient, digital salvation.

Signs say 'Card only'. Who is Card? Card is a glamorous socialite, welcomed into stores. Card is superior

Supporting this core alliance are auxiliary corps of establishment academics, economists and futurists, living life in leafy suburbs, flying business class to speak at technology conferences, attended to by a wall of sycophantic media pundits and innovation journalists preaching the gospel of cashlessness. The Curse of Cash (2016) by Kenneth Rogoff, economics professor at Harvard, was longlisted for the Financial Times and McKinsey Business Book of the Year award, undoubtedly accompanied by invitations to financial industry-sponsored conference parties in five-star hotel lobbies.

The psychological assault is working. The Netherlands - where I face my vending machine - has become one key front in the war on cash. Here cash is becoming viewed like an illegal alien on the run, increasingly excluded from the formal economy, drawing dirty looks from shop assistants. Signs say 'Card only'. Who is Card? Card is a glamorous socialite, welcomed into stores. Card is superior. Look at the bank adverts showcasing their accessories for Card. Nobody is building accessories for Cash.

The frontlines, though, are now creeping to poorer countries. India's recent so-called 'demonetisation' was a brutal overnight retraction of rupee notes by the prime minister Narendra Modi to bring discipline to the 'black economy'. It was an exercise that necessitated choking the poorest Indians, who depend on cash and who often lack access to bank accounts. Originally cast in popular terms as an attempt to stem corruption, the message was later ironically altered to cast cashlessness as a way to create economic progress for India's poor.

This message is given humanitarian credentials by the UN-based Better Than Cash Alliance, which promotes 'the shift from cash to digital payments to reduce poverty and drive inclusive growth', and which counts Visa, Mastercard and Citi Foundation as key partners. The Modi action was also preceded by the initiation of the Cashless Catalyst programme, 'an alliance between the Government of India and USAID, to expand digital payments in India', backed by a panoply of digital payments companies. These official alliances of states, corporations and public academics are impressive. In India, well-heeled urban elites who applauded Modi's actions from the sidelines can safely point to Rogoff's Financial Times-nominated book of the year to justify it.

Rogoff, though, has appeared spooked, writing articles stating that he was advocating removing cash only from advanced economies with advanced banking systems. Oh damn. Highly influential and politically powerful Harvard economist releases a global anti-cash book and is concerned when poorer nations take him seriously?

The attempt to present the cashless bank-payments society as a benefit to marginalised people is tenuous at best. If you're a vulnerable denizen of the informal economy, an off-the-grid hustler, or a low-income precarious worker, banks and payments intermediaries have little interest in prioritising you. The bank-payments society will not process the activity that takes place in the peripheral cracks that form the basis of your livelihood. Indeed, it is intended to shut down those spaces. That might be characterised as 'progress', but equally we might say you're being firewalled out of the economy in an act of economic cleansing. Under the guise of destroying the 'shadow economy', the underclass, the unwatched, the eccentric and the untamed will be coercively corralled into the hands of the state-corporate mainstream.

I have no special love of cash. I don't really care for nostalgic reveries on the beautiful aesthetics of the banknote, or its texture and cultural importance within a market system, though I understand this is important to many. I also don't really care about the pedantic history of cash, whether it was the Tang or Song dynasty in China who first issued notes. What I care about is the unaccountable callousness of this vending machine, the one that has just blocked me from engaging in free trade.

Old vending machines didn't do this. They had a little slot for coins, one that allowed even a ragged beggar to convert his tiny income into sustenance. Look closely at the machine. It's actually two machines. The Payter device fused into its body does not work for the cola seller. It works for payments corporations. You see, the cola seller has one bank account, but there are many people with many accounts at different banks approaching the vending machine. Those banks need to identify which of their account holders wishes to transfer how much money to which account at which other bank. The device is there to deliver my card information into the transmission lines of the card payments networks, where it will be - in theory - routed to facilitate the transfer of money tokens from my account into the seller's account, for a small fee.

This is no longer a deal between me and the seller. I am now dealing with a complex of unknown third parties, profit-seeking money-passers who stand between us to act as facilitators of the money flow, but also as potential gatekeepers. If a gatekeeper doesn't want to do business with me, I can't do business with the seller. They have the ability to jam, monitor or place conditions upon that glorious core ritual of capitalism - the transfer of money for the transfer of goods. This innocuous device exudes mechanical indifference, reporting only to invisible bosses far away, running invisible algorithms in invisible black boxes that don't like me.

If we are going to refer to bank payments as 'cashless', we should then refer to cash payments as 'bankless'. Because that's what cash is, and right now it is the only thing standing between us and a completely privatised money system.

As in the case of previous privatisations, we'll hear suited TV pundits arguing that if the digital payments companies don't work for people they will be outcompeted by better private systems. Yeah right. When did you last see a credible competitor to the likes of Mastercard and Visa? They preside over huge network systems, subject to intense network effects. It's in no shopkeeper's interest to use a competitor to Visa when it's so utterly dominant already.

The most we can hope for, then, is a benign oligopoly of payments corporations, heavily exposed to the geopolitical aspirations of the states they reside within. The Chinese state encouraged the creation of China UnionPay precisely because they don't want US payment megacorps installing themselves as gatekeepers into transactions made by Chinese citizens.

The new bank-payments society doesn't actually solve the old problems - crime just goes digital, your account gets hacked rather than your wallet stolen

When mounting a defence, there are always two options. You either block an incoming attack, or you launch a strategic counterstrike, sometimes summed up as 'offence is the best defence'.

In the former strategy, you focus on pointing out that the arguments against cash are either exaggerated, inaccurate or incomplete. Exaggeration and inaccuracy are both present in anti-cash tirades, but incompleteness is crucial. For example, let's say we agree that criminals prefer cash. Does that translate into 'We should ban cash'? Banning everything that criminals favoured would almost certainly lead to a constrained, suffocating existence for everyone. Congratulations, we ended crime, but only at the expense of ending privacy and free creative space too. The end of crime comes accompanied by an overbearing surveillance state, always standing next to you, reaching into your most private moments, treating you like a small child that cannot be trusted. Enjoy your life.

The second mode of defence-as-offence involves attacking the proposed alternative. We point out that the new bank-payments society, firstly, does not actually solve the old problems - crime just goes digital, and your account gets hacked rather than your wallet stolen - and, even worse, causes a whole range of new problems that were not explicitly mentioned in Mastercard's marketing material. Let me reveal the fine-print written in invisible ink: Did we mention that in removing the ability to transact with cash we can now see everything you do and can also censor you? Cheer up, if you have nothing to hide, you have nothing to fear!

Oh yes, I can use scare tactics too. I can point out that removing cash takes us one step closer to potentially realising the most powerful and automated state-corporate financial control complex the world has ever seen. Very few people either seem to understand this, or care. Like a slow-boiled frog, we don't seem to notice the process of locking ourselves into daily dependence on an alienating, unaccountable infrastructure that makes us increasingly subservient to bureaucratic processes we cannot see.

Maybe I need to turn up the shock-and-awe. Maybe I can drum up an argument about how, in a cashless society, terrorists could target the electrical grid to bring entire regional economies to a halt.

No. My main defence of cash will be simple and intuitive. As unsexy and analogue as cash is, it is resilient. It is easy to use. It requires little fancy infrastructure. It is not subject to arbitrary algorithmic glitches from incompetent programmers. And, yes, it leaves no data trail that will be used to project the aspirations and neuroses of faceless technocrats and business analysts into my daily existence. It comes with criminals, but hey, it's good old friendly normal capitalism rather than predictive Minority Report surveillance-capitalism. And ask yourself this: do you really want to live in the latter society without the ability to buy drugs? Believe me, you'll need something to dull the existential pain.

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If plastic replaces cash, much that is good will be lost - Brett Scott | Aeon Essays

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I recently found myself facing a vending machine in a quiet corridor at the Delft University of Technology in the Netherlands. I was due to speak at a conference called 'Reinvent Money' but, suffering from jetlag and exhaustion, I was on a search for Coca-Cola.

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The impact of the contractionary demand shock triggered by the note ban will gradually radiate from cash-intensive activities to virtually every sector of the economy.

In most emerging economies, an important driver of GDP growth is investment demand. In India, private sector investment has been sluggish for consecutive quarters over the last two years. The principal driver of GDP growth in India in recent times has been private consumption demand, which contributes 60% to the GDP.

The announcement by the government on November 8 to ban the Rs 500 and Rs 1000 currency notes is a monetary contraction that will translate into a massive negative shock for consumption demand. As more and more firms start feeling the pressure of declining demand, investment will get adversely affected. The combination of a slowdown in consumption and investment may result in a fall in GDP growth rate lasting beyond two quarters.

GDP growth rate was estimated at 7.3% in the July-September quarter of 2016-17. The marginal increase from 7.1% in the April-June quarter was primarily driven by agriculture, construction and the services sector. Ironically, these sectors are now likely to bear the brunt of the currency-ban shock. Year-on-year manufacturing growth rate has declined from 9.1% in the previous quarter to 7.1%. In the July-September quarter investment demand contracted by 5.6%, resulting in a large negative contribution to the GDP.

In general, private sector activity in the economy has been weak in the recent quarters. The state of the economy prior to the announcement of the currency ban is essential because it highlights the structural weaknesses in the economy that may worsen as a result of this shock and aggravate the economic slowdown.
Cash in the economy
Estimates suggest that the reduction in GDP could be somewhere between ten to 330 basis points. Given the widespread reliance on cash, the actual impact could be bigger. The following highlight the dependence of the Indian economy on cash:

India is amongst the most cash-intensive economies in the world with a cash-GDP ratio of 12%. The same ratio in its peer economies such as Brazil and South Korea is one-third of India;

Cash in circulation to private consumption ratio in India is 20%, and

Card transactions account for 4% of the personal consumption expenditure.

In such a cash-dependent economy, all of a sudden around 86% of the cash supply has been rendered useless. This has effectively imposed a tight constraint on real economic activity. This constraint will initially be felt most acutely in the cash-intensive sectors such as agriculture, construction, gems and jewellery, textile, trade, transportation and real estate as well as in the activities in the vast informal sector of the country.

Beyond the initial impact, the shock from demonetisation is likely to set off a domino effect that will impinge on activities far removed from the cash-intensive sectors. This impact may result in a protracted economic slowdown going beyond the current financial year.

It is likely that firms and households will innovate in an attempt to get around the cash constraint. Formal financial services will provide support to those who have access to them. Firms in the retail business that utilise the formal financial services will face a rise in demand as consumers shift from the cash economy to the digital economy. These innovations will dampen the effects of the shock to some extent, however, they cannot act as much of a cushion in an economy which is so overwhelmingly dependent on cash. So, even if the share of digital transactions doubles, it would still represent only a small portion of the transactions in the economy.
Will the economy rebound after a short period of distress?
While some initial data has already started signalling a slowdown, experts opine that the slowdown in the next two quarters would be temporary and would be followed by a quick and strong period of rebound. They conjecture that as the expected benefits of the currency ban start kicking in and as the cash supply in the economy gets replenished, normalcy will be restored.

We, however, argue that reviving the real economy and getting it back on a high growth track could be a much more difficult and time-consuming process.

A continued shortage of cash is already forcing consumers to postpone their purchases, especially of non-essential goods and services. There have been reports of a decline in footfall in shopping malls and retail outlets have reported a sharp drop in sales over the last month.

In an environment of uncertainty, it is natural for economic agents to behave cautiously. Two kinds of currency have now emerged - cash and deposits. While people are able to convert cash into deposits, going the other way round is more difficult due to the administrative restrictions imposed by the government on withdrawals along with the unavailability of sufficient usable banknotes even a month after the demonetisation.

Given the widespread uncertainty about more restrictive withdrawal limits being imposed and about the time taken by banks and ATMs to disburse the new notes, it is likely that households will hoard whatever cash they are able to obtain instead of spending it. This tendency to build up precautionary savings could continue for a while even after the money supply is restored. This will exert an additional downward pressure on consumption demand.

The quantity theory of money states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold, i.e. MV=PY, where M is the money supply, V is the velocity of circulation of money, P is the price level and Y denotes output.

The currency ban has reduced the money supply drastically. As people hold back consumption and hoard cash, the velocity of circulation will fall. This means both P and Y have to decrease commensurately in order to restore equilibrium in the system. Estimates suggest that it may take six to eight months for the new currency notes to fully come back into circulation. The time taken to restore money supply may reduce the velocity of circulation for an even longer period, thereby resulting in a protracted GDP contraction.
Long-term impact
A stable, sophisticated economy is one where economic agents are able to take risks as well as make long-term plans. This includes private businesses, financial investors and households. A major shock like the currency ban disrupts the overall stability of the economy. The continuous change of rules almost on a daily basis further adds to the uncertainty. Since November 8, the government has changed rules related to the currency ban over 20 times and the RBI has released more than 15 sets of frequently asked questions to clarify this change in rules. These actions create an environment of unpredictability and in such an environment, firms and households hold back their investment and consumption plans. This further puts a brake on real economic activity and it is likely that even after the currency notes are back in circulation, the brakes stay on or are only gradually lifted.

One segment of the real economy that could be severely hit by demonetisation is the medium, small and micro enterprises (MSME) sector. This sector plays a pivotal role in the economy, contributing about 8% to the GDP, 45% to the total manufacturing output and 40% to the total exports from the country. Given the reliance of the sector on cash, especially for the small and micro enterprises, and the cost of compliance with regulations in the formal sector, some of these firms may not remain viable or solvent in the changed environment.

Some of these firms that were already struggling to meet their interest payments amidst the business cycle downturn over the past few years, may now tip over and become bankrupt as a result of the liquidity crunch. Once businesses start failing, valuable organisational capital gets eroded. Irrespective of how quickly money is put back into circulation again, some of these losses could be irreversible, thereby inflicting long-lasting damage on the growth of this sector.

The initial contractionary effect on the sale of goods and services will negatively impact business investment at a time when private sector investment is already sluggish.

The revival of private sector investment requires a sustained flow of credit. Bank credit to the corporate sector has remained tepid over the last few months. Analysis shows that despite banks receiving a large volume of deposits since November 8, their ability to make fresh loans remains limited. In addition to this, if a large number of firms in the MSME sector default on their loans, this will exacerbate the existing non-performing asset (NPA) problem of the banks. This, in turn, may further affect their capacity to extend credit given their already precarious capital adequacy position. These developments coupled with the heightened macroeconomic instability triggered by the currency ban do not augur well for the private investment scenario.

Another long-term impact of the shock may result from the negative wealth effect on consumption demand. For example, the real estate sector is likely to take a severe hit due to the currency ban since a large percentage of the transactions in this sector have traditionally been cash-based. As real estate prices start falling due to the liquidity crunch, people who had invested their savings in real estate will experience wealth erosion and may cut back on future consumption plans. This is likely to impose a lingering effect on aggregate demand.

The long lasting nature of the economic slowdown may also result from the ripple effects spreading across the entire real economy. It is well understood by now that the large informal sector accounting for 80% of the country's employment and 45% of the GDP will be disproportionately affected by the liquidity crunch because of its inherent dependence on cash. While the share of the informal sector is estimated at 'only' 45%, this hardly means that majority of the economy will be insulated from the shock. A reason for that is that firms are interlinked in production. The production and sale of a good require a long chain of transactions, many of which involve cash.

If just one link in this chain breaks down, there will be problems. For example, one tends to imagine that exports will not be affected, because exports generally involve bank transactions and not cash. But that is only true at the final stage. At the earlier stages, cash can be quite important, for example, in the textile sector where many of the activities are carried out in small workshops and are cash-dependent. If a large number of these workshops start shutting down because of liquidity constraints and a decline in sales revenues, the entire supply chain in the textile sector will get disrupted. Even if the new notes come back into circulation in a few months' time, this kind of real economic disruption may last much longer.

All these point to the possibility that once GDP growth starts falling, it may take several quarters before the economy gets back on track again.
Conclusion
The impact of the contractionary demand shock triggered by the November 8 currency ban will gradually radiate from cash-intensive activities to virtually every sector of the economy. This will lower the GDP growth. The resurgence in growth may prove to be a challenge and may take longer than expected in an already sluggish investment scenario. Given the magnitude of the shock and the channels through which economic activity may get disrupted for close to a year, if not more, it is surprising that the RBI estimated the impact on growth to be limited and transitory as announced in its recent monetary policy review meeting.

It may be worthwhile to ask, had the currency ban announcement not been made, how would the economy have progressed? Before November 8, India's GDP was growing roughly at 7%, primarily boosted by growth in consumption expenditure. Private investment activity has been weak. Banks have been saddled with NPAs and till now no well-defined policy measure has been devised to resolve the problem and boost credit off-take in the economy. Demand for corporate credit has been stagnant for several quarters and an overleveraged corporate sector has been refraining from initiating new investment projects.

During this time, the singular objective of the government should have been to adopt structural reforms to stimulate GDP and achieve a high and sustainable growth rate. Generating jobs to absorb the demographic dividend while it lasts should have been another policy priority. Instead of prioritising these objectives, the government announced a measure that has in fact dealt a severe negative blow to the overall economy.

The associated policy uncertainty is contributing to macroeconomic instability. Arguably, this is the last thing that was needed now given the pervasive weakness in the credit and investment climate. Policymaking over the next couple of quarters is likely to get hijacked by this single event in order to ameliorate a potential economic damage. All this is very costly both in terms of the time spent and the resources used up in first delivering the shock and then in restoring normalcy.

The longer the time taken to normalise the situation, the deeper will be the damage inflicted upon the real economy, and some of the damage caused may end up being irreversible. Perhaps a year later it would be worthwhile to ask whether the costs in terms of a protracted economic slowdown were worth the benefits arising from this move.

Radhika Pandey is a researcher at the National Institute of Public Finance and Policy and Rajeswari Sengupta is a researcher at Indira Gandhi Institute of Development Research.

Categories: Economy

Tagged as: agriculture, Brazil, cash-intensive economy, construction, consumption demand, demonetisation, Demonetisation, GDP growth, Modi, MSME, Narendra Modi, note ban, quantity theory of money, RBI, South Korea

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Demonetisation Will Likely Lead to a Protracted Economic Slowdown

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In most emerging economies, an important driver of GDP growth is investment demand. In India, private sector investment has been sluggish for consecutive quarters over the last two years. The principal driver of GDP growth in India in recent times has been private consumption demand, which contributes 60% to the GDP.

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It is November 8, the night of the Great Event and I am watching NDTV. The clean-shaven presenter can barely contain his excitement. He prances around like a peacock. His pastel post-Nehru jacket is like an emblem of a new era of which he is the heart and soul.

He is catatonic with delight, the microphone jutting from his fingers like a symbol of self-righteousness. Tonight, he has nothing to fear, he exclaims into the mike, for he has no black money. Those with mountains of Rs 500 and Rs 1,000 notes will now get no rest as the government has declared that starting midnight on November 9, these will no longer be legal tender. His moral apoplexy has reached a crescendo. He seems to be laughing on the inside as well. His being is equal parts pleasure and condemnation.

Delhi's Valmiki Colony is tucked into a tiny corner behind the upscale Malviya Nagar in the city's southern part. I am here to do some field work on a topic that has nothing to do with money, except that everyone here is poor and so, money-talk is a constant. It is the night after the Great Event and we are crammed into a tiny room where a family of five lives. The father is a vegetable vendor and the mother is part of a neighbourhood self-help initiative started by the Delhi government.

The lanes of Valmiki Colony are so narrow that if you stretch out your arms, you could nearly touch the walls on either side. Almost everyone in the room had Rs 500 and Rs 1,000 notes on the night of the Great Event. The room-owner tells me that he uses the proceeds from the day's sales to buy vegetables to sell the next day. Like many street vendors in India, he too does not have a bank account.

According to a recent media release by the National Hawker Federation, around 50 % of such workers do not have a bank account. The number of workers in the wider informal sector of the economy who do not have any relationship with the financial sector is higher. Cash flows in to his one-room house every evening and then out the next morning. And, the others in the room? Would they go to the bank the next day to exchange their cash into legal tender? A woman who sells peanuts says that she fears entering one as banks "treat us like dogs".

Higher moral ground

On Day three after the Great Event, I am at work and saunter across to the local branch of the bank where my salary is deposited. The clerk and I exchange pleasantries. He tells me that "new cash" should arrive sometime late afternoon and I would be able to withdraw my Rs 4,000 then.

I go my back to my office. There are emails to be attended to, work to be done, visitors to be greeted. And, of course, WhatsApp messages to be viewed. There's been an unending flow of messages about the Great Event. The one I read over and over again says that all discussions regarding demonetisation should include representatives from the armed forces. "When these guys are struggling on the border, the aam junta can't even face hardship for a few days," the sender says. He concludes that all politicians who question the Great Event should be sent to spend time with soldiers at the border. This is met with a flurry of thumbs up responses from those within the border.

The Great Event is not just financial in nature. It gives vent to a new project within which the middle-classes seek to define their morality as a class. Accusations of obsessive consumerism, lack of interest in public and collective life and abandonment of even the pretense of the idea of distributive justice can now be countered through economic jingoism.

Economic logic suggests that since a significant majority of the Indian population is not part of the formal financial system, cash accounts for just about 6% of undisclosed income recovered in income tax raids, and the processes for generating black money remain in place, the Great Event might not be all that it seems. But, the moral project that surrounds the Great Event has little to do with economic logic.

War on finances

Being middle-class in India has always been about moral claims to being certain kinds of people. In the current period, this has taken on new dimensions.

First, there is remarkable resurgence of anti-poor sentiment. As the idea of citizenship transforms from a political ideal to one defined by the market - the consumer-citizen, as some call it - there is great antipathy for the poor and their everyday lives. They are seen to be bad consumers: stealing electricity, encroaching upon valuable urban spaces with their slums and not allowing corporate conglomerates a free run over their lands for mining and industrial activity. The moral middle class, on the other hand, has achieved its success through sheer hard work and intrinsic merit.

Second, claims to morality are built around the idea that answers to complex social and economic problems lie in technology. The moral middle class defines itself through a deep attachment to the idea that we do not need to disturb the existing structures that make for social malfunction. All that is required is an overlay of technology. So, urban problems can be solved through Smart City programmes, better governance equals more computer kiosks, mobile apps can address the problem of women's safety in public spaces and e-wallets (such as Paytm) will lead to a better financial infrastructure. Technology is clean. Morality is about adherence to cleanliness. Addressing social messiness is, frankly, far too threatening.

And finally, there is the new morality of violence that is seen as a purifying agent. The language of finance now builds upon that of war and matters of money are now part of the militarisation of the national sentiment. Casting nationalism in the language of violence is a moral enterprise as it rids us of the apparent cowardice of earlier eras. We are a new people and in this normalisation of violence, those who suffer are collateral damage.

Just as black money is only the symptom of a deeper process, the Great Event is an outward sign of a deeper, inner, malaise: the acts of defining the moral high ground through ever-narrowing ideas of the public good. So, the Great Event is not really all about money. The residents of Valmiki Colony and national spaces beyond them are now the contexts of a morality play that is the sign of a social neurosis. Individual neurosis can be identified by others in the community, but what happens when we are all afflicted?

Sanjay Srivastava is a sociologist and author of Slum, Gated Community and Shopping Mall in Delhi and Gurgaon.

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For India's middle classes, demonetisation has become a moral project

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It is November 8, the night of the Great Event and I am watching NDTV. The clean-shaven presenter can barely contain his excitement. He prances around like a peacock. His pastel post-Nehru jacket is like an emblem of a new era of which he is the heart and soul.

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The celebrated social theorist and political psychologist spoke to The Wire about Modi, demonetisation and the state of Indian democracy.

Celebrated social theorist and political psychologist Ashis Nandy views Prime Minister Narendra Modi's demonetisation programme as a quick fix economic ploy that may yield immediate electoral gains but is unsure if it will last till the 2019 general elections. Nandy is scathing when he says that Modi and his small, closed coterie of decision-makers are completely removed from Indian reality, with little feel on how the country runs. He is equally dismissive of a pliant opposition, political parties of all shades, which are driven by self-interest rather than ethics or principles. He also sees a lot of similarities between Modi and Indira Gandhi, with their authoritarian interventions in governance and among people. Looking at the future, Nandy pleads for a society and government that draws from the best of the available knowledge and which represents the diverse views of political groups and ideologies. He is also hopeful that India will have its own Wikileaks soon.
What do you think has prompted this whole exercise?
This [demonetisation] is the [decision of] 'quick fixers', which is a group of people who are presently running the country and who feel it necessary for image building, through the manipulation of the media world. This is an abstract battle, not a real battle - a struggle to capture the imagination of the people. But it is a real attempt at political affairs, governance, though built with a narrow empirical base, with little feel for the way this country is organised; nor do they understand the diversity of the country. More than 80% of the people have no access or insufficient access to banking facilities, and you will only push whole communities, like the tribals, towards destruction. And who says that all unaccounted money is black? Farmers keep cash, their life savings in jute bags, because they may not trust banks. All this shows Modi's distance from social realities.
Isn't it bizarre coming from the person who has used his 'chaiwallah' image to woo the poor?
Modi is not distant from the people, otherwise he wouldn't have become so popular. I am not talking in absolute terms, but he's definitely fixed on his entourage, and not a very open entourage. I hear even his colleagues have no access to his decision-making process. It was a model tried out in Gujarat, but India is not Gujarat.
Is this part of a mid-term course correction?
Modi must have noticed that most prime ministers, including Indira Gandhi, Rajiv (Gandhi), have had problems half way through their term as they have had to fulfil their promises. He has made many promises too and he doesn't want to go that way, so he's taking precautions. Demonetisation is one of the props he wants to build his record for the next elections, not just in the coming polls in UP and Punjab but also in 2019. However, right now, people are still surviving on slogans, they still think he'll do something which in the long run will be beneficial for them. It may work in UP, but will it last till 2019, I don't know.
Is it worth all this economic distress?
Modi is expected to give sops to the poor, it's very much in the air, but how far it will help the poor is doubtful because you have not tackled the real causes of black money. Today, the banks may be flush with money but there will have to be huge investments to secure electronic devices, like lakhs of ATMs, super computers to handle electronic payments. Also, with the pitch on national security, defence expenditure will sky rocket, so too will other kinds of expenditure. Naturally, the prosperity of banks will be short-lived. Soon, it will lead to nepotism - who you give loans to, who you deny. It will never reach the bottom of society.
Opinion writers have called Modi's demonetisation move fascist. Do you agree?
[Fascism] was far more ruthless, there was genocide, blood flowed. This is 'developmental authoritarianism'. It is the record of every South East Asian leader who has tried to quicken development. They love to believe in the Singapore model, it is something I had predicted 35-40 years ago, in my books.
Has anyone attempted this before?
Yes, it was tried in small measure by Indira Gandhi, with her son Sanjay, who tried to quicken the pace of development, and it moved them towards some degree of authoritarianism and ruthlessness. It always leads to discrimination, patronage, nepotism. In fact, the narrowing of the decision-making process is the first clue of this creeping authoritarianism, and it looks like it has been set in motion here.
How do you see it play out?
Modi has been pushed by his intense desire to do something, but he does not have the imagination or wherewithal to do it. No doubt he is energetic, hardworking and driven to do something positive, as everyone wants to leave a mark on history. Even George Bush wanted it, Donald Trump would like to do it.
Do you believe the comparisons between Modi and Indira Gandhi are correct?
They both know how to manipulate democratic systems [in a way] that allows them to make authoritarian interventions in society, Mrs Gandhi did it and Modi is doing it. Modi's governance model is partly like Mrs Gandhi's, but nobody can blame him alone for damaging the structure of democracy because the BJP has not passed a single law till today. These are all Indira Gandhi's laws, the BJP is using the same laws passed by earlier regimes against opponents today. There was obviously something wrong with our democracy earlier too. They didn't like the criticism then too, and that shortsightedness has come home to roost.

For instance, our sedition laws should have been abolished long ago - we have had liberal governments right from Nehru downwards, but we didn't throw out the law, we didn't even revise it; the Supreme Court has revised it somewhat in its interpretation, but even that doesn't work. Governments have used the sedition law in villages where thousands of people have been arrested under it. The poor, hapless villagers don't even know what sedition means, it's Kafkaesque. This did not begin during BJP's time, it began earlier, there's continuity.
So, for those criticising Modi today, it is not good enough?
I'm saying it's not just good enough, it is self-serving. They did not do anything different, nor do they want to change anything. The attacks on NGOS started long ago. The Gandhi ashram in Chattisgarh was destroyed before the BJP came to power at the Centre.
Where is the duplicity and hypocrisy of so-called 'liberal' governments in this country?
I think in keeping the imperial structure alive. It's self-serving, it helps them protect their own interests, both of the bureaucracy and the middle class. The middle class has been complicit in this duplicity, they have always been shouting for more disciplined and efficient governments. They want obedience and orderliness, without understanding the nature of this country. Singapore's PM, Lee Kuan Yew, is very popular among them and the business community, he has been invited, feted and adored by them, and they have been looking for a Yew here without saying it. People wanted it in 2014, it was the rhetoric then and during the Emergency too, that we are disorganised, indisciplined, not martial enough. At that time the middle class was small, but today they are much bigger and have a much bigger impact on politics.
Do you believe an Emergency-like mood is in the country today?
Yes, that kind of mood is coming back, there are clear indications of it. However, it'll not get worse because people are more alert this time. A huge number of people will actively intervene to ensure it does not happen again.
What is required to challenge Modi?
To know India a little better, to self-confront and find out what makes us complicit with this kind of solution to our problems, because we've asked for it.
Can the Opposition rally against Modi?
There's not much to say about the Opposition. It's not because they are not organised, because in this country, you don't have to be organised to produce charismatic leaders. Those who have become prime ministers have handled India very well; we have Shastri, Rao, even Manmohan Singh in his first term, as good examples. It will come automatically. However, it is up to the Opposition to decide on what they want to fight. Unfortunately, the Opposition seeks power as ardently as the present BJP government and both are willing to go for power using legal and illegal means. Electoral funding is a big cause for corruption in politics but the Congress did not try to reform funding when it was ruling, neither is the BJP doing anything now that they are in power because the BJP thinks it has an advantage today - that's the way it goes. Work and coalesce for self-interest, as they did after the Emergency when totally disparate groups came together to form a government, even the Communists and BJP. What more can you want?
What do you think of the Supreme Court's decision on the national anthem in cinema halls?
It's a shortsighted decision because the Supreme Court does not make a distinction between nationalism and patriotism. I've also written about this 30 years ago, that there's a big difference between patriotism and nationalism . Patriotism is biologically given, even cats and dogs are territorial. The judges obviously believe nationalism is good, but the idea of nationalism does not work in India because we are not a nation, we use the English word 'nation' but it is not Indian. Rabindranath Tagore had almost 12 to 15 words for patriotism, but when it came to 'nation', Tagore used the English term 'nation' in Bengali form. So, patriotism is territoriality, a sentiment; nationalism is an ideology, and like all ideologies, it is constricting, it lacks vision, and as the record of the 20th-century shows, ideology can be a great killer.

It is a warning to all ideologists, from communism to nationalism to feminism, ideology blurs and narrows your vision, it gives you a format, through which you see, screen the world, so your capacity to respond to problems which you may intuitively sense, and need a different kind of solution, is blurred because you cannot easily integrate with your ideology, and that creates a problem. Also, ideologues always hate the targeted beneficiaries of their ideologies. Marxists have always been disturbed by the fact that the masses are not adequately revolutionary, they often see the people as loyal to the older systems and age-old practices, Marx even terms peasants as a bag of potatoes.

Nationalists don't think Indians are nationalist enough. A Pew survey of 10 years ago said Indians are the second most nationalist in the world, Pakistanis are even less, so are the Chinese! But the nationalists are still not satisfied by our nationalism.
Do you believe we are seeing a backlash against political correctness?
There was nothing like true liberalism in India. Marxists were as hegemonic in conception, there was nepotism - who will they appoint in courts, academies, institutions, it is a game played by everybody, so if you have an ideology of any kind, you believe you are morally superior over those who do not hold that ideology. Marxists automatically believe that the commitment to Marxist Leninism is supreme, though by definition it believes in a police state, and therefore, a police state is better than a non-Leninist worldview. So if you've to appoint an economist, they would look for a Leninist-Marxist rather than a good economist - he may be third-rate, but he is morally and ethically superior after all, and that's the problem.

It is why I disagree that JNU is a bastion of liberalism. I don't believe it ever was liberal, individuals may have been liberal but there was no tradition of liberalism. I've seen the worst face of their illiberalism.
What about the intellectual atmosphere in the country today?
It is illiberal and pointless. It is to protect the political interests of a small group of people who do not have the adequate number of intellectuals to give them better access to the realities of a contemporary world. The BJP can actually mobilise good economists because there are a good number of liberal and conservative economists but they have not done so; the government also has reasonably good strategic and defence experts, but unfortunately they are all biased, which is why I've used the term 'reasonably good'. There are respectable names in the list they use, but most of the disciplines are totally unrepresented, and they have no clue about it.
How should the Modi government create an intellectual profile for itself?
At least after the demise of Mrs Gandhi, other parties learned to live with intellectuals from other ideological persuasions. I'm pleading for a philosophy that a society must know what to put in politics and what it should not. You cannot, for instance, put a person who has no idea of child welfare to head an institution for children. I'm not talking about ministers but institutional heads. You must be able to draw the best from the knowledge that is available in society, represent the diverse views of political groups and ideologies, and if you do not do then you are not in touch with the reality of India. This is not just the problem of the Left but also of this Modi regime.
Something on the lines of NAC?
NAC was a good effort, but it was an accident. Sonia Gandhi was not the prime minister, we are talking about prime ministers here, and none of them has set up an NAC.
Would you like to see an NAC-like body?
No, I don't believe it has to be institutional, I am looking for a philosophy of life that can incorporate all ideologies. Society must have the psychological capacity to tap people who have other points of view. What was wrong if Amartya Sen, who was critical of the Modi government, was on the board of Nalanda University? This is a 2000-year old university which you are trying to revive, he was an appropriate person to be there. It gives the university a dignity, not some 'tuppeny ha'penny intellectual' you draw from party rank or sympathetic to your ideology.

Hindu nationalism is from 19th century Europe, nothing Indian about it. It is a pathetic mimicry of 19th-century European nationalism, in the 21st century. So was Marxism, for that matter, it is an ideology of mid 19th century. Is it any wonder Marxism is in such a sad state? The Left here looks absolutely bewildered by the world today.
Where did the Left go wrong then?
India had a thriving Marxist movement, a large trade union base at one time. But this did not let them use their experience or encourage them to look at Marxism in a new way, or a new way of using their insights into the ideology. It only encouraged them to mechanically apply colonial Marxism, which is an imported view. Everything imported for Marxists was better than from Third World.

The best-known history of Marxism is written not by an American or West European but is Kolakowski's history of Marxism. There's only one Indian mentioned, M. N. Roy, who started a radical movement here. No Marxist thinks he was a Marxist, but Kolakowski thinks he's worth mentioning, which tells you all about Marxism in India.
What should this new world view incorporate for 2017?
It has to have a lot of elements, say environment. Look at the new Pope, the Roman Catholic Church had once underwritten colonialism but it has changed and now talks about environmentalism. I'm not saying the church is liberal but there's a new ethical perspective. That's very important. Similarly, there are some very good works of Marxism today. People have come to know how to use Marxism without deifying it. Our Left, in the beginning, said all this environmentalism was an American conspiracy!
Is Nehru's idea of secularism irrelevant today?
India has a long tradition of celebrating differences. Yes, Nehru was messianic, but that was a transitory phase. He was a democratic socialist of the 1920s and his concept of development etc. came from this ideology. He had no critique of development, he had no idea what do with tribals. Almost 60 million tribals have been displaced in the last 65 years, for large development projects. We must think about this, ask what kind of development are we pursuing? Yes, people are fighting it, citizenship is changing. Solutions will emerge from the people. The democratic system is still reasonably intact, it has many flaws, but a deepening of democracy and enriching it is our task. India is more open to surveillance and secrecy, one day we'll have our own Wikileaks.
Are we ushering in the idea of a new democracy?
In the West, communities have disappeared and the only link between the state and individual is when you vote every fifth year. New democracy pits the individual directly with the state. And the individual feels safe only when he sees television or writes an angry blog. That's the way new democracy works today.

Categories: Politics

Tagged as: Ashis Nandy, Communism, demonetisation, Emergency, ideology, Indian government, Indira Gandhi, Jawaharlal Nehru, M K Venu, Modi government, Narendra Modi, note ban, politics

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'Modi Has Intense Desire to Do Something, But Lacks Imagination,' Says Ashis Nandy

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Celebrated social theorist and political psychologist Ashis Nandy views Prime Minister Narendra Modi's demonetisation programme as a quick fix economic ploy that may yield immediate electoral gains but is unsure if it will last till the 2019 general elections.

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India's attempt to flush out undeclared wealth did not work, central bank figures show. The move, known as "demonetisation", was a flagship policy of Prime Minister Narendra Modi. Economic analyst Vivek Kaul looks at what went wrong.

The devil, as they say, is in the detail.

On page 195 of this year's Reserve Bank of India (RBI) annual report lies the answer to the question many Indians have been asking for close to 10 months.

Has demonetisation been a success or a failure? As per the RBI data, it's safe to say that demonetisation has been a failure of epic proportions.

On 8 November last year, the Modi government decided to demonetise 500 ($7; £6) rupee and 1,000 rupee notes, which were worth 15.44tn rupees in total. The idea was to target both counterfeit currency and "black money", or unaccounted wealth, the prime minister told the nation. This was backed up by the government press release accompanying the decision. Black money is essentially money that has been earned but on which taxes haven't been paid.

At midnight, just hours after the announcement, the 500 and 1,000 rupee notes were worthless. People holding these notes had to deposit them in their bank accounts. This money could later be withdrawn, though there were restrictions on the amount of money that could be withdrawn immediately.

The hope was that black money held in the form of cash wouldn't be deposited into banks, given that people holding it wouldn't want to be identified - in the process, a vast amount of illegal money would be destroyed.

But the RBI report tells a different story.

It says that illegal notes worth 15.28tn rupees ($242bn) had been deposited in banks up to 30 June. This basically means that almost 99% of the "demonetised" money was deposited into banks. Hence, almost all the black money held in the form of cash also made it back into the banks and wasn't really destroyed, as had been hoped.

The conventional explanation for this is that most people who had black money found other people, who did not have black money, to deposit their savings into the banking system for them.

As far as detecting counterfeit currency is concerned, nothing much seems to have happened on this front either. Data from the RBI annual report tells us that the total number of fake 500 rupee (old series) and 1,000 rupee notes detected between April 2016 and March 2017 was 573,891.

The total number of notes withdrawn stood at 24.02bn. This basically means that as a proportion, the counterfeit notes identified between April 2016 and March 2017 represent close to 0% of the withdrawn notes.

In the previous year, the total number of counterfeit 500 and 1,000 rupee notes detected stood at 404,794. And this happened without any demonetisation.

Hence, demonetisation has failed in its two major objectives.

Illegal cash crackdown failed - bank report

Why India wiped out 86% of its cash overnight

Currency move was 'bad economics'

India's cash crisis explained

'eDesperate housewives' scramble to change secret savings

The funny thing is that there were no estimates of how much black money was held in the form of cash. The government admitted as much, after having announced the policy. Finance Minister Arun Jaitley said so in a written reply to a question in the lower house of parliament, the Lok Sabha, on 16 December 2016.

Raids carried out by the Income Tax Department suggested that people tended to hold about 5% of their black money in the form of cash.

But even this lack of data in the public domain did not stop economists from coming up with their own sets of numbers, trying to defend the decision of the Modi government, and failing to explain what logic they based their assumptions on.

India's large cash economy was badly hit by the policy.

Even the Bharatiya Mazdoor Sangh (the labour wing of the governing Bharatiya Janata Party) admitted: "As many as 250,000 units in the unorganised sector were closed and the real estate sector was badly affected, with a large number of workers losing their jobs."

Agriculture, a sector which largely operates on cash, was hard hit too, with farmers not being paid enough for vegetables and pulses they had grown. Many protested and several state governments waived payments on farm loans.

Over and above this, the government's policy caused a huge cash shortage, with people having to spend many days standing in ATM lines trying to withdraw their own money. Some even died in the process.

As far as the Modi government is concerned, it is unlikely to admit it was a big mistake and will continue to put a positive spin on it, as it has since last November. Things will not change on that front.

To conclude, no relatively healthy economy has ever carried out demonetisation.

As the latest Economic Survey of the government of India points out: "India's demonetisation is unprecedented in international economic history, in that it combined secrecy and suddenness amidst normal economic and political conditions. All other sudden demonetisations have occurred in the context of hyperinflation, wars, political upheavals or other extreme circumstances."

The real costs of this unprecedented event are only just starting to come out.
Vivek Kaul is the author of India's Big Government - The Intrusive State and How It is Hurting Us.

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Viewpoint: Why Modi's currency gamble was 'epic failure'

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India's attempt to flush out undeclared wealth did not work, central bank figures show. The move, known as "demonetisation", was a flagship policy of Prime Minister Narendra Modi. Economic analyst Vivek Kaul looks at what went wrong. The devil, as they say, is in the detail.

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When demonetisation happened, many, including this writer, thought the decision, taken at the start of rabi plantings in November, would significantly impact farm production. We were proved wrong. Good monsoon rains, after successive drought years, besides the timely onset of winter conducive to germination, turned out to be strong motivations for farmers to sow, even if this entailed begging or borrowing. They successfully weathered the DeMo storm by simply replacing cash with deferred payments, for labour, purchase of seed, fertiliser and pesticides. Informal credit networks and "social capital" ensured that, at the end of the day, we had a bumper crop.

Where demonetisation did have an impact, however, was in the prices received during harvest: Potatoes in Farrukhabad, Uttar Pradesh, fetched below Rs 350 per quintal this February, compared to Rs 600 or more last year. Moreover, while prices in 2016 had crossed Rs 1,100/quintal by mid-May, they are stuck even now at Rs 350-400. The same goes for rabi onions in Lasalgaon, Maharashtra, that traded at an average of Rs 450 per quintal in May, as against Rs 750-800 and Rs 1,200 in the same month of the preceding two years. Farmers, likewise, sold tomatoes at Kolar, Karnataka, in early May for Rs 300-400 per quintal, down from Rs 1,500-1,600 a year ago.

When was the last time we saw all three - potatoes, onions and tomatoes - wholesaling at less than Rs 5/kg, and even retail prices within Rs 20/kg? And this, in peak summer! The above "fire sales" - the evocative term used by the Reserve Bank of India (RBI) in its latest bimonthly monetary policy review statement - has been repeated across a range of other crops too: Garlic and methi (fenugreek) seed prices at Mandsaur - the district in Madhya Pradesh's Malwa region that's become synonymous with the ongoing farmer unrest - averaged Rs 3,400 and Rs 3,100-3,200 per quintal in April, whereas these ruled at over Rs 4,100 and Rs 4,700-4,800 respectively during the same time last year. Farmers in Nashik, which has also witnessed large-scale street action, along with the rest of Western Maharashtra, had to dump Sonaka grapes at about Rs 12 per kg in March, having sold the same green seedless variety for Rs 45 or so last year.

Even more illustrative is the story of soyabean, a kharif crop that, at harvest time in November, quoted at Rs 2,800-2,900 in Indore - that price has barely moved since then, even as sowing for the new season has commenced. A similar fate has befallen arhar/tur (pigeon-pea), which realised Rs 4,300-4,500 in January-February at Gulbarga, Karnataka.

That rate, already below the government's minimum support price of Rs 5,050, has fallen further to Rs 3,700-3,800 levels now. Given a choice, will any farmer plant soyabean or arhar in this kharif season?

The idea behind throwing these numbers is to emphasise a fact that should be obvious: What's going on isn't an ordinary "fire sale" limited to one or two commodities. This is not an isolated sugar or egg price crash, affecting only the cane grower in Muzaffarnagar and Sangli, or the layer poultry farmer of Namakkal. It is about a generalised fall in prices across agricultural commodities. We've entered deflation territory in farm produce, whose proximate trigger clearly has been demonetisation.

How? Well, much of the produce trading in India is cash-based and financed through a chain of mandi intermediaries, processors, input dealers and retailers. While difficult to establish, anecdotal reports suggest that this traditional agro-commercial capital was dealt a body blow by demonetisation. The collateral damage from it has been a haemorrhaging of liquidity from the markets. With the trade, which used to previously buy and stock up whenever prices fell, no longer active - it neither has the cash, nor the confidence now - the produce markets are suddenly without an important source of liquidity. True, this speculative capital was also a source of inflation, wherein, say, a 10 per cent production shortfall led to prices zooming 200 per cent. But today, it's the opposite: A 10 per cent output increase engenders a 200 per cent price collapse.

One does not know how long it would take for formal finance, banks, commodity trading houses or organised retail, to fill the void left by traditional agro-commercial capital whose transactions were largely in cash. Till that happens and liquidity truly returns, the ultimate sufferer is the farmer, evidence of which is visible in mandi prices and restive hinterlands.

But even assuming demonetisation's effects to be transitory, there is another elephant in the room in the form of "inflation targeting". The finance ministry and the RBI, in February, 2015, signed a monetary policy framework agreement, obliging the latter to achieve an annual consumer price index (CPI) inflation target of 4 per cent, subject to a plus/minus 2 per cent band. While such inflation targeting may have been adopted by some 29 other countries, the Indian case is unique because of the sheer weight of food and non-alcoholic beverages in its CPI. At 45.86 per cent, this is way above the corresponding combined share of these items in the official CPIs of the United Kingdom (10.3 per cent), Canada (16.41 per cent) or New Zealand (18.84 per cent).

Given the high weightage of agricultural products in its CPI, the success of inflation targeting in India is predicated on what happens to food prices. And since inflation at the retail and not just the wholesale level is what's being targeted, it inherently incentivises policy actions that depress farm prices ("fire sales" may, after all, not be all that bad a thing for the five wise men and one woman constituting the RBI's monetary policy committee). That could also explain why our policymakers today are naturally predisposed towards imposing controls on stockholding, domestic movement and export of farm goods, alongside allowing duty-free imports, at the slightest hint of a price increase - while doing nothing when produce realisations hit rock bottom.

Inflation eventually isn't just a matter of the prices of goods and services going up or down. It is also about whose prices are rising and whose are falling - in other words, winners and losers. In the current deflationary environment, the farmers are the clear losers.
harish.damodaran@expressindia.com
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When demonetisation happened, many, including this writer, thought the decision, taken at the start of rabi plantings in November, would significantly impact farm production. We were proved wrong. Good monsoon rains, after successive drought years, besides the timely onset of winter conducive to germination, turned out to be strong motivations for farmers to sow, even if this entailed begging or borrowing.

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The Centre for Monitoring Indian Economy , a think-tank that tracks business and economic data, believes that 1.5 million jobs were lost in January-April 2017, a likely result of demonetisation.

"The estimated total employment during the period (Jan-April 2017) was 405 million compared to 406.5 million during the preceding four months, September-December 2016...This is the total employment in the country, including organised and unorganised sectors, and agricultural and non-agricultural sector s ," said Mahesh Vyas, managing director & CEO of CMIE, in his report.

This slide is believed to be an after-effect of demonetisation. In November 2016 , the Narendra Modi-led government decided to render two high-value currency notes invalid. The Rs500 and Rs1,000 notes accounted for about 86% of the currency in circulation by value and, therefore, the ban led to a severe cash crunch in the economy.

"In November 2016, it was still the festive season but, the labour participation rate fell to a new low of 44.8%. It is apparent that this was an immediate impact of demonetisation," added Vyas.

The Labour participation rate refers to the share of the population employed or willing to work and seeking jobs. A drop indicates an economic slowdown. Here is a look at how it slipped following demonetisation. These estimates are based on a survey with a sample size of 161,167 households that included 519,285 adults.

Demonetisation's effect kicked in with a lag, as the period from September-December is a busy season for agrarian India and that could have had kept the employment levels high, explains the report.

Another study by the All India Manufacturers' Organisation (AIMO) in January had projected a 60% drop in employment and a 55% loss in revenue before March 2017. The AIMO represents over 300,000 - small-, medium-, and large-scale industries involved in manufacturing and export-related tasks.

The overall economy has struggled, too. India's GDP grew at 7.1% in 2016-17 as compared to 8% in the previous financial year. The data revealed that sectors such as cement, steel, and infrastructure are still suffering. New investments have been sluggish, with fewer new projects taking off, says another report by CMIE .

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India lost 1.5 million jobs in the aftermath of demonetisation

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The historic note ban in 2016 took its toll on jobs in India, says a report. The Centre for Monitoring Indian Economy, a think-tank that tracks business and economic data, believes that 1.5 million jobs were lost in January-April 2017, a likely result of demonetisation. "The estimated total employment during the period (Jan-April 2017) was...

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"My belief in socialism comes out of my belief in human beings."

In an interview with The Wire, Prabhat Patnaik, renowned economist and emeritus professor at Jawaharlal Nehru University, talks about the future of Left politics, the directions neoliberalism has taken and more.

Excerpts from the interview:

Eminent Marxist intellectuals like Samir Amin, John Smith and others hold the theoretical conclusion that contemporary capitalism has reached a stage of explosion. Their argument is that unlike the previous crisis, no malleable mechanism is available for capitalism to survive and sustain. Has capitalism reached a dead end?

Like capitalism reached an impasse in the inter-war period, it has now come to a dead end. There is no clear way available to capitalism to get out of the crisis it happens to be in. The fascism they are imposing, happening all over the world, will not help them to get out of the crisis. In 1930, fascism meant military preparation. Now, you are not going to have military preparations and what is more no fiscal deficit. You have globalised finance, which doesn't like fiscal deficit and government spending. It would like the government to handover resources to the capitalist to induce investment and get out of the crisis. Now the governments have reduced interest rates to the lowest level, zero, everywhere. It has suddenly reached a dead end.

I would say the capitalism always requires some kind of exogenous support to keep its accumulation going. For a very long time, colonial relations provided the exogenous support. In the inter-war period, this disappeared and in the post-war period, you have the state providing the exogenous support. Financial capital does not like state intervention, it wants to directly stimulate investment to generate employment and growth. Now the state itself is confined to balancing the budget or having a 3% fiscal deficit. So the state does nothing. You have globalised finance and you have the nation state. So if the individual nation state doing anything against globalised finance, then finance will leave. Coordinated action on the part of nation states, which could challenge globalised finance to stimulate the world economy, is something which is not even talked about. So capitalism at the moment has run out of options. It is yet to become clear how it will come out of this. This provides a very good opportunity. It provides once more some kind of revolutionary possibilities.

That revolutionary possibility can come about and be realised only if there is commitment on the part of revolutionaries to support the petty producers, peasants etc. It is essential in countries like ours to strengthen the worker-peasant alliance. That goes against the other kind of thinking, which I believe is the real factor crippling the Left at this moment. This thinking says that the Left believes in modernity and modernity comes through the development of productive forces, and therefore the Left must develop productive forces and if this requires the taking away of peasants' land, let us do so. That is what happened in West Bengal and it finished off the Indian Left for quite some time to come. There was a blow to the Left in West Bengal and West Bengal was the biggest state the Left had. So I believe that the idea of the development of productive forces being central, as something that should be done even if it entails the destruction of petty production, is something which I totally reject. I believe it is a suicidal theory as far as the Left is concerned.

People like you talk about delinking of countries like India from globalisation. But a number of Left intellectuals from the First World, like Slavoj Zizek, are fearful of such a delinking of Third World countries from globalisation. They think that such a delinking is a retreat from modernity and a return to pre-modernity and parochialism. Why should Third World countries be delinked from globalisation?

In a society like ours, linking with so-called modernity, which is neoliberal policies and globalisation, is responsible for the emergence of fascism. In other words, I do not see fascism as separate from neoliberalism. I see fascism as pro-communal liberalism. [Prime Minister Narendra] Modi is carrying out the neoliberal agenda far more actively than many have done before him. In a society like ours, we have a peculiar combination of globalisation on the one side and the most backward, obscurantist, reactionary, communal, fascist agenda on the other side.

These two are not separate. Globalisation is not fighting against it. On the contrary, globalisation is sustaining it. They sustain globalisation. They will do Hindu pujas and the rest of it, but will also push for globalisation. I think people like Zizek, who actually talk about globalisation as being the harbinger of modernity, are not looking at the comprehensive impact of globalisation on a society like ours. Modernity in a society like ours came with anti-colonial struggle, and the anti-colonial struggle was delinking from the British Empire. People like Zizek are not aware about the complexities of Third World societies.

There is a right-wing upsurge in many parts of the world. Samir Amin describes this as the return of fascism in contemporary capitalism. Is this the structural crisis of capitalism, that necessities such fascist emergence?

I see it as a revolt against globalisation. Globalisation has created an enormous amount of inequality everywhere in the world. There is stagnation or worsening in the conditions of workers. Joseph Stiglitz says that the real wage of American daily workers today (he said this in 2011) is lower than it was in 1968. Productivity increases everywhere so the surplus increases and inequality increases. Now the crisis has imposed itself on top of this. Therefore people from everywhere have become the victims of globalisation. When they become the victims of globalisation, they want a way out. Now the liberal bourgeoisie are not giving anything alternative. The Right does not actually have a way out but they say that we are going to do something differently. The only thing different to do is to to attack immigrants, to attack Muslims, to attack minorities and do on.

At the economic level, they may in fact prevent capitalists from investing in China and other such countries, which is called the 'beggar-my-neighbour' policy. So they do not really have an alternative but they did come and say the system has to be changed, and therefore they say they have some agenda and people turn to it. On the other hand, where there is a progressive agenda like Bernie Sanders's for instance, people turn to that agenda also. So people want to get out of this globalisation. I see it as revolt against the globalisation which is being led at present by the Right. That is because the Left has not come up sufficiently to lead this revolt. I was talking earlier about the Left's attitude, which is completely paralysed. In Europe, for instance, the Left is completely paralysed because they want the European Union. German finance dominates the European Union but nobody in the European Left talks about delinking. I think this notion of equating progress with globalisation implies the Left had somewhere missed out on people's anger against it. The Right is capitalising on it. The Right does not have an agenda other than the fascist agenda of minority bashing and things of that kind, which is not going to get people out of the crisis in which they are. Employment does not get generated simply by minority bashing. So that is the case at the moment. I hope the Left makes a come back, because the crisis is not over.

Because of the ascendency of Hindutva politics in India, the progressive sections of the country fear that India is moving towards fascism. But the former general secretary of the CPI(M), Prakash Karat, writes that the present regime should not be called fascist. Instead he describes it as authoritarian. How would you define the nature of right-wing Hindutva politics?

You are not going to have exactly the kind of fascism you had in the 1930s. In other words, I am not saying that you will have concentration camps. Fascism doesn't consist of one particular way, in which it manifested itself in the 1930s. Contemporary fascism would be quite different from what it was earlier and I think there are certain obvious features of that. One is that fascism is something which is also a movement. It actually uses mass movement mobilisation. Now I think this fascism came on the basis of the mobilisation on Babri Masjid. This fascism has its popular base. It is not like the Emergency, like an imposition from the top. But it actually has a popular basis. All these vigilante squads are typical of fascism. The second thing about fascism is that it is also supported by the corporates. So you have a combination of corporate support with fascist vigilant groups which are visible in India. It is against reason. It is against democracy. Every symptom of fascism is being satisfied by the ruling dispensation in India.

I would say that still we haven't got a fascist state. Because if you have a fascist state then of course the fascist state would immediately prevent any criticism of it and it would become authoritarian. I think authoritarianism is growing but it is not yet a fascist state. So the way I would put it is that we have fascists in power pushing the state towards a fascist state as it would be in the current situation; not in the 1930s style. But still we don't have a fascist state at the moment. But on the other hand, the fascism is growing. I would not say that a fascist state is impossible in contemporary India, nor would I say that these fellows are not making efforts to make India into a fascist state. I believe that it is very important to fight against them right now. I would call it communal fascism. Amartya Sen coined the term communal fascism, which I think has some appeal because it is a mixture of communalism and fascism. On the other hand, it is not only confined to communalism. It is against Dalits, it is against the rights of state governments. The GST, for instance, is an attack on the rights of state governments. Even the Congress supports it. It doesn't mean that it is not an attack on state governments. So you have a centralisation that is taking place.

There emerges the need for political unity of secular forces against growing Hindutva politics. People like Irfan Habib have pointed towards such a unity. The success of the grand alliance in the Bihar assembly elections showed united resistance of secular forces. But an important left party like the CPI(M) abstained from this unity. Was that the right decision?

I believe it was the wrong policy. I believe it was wrong on the part of the Left. Why? Suppose I live in Bihar. Who would I have voted for? If it is the case that a committed Left member, committed Left activist votes for a non-Left combination, that means the Left made a mistake. If I feel that I can't vote for the Left candidate and I must vote for the other candidate, then obviously my party is doing something which I don't accept. I believe it is wrong. In fact it is very strange. In Bihar when the BJP was defeated, everybody on the Left was celebrating.

Irfan Habib wrote about this. He said it is completely wrong. I am not saying that simply. I see a connection between neoliberalism and fascism. I am not simply saying that just have an alliance with all other forces in the country. But it has to be an alliance which is based on a particular agenda. I think the Left has to take the initiative in bringing everybody into an alliance in which there is some agreed agenda. Of course you can't say that do away with neoliberalism. But let's say we freeze neoliberal reforms at the phase they are. We don't want labour market flexibility; we don't want all the other measures, financial sector liberalisation etc. All of which they are trying to do. We freeze reforms. But on the other hand, we try and provide certain specific advantages to the poor, specific benefits to the poor, transfers to the poor. I think in 2004-05, this is what has done. I think MGNREGA was made possible because of the insistence of the Left and I believe it is a major legislation. It was one of the most important legislations in post-independence India. Why don't we agree on five or six legislations the government can do. And we freeze neoliberalism where it is. No more privatisation, no more labour market flexibility, trade unions have the complete right to strike and protest, and we mobilise resources in order to provide certain rights. You have to concretely negotiate it. I think what is required is not just all parties banding together. Bihar was like that. I am not holding that up as the model. You have to enthuse people to support an alternative. Therefore the alternative must have a clear programme. So I would rather suggest a programmatic unity of the widest sections of the population than of the political parties against the emerging fascist threat.

Electorally, the Left has registered significant losses all over the country. Bengal is an example. How could you explain such an electoral setback for the Left? What are the challenges before the communist movements in the country?

The most fundamental challenge before the communist movement everywhere in the world, particularly in India, is not to be hegemonised by neoliberalism. In theory, it is not. The whole Bengal thing was such a case. Let us not put the blame the communists. What is happening is that the middle class, from whom the intelligentsia is drawn, is a beneficiary of neoliberalism. And because the intelligentsia ultimately influences the communist movement, as it is a movement based on thought and reason, that beneficiary nature of the middle-class intelligentsia is transmitted to the communist movement. Suppose you are a communist leader. You have five friends. All those friends are middle-class intelligentsia. The revival of communism in India must start with giving up the hegemony of neoliberalism and therefore even accepting unpopularity in the middle-class intelligentsia circle for the sake of defending the peasantry and petty producers, fisherman and all the rest. That is where the Left constituency lies.

I think what happened in West Bengal is that to create jobs, they opted for industrialisation. Car factories don't produce many jobs - they produce very few jobs. It was a middle-class demand. The middle-class demand was forcing them. The presumption was that the peasantry supports us anyway. Let us try getting the middle-class youth on our side by doing this industrialisation. But in the process, middle-class youth didn't come and they lost support of the peasantry. It is very important for the revival of the Left not to get hegemonised by neoliberalism. Buddhadeb Battacharjee's government was hegemonised and that is why when Pinarayi Vijayan appointed a lady from Harvard as an advisor, I was completely opposed to it. It is not because I have anything against her. If there is any suggestion that the Left is making concessions to neoliberalism, I would oppose that.

There are a number of different popular struggles going on in our country. In many of them, there is no presence of Left political forces. How would the Left engage with such struggles and social movements?

I think if there are struggles done by people other than the Left, you should not get worried. Of course people will struggle. But there is a big difference between the Left and all these struggles. The Left is the only force which has a political presence. That is why I am very upset about the Left in the Bihar and Uttar Pradesh elections doing things which marginalise it. Irom Sharmila, whom I have great respect for, got 70 votes. Can we imagine that Medha Patkar lost her deposit? Social movements do not have any political credibility among the people or any political support. The Left is the only movement which has both a social and a political presence. Consequently, I think all social movements, whether they like it or not, ultimately come to the Left asking can you raise this in parliament - even those who are opposed to the Left. For instance, when the MGNREGA demand was ongoing, a lot of people who were in the social sector came to the Left and said please raise it in parliament. They had a relationship. I think that relationship needs to be developed. Whether it joins the environmental movement or not, the Left has an enormous social presence among trade unions, the working class, the peasantry, youth and so on. And it has a political presence. I think the Left has to emerge as the champion of all movements, all pro-people movements, even though it is not leading. And they also need to recognise it.

How does Marxism address the caste question? How do you respond to the allegation that because of its class dogmatism, the communist movement and Left political praxis in the country failed to address caste and organise resistance again caste based exploitation?

Caste is an existing form of oppression in society. What we have is, as E.M.S. Namboodiripad put it, a 'caste-based feudal system'. Capitalism is built upon a caste-based feudal system. And therefore, capitalism is carrying caste inequality forward as it existed in the earlier system. As far as the most oppressed castes are concerned, they are no better off, not in any fundamental sense, in the current society than they would have been earlier. They will continue to remain like this. Even if you have some Dalits who become prime ministers, presidents, professors, the bulks of Dalits, who are labourers, are actually getting squeezed under neoliberalism. The point is that while caste as a form of exploitation manifests itself, simply intervening at the level of caste is not enough. For the very simple reason that capitalism is spontaneous and this spontaneity generates, as Marx said, at one pole poverty and wealth at another pole, on the basis of a pre-existing social structure. Therefore, poverty at one pole necessarily would be the poverty of those who are most oppressed in the existing social structure. As that is the case, there is no question in my view of any liberation for the Dalits or any oppressed castes without overthrowing capitalism.

On the other hand, while that is a necessary condition, I am also aware of the fact that even in a socialist system, caste would not automatically disappear. You would have to make a conscious effort to overcome caste. Even in a socialist system, though you have full employment, somewhat 'lower' jobs would be left for the poor or the 'lower' castes. So that kind of a division would continue to exist. There is a division of mental and manual labor. That division won't disappear the moment you are in socialism. Even within socialism, you do have to have a struggle against caste oppression. So I see socialism as a necessary but not a sufficient condition for overcoming caste oppression. I would actually define socialism or a socialist society in India as one where caste would disappear. It means that annihilation of caste is the barometer of socialism.

The communist movement in India is not a homogeneous thing. Bengal communism is quite different from Kerala communism. Kerala is one state in which the communist movement and the social emancipation movement went hand in hand, which is why communists are very powerful among the Ezhavas. In Bengal, that is not the case. There, it was much more a trade union thing, which of course made inroads into the peasantry later when it became powerful. The communist movement in Bengal never had a history of fighting for social emancipation.

On the other hand, a lot of later communist leaders in Kerala like Krishna Pillai and A.K. Gopalan began political life with the temple entry movement. So communism in Kerala grew out of social struggles. So the communist movements differ from one place to another. But it is certainly true as a general criticism that in large parts of India, the communist movement didn't take the social emancipation agenda seriously enough. I would agree with that criticism. Bengal is one example of that. It is a fact that the entire top leadership is from an 'upper'-caste background. It is true that the 'upper' castes got higher education, they develop theory, they develop consciousness, but the point is that the communist movement has to explicitly address itself to the task of overcoming it. And if they are in power for 30 years it is very important that they should have addressed this issue explicitly. But I don't think it has done this sufficiently. So I would agree with that criticism that the communist movement hasn't given enough sensitivity to the caste question.

In Kerala, the issue is different. There is great difference between North India and South India. In the south, the social emancipation movement began a long time ago. In a sense, the DK and DMK occupied the place in Tamil Nadu that the Left did in Kerala. Someone like Karunanidhi calls his son Stalin. There was a kind of Left thinking that was there then. But it was not thinking that proceeded with the usual Left line. But in large parts of North India, the social emancipation movement was not linked to the communist movement. It also began late. I think the social emancipation movement in the North India finished off the communist movement in North India. It took the form of identity-caste politics, especially intermediate caste politics, and later Dalit politics. The communists were squeezed out by that kind of identity politics. That is because they themselves didn't do enough to participate in the social emancipation movement.

Different kinds of identity politics are very active in a democratic system like ours. One kind of Left approach towards identity politics is to dismiss it altogether. Another approach is discarding class politics altogether for identity politics. As a Marxist, how do you approach identity politics?

Identity politics is not one thing. The BJP's is also identity politics, Hindutva politics. You have oppressed identity politics; identity politics of the oppressed Dalits. Identity politics of the bargaining kind is another. For instance, the Jats want reservation; Patels want the same. You also have the identity politics of a fascist kind. The BJP is trying to promote this. Identity politics is a general term.

I completely support the demands of the identity politics of the oppressed for reservation, for affirmative action, etc. On the other hand, while doing so I also know that identity Dalit politics is not the annihilation of caste. Caste is not going to disappear through Dalit identity politics. And identity politics is something which is perfectly compatible with capitalism. Given the spontaneity of capitalism, even the gains identity politics can make soon get lost. Take a simple example. We have the idea of reservation in the public sector. Now what you have is the privatisation of the public sector, in which reservation goes. So the gains identity politics might have made earlier is something which is disappearing. The same is true of OBC reservations. Identity politics of the oppressed, while I would support their demands, I know it is not the solution. Therefore I would say even though I support their demands, I would suggest that class politics must be brought in - fighting peasant struggles, trade unions, working class struggles, etc. Additionally, it is very important that there should be, for instance, a worker-peasant alliance, which the Left is trying to build up. It must aim at developing a notion of citizenship which is independent of identities by giving to everybody economic rights. For instance, if you have a universal right to employment; in that case the Patel agitation is no longer relevant. The Left should say yes to reservation. But the L eft should also say that we believe in a universal right to employment and if we come to power even within this society, not socialism, we are going to introduce a universal right to employment.

I think the Left has to break, go beyond identity politics. It has to put before everybody an alternative agenda, that agenda has to start up with the development of the concept of citizenship. Identity politics thrives because in a situation of crisis, people are fighting against one another. It is the ideal way of breaking class politics.

The pain of demonetisation still continues in different forms across the country. What would be the real motivation behind such an economic decision? It caused significant hardship to the people, why was there no large-scale resistance?

The pain of demonetisation is there even now. I saw in the Telegraph newspaper that the correspondent went to cover the by-elections in Dumka (Jharkhand). A tribal woman wants to repair her mud hut before rain comes. She has saved Rs 9,000, which she can't access. The suffering of people is intense. Now anybody who says there is no suffering by pointing out that the BJP won the UP elections is completely wrong. It has no connection. You can win elections on the basis of many things. But the suffering of the people is there evidently to see.

Even today, in large parts of the country, there is a cash shortage. It's not correct to say the situation is normal now. Unemployment has definitely increased. Everybody knows it. A lot of migrant labourers went back to their villages. They have seen a drop in their living standards. So demonetisation has been an attack on the poorest of the country. It has done nothing and it is not going to do anything about unearthing black money. The same government, with demonetisation, has brought a finance Bill saying companies' donations to political parties can be any amount and doesn't have to be revealed. Then what black money are they unearthing, what corruption are they fighting? So it is completely bogus. It is just an attack on people and all these things on fighting corruption are an eyewash.

Two questions arise. Why did it happen and second why is there not any revolt. Why did it happen? It is difficult to say. Because I believe these are fascist people. Unreason is an important part. And unreason takes the form of spectacular things. They just think it is a natural thing to do. And they are bringing the feeling of doing big things, impressing the people that they are doing something big. I can't think of any other explanation. There is no rational explanation that I can think of. Their objective may not be actually doing away with black money. But just to impress people. In that they succeeded. So how can you say it is irrational? I mean by irrational an action which presumes irrationality on the part of other people. If I think that going 5,000 times around the Tirupati temple is going to get rid of black money and I do that. I know it is not going to get rid of black money but I know people are gullible enough to think that it is for the national good. In that I believe an action of unreason may be smart. But I am thinking other people are irrational. Then I am catering to irrationality.

Why has it not had effects? The point is that in this country, I think for a long time collective forms of struggle have just disappeared. You may have the identity-based struggles. But collective forms of struggle have disappeared for a long time. To my mind, the recent doctors' strike was the first strike of that kind involving everybody of that profession after the railway strike of 1974. I am not talking about one-day/two-day strikes of trade unions. But prolonged strikes based on specific demands which involve a whole profession, which involves the country as a whole, have just disappeared. I think that is a contribution of neoliberalism. That is the one way neoliberalism contributes towards the emergence of fascism.

In the recent years, the Gujarat model of development has been propagated as the model that could be followed by every other state in the country. Earlier it was Kerala model of development that was renowned. You had worked as the vice chairman of Kerala state planning board. Is Kerala still a model?

Kerala had a specific trajectory of development. If you have larger expenditure by way of welfare expenditure, transfers to the poor, not only are you developing the human development index, you are also increasing purchasing power, you can have a higher rate of growth. I made a calculation between 2004-05 and 2011-12. The per capita growth rate of GDP of Kerala was the same as in Gujarat. But it was not by inviting multinational companies. Much of that period was the Left Democratic Front (LDF) regime period and V.S. Achuthanathan was chief minister. So it was not done by inviting multinationals, not getting people out of their land, nor depriving tribals of their rights.

It was actually done by once more reviving the health system, increasing expenditure on health. But I think the Kerala model faces a very significant challenge from neoliberalism. Neoliberalism is one which actually denies state resources. If a state is denied resources, naturally they would invite big business to come and set up plants. So neoliberalism necessarily entails a shift in the Centre-state relations in favour of the Centre. And the Centre is not going to give you money to spend on hospitals and education and so on. So the biggest threat to the Kerala model now is the increasing centralisation of resources. This is a part of the neoliberal trajectory. I think because of this, they would try to destroy the Kerala model of development. The challenge before the LDF is basically to what extent they can find ways of sustaining the Kerala model. From 2006-11, when Thomas Isaac was the finance minister, he found good ways of mobilising resources. Now even taxing powers are removed from state governments, with the GST.

Now the GST has replaced all other taxes in the country. The government circles claim that GST would result in a 2% increase in GDP growth of the country. But economists like Amartya Sen and you have expressed significant concerns over the new tax. What are the reservations you have regarding the GST?

The Indian constitution had erected a financial federal structure as a complement to the political federal structure. The constituent assembly had been aware that if the states were reduced to the status of mendicants approaching the Centre for resources, then that ipso facto would entail a subversion of the federal polity. Hence, it specified certain particular taxes to be levied by the states, as distinct from others that were left to the Centre. The Centre, however, adopted over the years various means, which we need not go into here, to ensure that the states remained starved of resources and had to depend upon its goodwill, i.e. that they were indeed, as far as possible, reduced to a mendicant status. The Goods and Services Tax regime takes this assault to an unprecedented height. It amounts to a formal abridgement of the constitutional rights of the states. This is clear, obvious, indisputable and not even denied by anybody. By substituting a GST for the sales tax which the constitution had explicitly assigned to the states, and which was the main source of states' revenue (approximately 80%) and by providing that GST rates are to be decided only at the GST council where every state is just one member, together with the Centre, and therefore quite powerless to alter the rates it can charge, it is clearly taking away states' powers.

The question relates to the basic structure of the constitution. Just as one cannot declare the country a "Hindu rashtra ", even if the Centre and all the state governments at a particular point of time unanimously agree that this should be done (for that would violate the basic structure of the constitution), likewise one cannot take away the states' powers even if the Centre and all state governments at a particular point of time unanimously agree to institute a regime that does so.

The claim that a GST would contribute much to GDP growth is based on entirely spurious econometric exercises. The talk that GDP growth would go up by 2% or 3% is derived from theoretical models, all of which make assumptions that have no basis in facts. Tax reforms, in short, would not make an iota of difference to investment behaviour of capitalists which is governed primarily by the expected growth of the market, though capitalists argue otherwise in order to push for tax reforms which are advantageous for them, as the GST would be. The gains of such reforms are simply pocketed by them, without stimulating any larger investment and growth.

The case of the United States is instructive in this regard. The argument is often advanced that a uniform GST across states, even though there may be varying rates, is necessary for creating a national market. Interestingly, the US does not have any such uniform rate, but a plethora of them across states and commodities. It would be ironic to claim that the world's most powerful capitalist country does not have a unified market! The reason why the US does not have a uniform rate like what the GST entails is because it values federalism greatly. Even the most powerful capitalist country of the world, in other words, is willing to place certain constitutional values like federalism, upon which it is founded, above capitalists' preferences. There is no reason why India should not do the same.

This is the 100th year of the Russian revolution. What is the legacy and contribution of the Russian revolution and the Soviet state? Contrary to Marx's prediction, a socialist revolution took place not in a capitalist country but in a backward feudal country like Russia. How did that happen?

At least four important contributions of the October revolution which are of global historic importance have to be recognised. Firstly, it was responsible for the defeat of fascism; everybody in the liberal democratic universe who attacked the Soviet Union conveniently forgot that the liberal democratic universe was saved from fascism by the Soviet Union. In fact, many people are raising this question that in today's world, if there is fascism, what is going to save the world from fascism? The liberal democrat cannot take on fascism.

The Soviet Union played a crucial role in the defeat of fascism. The second contribution is that it actually set up the most gigantic welfare state the world has ever seen. We talk about welfare capitalism, but that is nothing compared to the welfare state the Soviet Union had created. The third thing is that it was the first time in modern human history that actually you had an economic system characterised not by unemployment, unutilised capacity and existing poverty. But it was characterised by complete full employment and labour scarcity, a different kind of economic system. It gives you a glimpse of what is possible. Fourth, the most important contribution is that it was responsible for decolonisation. I don't just mean decolonisation in the sense of formal independence. I mean decolonisation in the authentic sense of Third World countries capturing their own natural resources which had been under the control of the colonial powers, of metropolitan companies associated with colonial powers. This happened everywhere. When Gamal Nazer nationalised the Suez Canal, there was an Anglo-French invasion and it was the Soviet Union which stopped this threat to Egypt.

It was happening in India. The oil companies were taking huge amounts of resources from India. They brought crude oil. When refineries were set up here, the government of India said that you are actually charging too high prices for crude oil. If we are importing from Soviet Union, we can get it at a lower price. They refused to do that. Then the Soviet Union started helping in the prospecting of oil in India. In fact it liberated India from the shackles which are imposed by the seven sisters in oil and a large number of metropolitan capitals in all kinds of other industry. The point is that building up the resource base of the country, building up heavy industries not just in our country but all over the world, is something made possible by the existence of the Soviet Union. Even the political liberation of many of these countries is obviously because of the existence of the Soviet Union. Churchill didn't give independence to India. The point is that we must never forget the role of Soviet Union in bringing about decolonisation. I think these are enormous historic contributions.

Of course the Soviet Union could not develop a political structure because it became a one-party dictatorship, so it could not really last and they could not make the jump from a one-party dictatorship to a political structure appropriate to a socialist country. But on the other hand, the world conjuncture on which the Soviet Union has been created was namely an imminent world revolution. That changed after the Second World War. So, an imperialism which has been characterised by an inter-imperialist rivalry before is no longer characterised by inter-imperialist struggle. Instead, there was a kind of unity among them. So the whole situation had changed. And the Soviet Union could not adjust to these situations; neither ideologically nor in terms of institutions. So it has collapsed. But its historical contributions are just outstanding.

Was the Russia revolution a negation of classical Marxist theory?

It depends how you see classical Marxist debates. Whether by classical Marxist theory you mean literarily anything Marx wrote. I think there were even references in Marx about a worker-peasant alliance, but it is exactly true that it was an innovation. Marxism is not just kind of textbook or Bible or something. It is actually opening up a way of looking at the world and Marxism is also a development. For instance, Lenin talked about monopoly. Monopoly did not figure in Marx. So the world changed. In fact, the world changes in the way Marx analysed. Marx himself analysed the centralisation of capital. Marxism continuously develops. If it doesn't develop, it becomes religion. It is a science, not a religion, because it develops.

Earlier, I was talking about the theory of imperialism. It was not there in Marx. So it is a development. The point is human thought can't remain at the level it was in 1857. The Bolshevik revolution carried forward Marxist revolutionary dielectrics. So it is a carrying forward of Marxism.

While theoretically comprehending the crisis of capitalism, the famous German communist revolutionary Rosa Luxemburg declared that there exist only two possibilities before the world: either socialism or barbarism. It seems that even after 100 years, those words are important in describing the predicament of present world. Do you subscribe to such a view?

I agree. But we have to interpret the 'barbarism'. Barbarism is taking the form of a fascist takeover all over the world. And a fascist kind of takeover basically pushes us back by centuries, by at least one century in India. Because it would revive communalism, it would revive unreason, it would revive casteism, etc. Either we move forward or we actually move backward. That is the current situation. But the European Left, because of their belief in what I call productionism - development of productive forces - they are actually hegemonised by neoliberal thinking.

What is the alternative of the Left today anywhere in the world to globalisation? What is the reaction of the European Left to the fact that Left governments coming to power cannot deliver what it promised? On the contrary, it had to accept the draconian measure of austerity. The point is that it is as long as the Left remains within the same thinking as the hegemonic thinking in the current era of globalisation, it can never break out of it. The condition for the revival of Left is that they wake out of hegemonic thinking and defend the petty producers, peasants and the entire army of people. We talked about the Bolshevik revolution breaking away from the Marxian paradigm, that was Lenin's contribution. He saw the revolutionary role of the peasantry. No Marxist has done that before and that produced the October revolution.

Do you see any possibility of a socialist revolution in the near future? Why you believe in socialism?

I think it will take time. Because it would require theoretical preparations, social preparations, it would sharpen the class struggle, it would require experiments, many of which will fail, so it takes time. But there is no doubt about it. I believe in mankind. Human beings are very intelligent beings. They certainly will be able to erect for themselves a social arrangement that actually promises and gives everybody freedom and liberation to ensure creativity. I think my belief in socialism basically comes out of a belief in human beings.

The Latin American model of socialism is hailed as 21st-century socialism. The Latin American model is described by a number of intellectuals as an example of a socialist transformation in a bourgeois democracy without any revolution or class struggle. How do you evaluate the socialist experiments in Latin American countries?

People fetishise revolutions, particularly young people and the ultra-Left. The argument is that unless we have armed struggle, revolution is impossible. Fundamentally, revolution is a social transformation. You attempt social transformation through class mobilisation, through class struggle. Democracy provides the best conditions for class struggle. Because it provides total freedom for the class mobilisation of workers, peasants and so on in a bourgeoisie society, not in a socialist society. Within a bourgeois society, democracy provides the best way of doing this. The advance of class struggles within a bourgeois democratic structure widens the democratic structure. This is prevented by the ruling class. So the armed conflict is imposed on the revolutionary class by the ruling class. In Latin America, there was a period when they tried to overthrow Hugo Chavez. They tried various things. Armed struggle may take the form of class struggle in such situations, where the ruling class tries various things. It is the situation where you can, for instance, frustrate the ruling classes and if so then you could see a march over them. What I mean is the scale of armed struggle may be very small. These are the questions of concrete ways in which the class struggle manifests itself. The form of class struggle depends on the situation. It would be a fetish to say 'No no, we must start with armed struggle,' as it would be to say 'No, the democratic form is all that we need and we do not require armed struggle'.

In Latin America, the Left is in power in many countries. The stage Latin America reached was the stage of redistributions. They did not make any fundamental change in the nature of the production structure in order to push in a socialist direction. It was 'redistributioinism' rather than socialism. Basically, what happened is because of the world commodity booms, all Latin American commodity producers', producers of oil, etc made enormous economic gains. In the old days, these were appropriated by the rich, corporate multinationals. Now it is used by the state for development measures. It was a very interesting thing. It was a wonderful thing. It was a great historical achievement. But at the same time, that in itself does not constitute socialism. Socialism would entail a change in the production relations. Now, before any such thing could happen, the commodity boom itself has collapsed. Since the commodity movement has collapsed, much of the Latin American Left is in deep trouble. Everywhere there is a threat to the Latin American Left. Because all these countries actually, one way or another, are dependent on world commodity movement which has now collapsed.

If a revolution breaks out, what kind of revolution it will be? A revolution lead by the proletariat or a revolution of the 'multitude'?

When I talk about the proletarian revolution, I have in mind a revolution in which the proletariat leads the entire working people, peasants, petty producers, etc. Obviously it is not a world of petty production that you are going to build. The point is to defend them and then what you are going to do is to improve their condition and then reach the higher form of collective ownership and collective life - cooperatives, voluntarily cooperatives and collective forms. That is the long revolution. To talk in terms of multitude, the multitudes too have to do class struggle. Capitalism would not give up its power easily when the multitude struggles. I believe that capitalism is subject to certain spontaneous tendencies. Those tendencies would continue to exist as long as the capitalism exists.

If the will of the multitude (let's proceed with the phrase multitude) is to prevail, then you have to overcome capitalism. When you overcome capitalism, what do you substitute in this space? That is number one. Number two, when you overcome capitalism then they will hit back. We were talking about armed struggle earlier. In that case you would have to have some ways of fighting it: having an ideological consciousness to fight it. That ideological consciousness does not reside in all petty producers. Look at the peasant society. But that people from different backgrounds come together in factories to work together gives that particular group of people, whom we call the workers, a certain potential consciousness which is higher than that of these scattered petty producers. Other groups may have some collective consciousness.

You can have the Yadavs being together. They are different from Dalits being together. But Yadavs and Dalits together in a common fight requires a mobilisation and consciousness beyond what they have historically experienced. So the point is that we may proceed with the function of multitude. Ultimately, we would have come up on the same kind of propositions which Marx made. Gyorgy Lukacs once said the characteristics of Marxism is that every supposed advance made beyond Marxism actually represents a fallback to ideas that precede Marxism. So his point is that you cannot go beyond Marxism without changing the society that produced Marxism, and when you try to do that, then you actually go back to something pre-Marxian. Capitalism has changed, capitalism has become different and Marxism is outdated. These arguments are absurd.

A number of liberal thinkers categorise Marxism as an obsolete theory. What is the relevance of Marxism in the contemporary world?

I think Marxism analyses the contemporary world in a way which nobody else did. Lenin had said the strength of Marxism lies in the fact that it is true. The point is that it is a genuine scientific discovery. By that I don't mean all had Marx written 100 years ago. This way of looking at the world is the only way of looking at this world that is correct, and that can take us forward. When we go beyond this world, Marxism may not be relevant. In fact, Mao said 1,000 years from now people may not have heard of Marx. Because once we go beyond capitalism, new problems would arise, there will be a new mode of production and laws of motion would be different. In today's world, there is no going beyond Marxism. As I quoted Gyorgy Lukacs earlier, every attempt to go beyond Marxism implies a fall back to pre-Marxism.

There are a number of debates on what constitutes the Chinese model of development. The Chinese economy has been called a model of market socialism by a number of economists. A number of liberal intellectuals attribute the economic success of China to the capitalist road it has chosen since 1978. Is China on the socialist track?

To my mind, market socialism is a contradiction in terms. In the sense that if you have a socialistic economy, the socialistic economy can use the market and should use the market. I am not in favour of its commanding economy where some ministry gives directives to enterprises on what and how much to produce. You have to use the market. There is a difference between using the market and commodity production. Let me give an example. A commodity-producing economy is actually fragmenting the different units of production. It fragments the working class. Each worker of an enterprise is engaging in producing a product that is competing with another worker, who is engaged in producing products in other enterprises. If it is the case, workers themselves get profits depending on which enterprise is successful. Then you are have a situation where workers are competing with one another. The whole point of socialism is to overcome the competition of workers against one another.

If the relationships between enterprises are mediated completely through the market, in that case, of course, it is the negation of socialism and what is more, any such economy in which you have relations being mediated entirely through the market is an economy that cannot function without unemployment, without a reserve army of labour, etc. If you have market socialism in that sense, like in a capital society, you have enterprises which are owned by capitalists and competing with each other in the market. In a socialist economy, you have enterprises, some of them are owned by capitalists, some of them are owned by the state, some of them are owned by workers' cooperatives, competing against each other. In that case, we would actually reproduce many other features of capitalism that is not socialism.

So to my mind, market socialism is a contradiction in terms. Socialism must use the market. I believe socialism must be characterised by full employment. If socialism is characterised by full employment, then the question would arise why do people work? If I can get a wage, why should I work? So when I say socialism is characterised by full employment, what I mean is everybody has either a job or even if he/she doesn't have a job, he/she gets a wage. Because it is society's job to find employment for everybody, not individual jobs. So that being the case, why would people work? People would work precisely because in a socialist economy, the motivation for work is that I must realise myself through my work, through my being member of the community to which I belong, etc. So socialism therefore may use the market. Socialism is the building of an alternative society and that alternative society cannot be built if enterprises are simply related to one another through the market. That being the case, I think market socialism is a contradiction in terms. I think Yugoslavia was a classical example of market socialism.

In China, there are different features. I think China has a significant amount of state property and the state gives directives to the enterprises. So they are not fully autonomous, in that sense, to make profits as per as market conditions. Now on the other hand, the Chinese actually opened the economy to world trade at the time when the world economy was booming. Now the boom of the world economy has come to an end and the Chinese economy itself is now facing significant setbacks. I think in these new situations, what China does would determine the direction it goes. If China revives its domestic market, it can revive its domestic market by improving the condition of workers and peasants. In that case, China would once more move in the direction of progress. But if in this situation, China does not expand its domestic market but in fact tries to stimulate some bubble, in that case China would not have brought about reduction in inequality which has gone very rapidly. I think I would say in China is really depends on the direction in which it goes. We have to wait and see. But I agree the direction it is going recently is not a socialist direction, which does not mean that China has become a capitalist country. Mao Zedong used the term capitalist road. China is taking the wrong road. It may have high rates of growth, but on the other hand, significant inequality and so on. I don't think it is the road to socialism.

Categories: Economy, Featured, Politics

Tagged as: capitalism, Demonetisation, globalisation, Goods and Services Tax, GST, Karl Marx, Left politics, Marxism, Marxist revolution, Prabhat Patnaik, Socialism

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Interview: Prabhat Patnaik on Contemporary Capitalism and the Shape It Takes in India

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In an interview with The Wire, Prabhat Patnaik, renowned economist and emeritus professor at Jawaharlal Nehru University, talks about the future of Left politics, the directions neoliberalism has taken and more. Excerpts from the interview: Eminent Marxist intellectuals like Samir Amin, John Smith and others hold the theoretical conclusion that contemporary capitalism has reached a stage of explosion.

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Conventional Trusting Wisdom says Note Recall was an exercise to root out black money, but its good intention was waylaid by poor execution that has led to large-scale distress of the kind that natural calamities usually bring. Conventional Sceptical Wisdom says Note Recall was an effort by the ruling party to take opposition parties by surprise and starve them of cash just as they were preparing for elections in five states, especially Uttar Pradesh.

Commentators on both sides agree that there has been 'poor execution' - "monumental mismanagement", as former Prime Minister Manmohan Singh put it - that has led to destruction of businesses, jobs and lives across the country, no matter what the motive or objective was.

Now the time has come to revisit this consensus because the Finance Minister, the RBI Governor and, indeed, the Prime Minister himself, are asking us to do so. This is what Finance Minister Arun Jaitley said on December 8, in response to the criticism of poor planning: "RBI has been releasing currency as per schedule. The aim of demonetisation has been to move towards digital transactions." And here is RBI Governor Urijit Patel: "The decision has not been taken in haste but after detailed deliberations... The consequences that have emanated from that were taken on board... That is why the planning, the process and implementation was what it was, keeping in mind high secrecy had to be maintained. The central bank and government were conscious of certain immediate difficulties for the public and all efforts were made to mitigate them". And here is Prime Minister Modi himself: "I always said the government's measure will bring a degree of inconvenience but this short-term pain will pave way for long-term gains."

In short, the very three people who were in charge of taking and/or implementing the decision to ban over 86 per cent of the currency in circulation overnight are telling us clearly and unambiguously that as far as availability of replacement notes is concerned, everything is going as per plan. There has been no bungling and no nasty surprises.

Could they be right?

Could it be that the government planned the entire note recall exercise as part of the move towards digital transactions, as the finance minister said? That the war is on cash itself, not just on black cash? And that the shortage of currency was deliberate and intended to forcibly evict citizens from the cash economy in order to rehabilitate them in the cashless economy? And that the destruction of lives and livelihoods were mere collateral damage in pursuit of a higher objective called the cashless economy?

At first look this seems like a narrative that only a conspiracy theorist could spin and, therefore, something that needs to be rejected outright - because, one would think, what kind of government would do such a thing to its own citizens? But when people in charge of the measure have no difficulty in stating clearly that "consequences were taken on board", that the "aim has been to move towards digital transactions," that "short-term pain will give way for long-term gains", we need to consider the possibility seriously before accepting it or rejecting it. (Former finance minister P. Chidambaram has written in his latest column that the Prime Minister was in the dark about crucial factors such as the time it would take to print replacement notes, but we need to hold judgement on this while seeing where the government's own argument leads us.)

There is one important reason why we should take the government at its word when it says that the severe currency shortage and the destruction it has caused were not unforeseen consequences, but a planned outcome. It is this: The distinct contrast between the kind of planning that went into moving the country towards digital payments and that which went into ensuring that there was sufficient currency to replace the banned notes. It looks as if, in a relative sense, the ducks were all in a row as far as digital payments were concerned, whereas they were flying helter-skelter as far as delivering replacement notes was concerned.

Let us take the case of digital payments first. Within hours after the November 8 announcement of the Prime Minister, digital payments player PayTM was ready with front-page newspaper advertisements selling its wares and lauding the move. And PayTM is not alone. It took no more than a few weeks for the new-born payment banks of Reliance Industries and Airtel to announce plans to create merchant networks of their own and carve out their share of the digital payments market which is estimated to reach an annual size of roughly Rs 35 lakh crore ($ 500 billion) by 2020 in terms of volume of transactions and about Rs 35,000 crore a year ($5 billion annually) in terms of revenue, calculated at 1% of all transactions made digitally. (This estimate was made by global consultancy firm BCG well before the note recall decision and it is an interesting question whether it should be revised now, considering that even the most ardent well-wisher of payments banks could not have wished for a more forceful product launch than what happened on November 8.)

Real action started over a year ago, in August last year, when 11 new payments banks got their licences. Three returned their licences, but the rest, including Aditya Birla Nuvo and Vodafone MPesa, are still in the fray. A few months after the payments bank licences were given out, in February this year, the Prime Minister chaired a Cabinet meeting that decided to promote 'payments through cards and digital means ', 'discourage transactions in cash', and 'shift the payments ecosystem from cash-dominated to non-cash/less cash payments'. The Cabinet decision was followed by the establishment of a task force in April this year, which was asked to recommend short-term measures to promote payments through cards and digital means. In the following month's Mann Ki Baat address, the Prime Minister even made a call for a move towards a cashless economy - as the 'whole world' is doing. The task force made its recommendations within three months, in July this year. The very next month, August, saw the creation of the Committee on Digital Payments headed by former Finance Secretary Ratan P. Watal which submitted its report in triple-quick time this month, on December 9. And within a fortnight, many of its recommendations have already been acted upon - including a lottery scheme (which takes inspiration from a Mexican lottery-cum- game show called El Boletazo), removing customs duty on POS machines that merchants need to swipe cards, and waiver of the convenience fee charged on digital payments by government departments. Look at the speed and efficiency with which the government has been moving on this front.

Now look at the other front which deals with replacement of notes, and what do we see? It is difficult to think of any initiative by any government at any point of time in recent history that was more botched-up. New notes in new sizes that require cumbersome recalibrations of 2.2 lakh ATMs across the country. Rs 2000 notes that are difficult to use because of scarcity of change of smaller denominations. Rules and notifications that change too often, leading to violation of the basic norms of trust between the government and citizens. Large-scale leakages in the printing-and-distribution chain with shady operators managing to get their hands on new currency notes worth crores while ordinary citizens line up, often fruitlessly, for the prescribed ration of a few notes of Rs 2000.

How can one reconcile this lack of preparation on the one side with the steady and speedy measures on the other, unless one surmises that they are two sides of the same coin - that the push for a cashless future required a severe shortage of cash for the common citizens who would then be left with no option but to somehow scramble to start making digital payments?

Which brings up the question: Why is the government so keen on pushing everyone into the cashless or, more accurately, less-cash economy? The government has consistently argued that the main purpose of the exercise is to fight corruption. But this is, at best, a half-truth, because a lot of high-level corruption doesn't involve cash. Take for instance, the much-written-about Aircel-Maxis case. The alleged quid-pro-quo happened through investment in a company owned by the family of a minister. No suitcases filled with cash, just cheques or wire transfer. Or take the case of AgustaWestland which is hogging headlines now. The bulk of the alleged bribes again were not paid through cash - but rather, through bank transfers to accounts and companies in India and abroad. To take yet another example, one of the most storied corporate chieftains in India built his empire by gifting shares of his company to decision-makers, thus aligning their interests with his.

So the idea that high-level corruption is synonymous with bundles of cash is a Bollywood fable, not reality. It can be said with confidence that even if cash is eliminated entirely, it will not put more than a minor dent on high-level corruption. No corporate crook is ever likely to to say: "Oh my goodness, I don't know how I'm going to pay this minister/bureaucrat now that there's no cash; I had better become honest!" From stocks to jobs to consultancy gigs, there is no shortage of devices to meet the pecuniary needs of the decision-makers.

Global data also supports the conclusion that there is no obvious correlation between cash in circulation (as a percentage of GDP) and corruption. Japan, which has a cash-to-GDP ratio of about 19 per cent is ranked as the 18th least corrupt nation in the world (according to Transparency International), while India with a much lower cash-to-GDP ratio of around 12 per cent ranks 76th! On the other hand, Brazil with a cash-to-GDP ratio that is less than a third of India's ranks the same as India, at 76th! The attempt to link a less-cash economy to a less corrupt economy simply doesn't wash.

Moreover, any attempt at fighting corruption that doesn't START with bringing transparency to political party funding is empty of any meaning whatsoever. Every study has singled out political party funding as the fountainhead of corruption and for good reason: In a democratic system of government, the final responsibility always rests at the desk of one politician or another, and if they are indebted to shady donors who helped elect them, they are in no position to eliminate corruption. That the NDA Government has made no move at all to make political party funding transparent is robust proof that annihilating corruption per se is not a serious or immediate objective.

What could be the objective then- Higher government revenue? A move to digital payments would, indeed, make transactions more transparent and trackable by the taxman and to that extent, tax evasion more difficult. (It is important to keep the distinction between corruption and tax-evasion, though. In the popular mind, these two are synonymous, but as we have seen, they NEED NOT BE. There can be mammoth corruption that involves no tax evasion, and there can be plain vanilla tax evasion that involves no other corrupt deed than the evasion itself.)

The question then becomes, was the Note Recall and the mayhem it is causing worth the trouble, for the possibility of higher government revenue? The answer is NO, for two reasons. One, digital payments have been on a rising graph even without any help from the government. Remember that the Rs 35 lakh crore projected volume of digital payments in 2020, up from about a tenth of that today, was made without knowing that there would be a Note Recall. Bear in mind also that Paytm, the leading player in the digital payments business, was valued at $5 billion (about Rs 35,000 crore) in August this year, much before Note Recall was announced - a five-fold jump in valuation in just 18 months from its earlier valuation, according to newspaper reports.

Two, transparency in transaction chains was, in any case, set to become the norm as plans to roll out the Goods and Services Tax (GST) next year were already in the pipeline. That is because once GST is rolled out, it becomes necessary for every participant in the production-delivery-retail chain to declare the true value of what he bought in order to get input tax credits, thus making it difficult for any single participant in the chain to evade taxes. So one way or another, even without the Note Recall, transparency in transactions was set to improve dramatically, thus making tax evasion far more difficult than earlier. In fact, to the extent that Note Recall delays the GST rollout - as it seems to be doing - it may have a negative impact on transaction transparency as well.

To sum up, here is what we have found so far: The government insists that everything is going according to plan, that there has been no bungling and no surprise, and that the objective is to move towards a less-cash economy. The reason for this shift, it says, is to fight corruption but we have seen that a less-cash economy is neither a sufficient nor a necessary condition for a corruption-free economy. The government also suggests that it wants a less-cash economy to increase transparency and reduce tax evasion, but we have seen that these were happening anyway and would have deepened as GST kicked in and digital payments grew in step with economic progress. In fact, judged on its professed objectives, the parallels between Notebandi and Nasbandi are indeed striking. Nasbandi tried to control population growth with forced sterilisation and failed, but population growth slowed down considerably anyway, as incomes, education and standards of living improved. Notebandi is trying to control cash usage with force, while we know it is already declining as incomes grow and technology spreads.

So now, we are then left in a quandary: What really explains the demonetisation decision and the way it was implemented? The best way to try and answer this may lie in teasing out three different threads of discussion within the government - the digital payments thread, the note-recall thread, and the state elections thread - and understanding how they may have interacted.

Thread one - digital payments - began before the NDA government came into power. In fact, one could trace its beginning to the meticulous and remarkable report of the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, headed by Dr. Nachiket More, Central Board member of the Reserve Bank of India. The Committee was set up on September 23, 2013 and it submitted its final report on December 31, 2013. Among other things, it recommended the setting up of payments banks whose primary purpose would be to provide payment services and deposit options to small businesses and low- income households. By August 2015, this recommendation had been turned into reality, and the RBI gave payments bank licences to 11 entities, including Paytm (already functioning as an e-wallet player), Reliance Industries, Airtel Money, Aditya Birla Nuvo and Vodafone MPesa. Do keep in mind that under the terms of the Nachiket More Committee, the stated reason for the payment banks' existence was financial inclusion using technology, not moving towards a less-cash economy or increasing government revenue. In fact, the report doesn't even mention the phrases tax evasion or tax revenue.

It is this thread of financial inclusion - set going by the UPA government - that we see continuing through the first two years of the NDA government as well, through such efforts as Jan Dhan. For example, the Nachiket More Committee recommended that every resident receive a Universal Electronic Bank Account at the time of registering for an Aadhar card; that RBI prohibit banks from refusing to open an account; and that Aadhar be made the universal basis for authentication. A big change happened in April this year, when the Union Cabinet specifically decided to discourage payments in cash, shift the payment ecosystem from cash- dominated to non-cash/less cash payments and thus help reduce tax- avoidance. By now, the focus of the efforts had shifted from financial inclusion per se to discouraging cash as a way to reduce tax evasion. As we have seen earlier, this Cabinet meeting was followed by one committee after another, to take these ideas forward. Do note, however, that note recall or demonetisation is not part of the discussions on this thread.

Now we come to the second thread - that of demonetisation, or the scrapping of high-value notes. This is an idea that has been rolling around within BJP circles for long, with enthusiastic proponents such as Baba Ramdev, Subramanian Swamy and Anil Bokil of the Pune-based Arthakranti Prathisthan. Sometime in July/August this year, this thread became entangled with the earlier thread on digital payments/financial inclusion, with Anil Bokil claiming to have had a two-hour meeting with the Prime Minister in July. A month earlier, in June, former RBI Governor Raghuram Rajan, who had indicated his opposition to demonetisation, had already announced that he would be leaving his post, after coming under attack from various ruling party quarters and the search for a new Governor had already begun. The new Governor finally came on board on September 6, 2016.

And lastly we come to the third and equally important thread - the five Assembly elections, especially that of Uttar Pradesh, scheduled to be held sometime before March 2017, when the term of the UP Assembly ends. It would have been fair for anyone to have assumed that elections would have to take place between February and March 2017 at the latest, as was confirmed by the Election Commission later. On August 22, 2016, around the time when demonetisation ideas were getting a serious hearing in the government, Finance Minister Arun Jaitley announced that the Union budget presentation would be advanced by a month to January-end, from February-end as used to be the practice earlier. If there were to be major announcements or give-aways in the budget, there would have been no better time for them than that.

In what precise manner these three threads came together, only the Prime Minister, the Finance Minister and the RBI Governor can say. From the outside, one can only wonder whether the oddball idea of demonetisation had not combined with the sensible idea of financial inclusion and digital payments and the opportunistic idea of wrong- footing political opponents in the state elections to produce the economic explosion we heard on November 8, the reverberations of which will continue for a long time.

Postscript: Yet another oddball idea has been making the rounds: Doing away with Income-Tax altogether and introducing a 2% tax on all banking transactions instead. It has the same set of proponents behind it.

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The real reasons for demonetisation might be hiding in plain sight

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Conventional Trusting Wisdom says Note Recall was an exercise to root out black money, but its good intention was waylaid by poor execution that has led to large-scale distress of the kind that natural calamities usually bring.

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" They no longer use bullets and ropes. They use the World Bank and the IMF "
-Jesse Jackson

Given the frenzied pace of change in the modern world, 70 years is a very long time in the life of an independent nation. It should have been more than enough time to banish poverty from a country even as large as India, given the enormous economic growth that has happened. Several countries have done just that. However, the truth is that today, in 2017, the number of the officially poor, a severely conservative estimate in itself, is still much greater than the entire population of undivided India at the time of independence in 1947.

This extraordinary public failure is not coincidental. Economic development was supposed to have tackled the challenge of poverty. Why has this not happened? Could it be that we have been nationally deceived about the nature and character of development? Was it always perhaps a form of disguised warfare, rather than the 'freedom' some eminent economists have claimed for it, a fact now ever more apparent every month, every week, with what is euphemistically described as 'displacement', and by the systemic ecological plunder of the Subcontinent, all on account precisely of the process of development which our 'Vikas Purush' Prime Minister now preaches as a national religion?

Development was, from the start, a colonial idea. To grasp this hitherto hidden reality, it is worth going back to the 1940s, when the idea of development was first crafted by a rising imperial power, but also because it was in the 1940s that its primary contender Gandhi's idea of Swaraj was summarily dismissed by the country's first Prime Minister.

It is well-known that Jawaharlal Nehru diverged significantly from the Mahatma when it came to the question of how Independent India was to give shape to its destiny. As a committed moderniser, Nehru rejected outright Gandhi's idea of Swaraj even before Independence. What is less known is that Gandhi wished to make their differences public, since to him they were significant.

In a letter to Nehru on October 5th, 1945, Gandhi wrote: 'I want to write about... the difference in outlook between us. If the difference is fundamental then I feel the public should also be made aware of it. It would be detrimental to our work for Swaraj to keep them in the dark. I have said that I still stand by the system of Government envisaged in Hind Swaraj. These are not mere words. All the experience gained by me since 1908 when I wrote the booklet has confirmed the truth of my belief.'

In a statement that continues to prove eerily prophetic about life in metropolitan India in recent times, Gandhi further elaborated the substance of his vision in the following words: 'I am convinced that if India is to attain true freedom and through India the world also, then sooner or later the fact must be recognized that people will have to live in villages, not in towns, in huts not in palaces. Crores of people will never be able to live at peace with one another in towns and palaces. They will then have no recourse but to resort to both violence and untruth. I hold that without truth and non-violence there can be nothing but destruction for humanity.'

Writing in the wake of World War II, Gandhi felt that the world as a whole was 'going the wrong way', worrying, again ominously, that 'it may be that India too will go that way and like the proverbial moth burn itself eventually in the flame round which it dances more and more furiously.'

Expressing his disagreement with his supposed mentor sharply, Nehru criticised rural life in no uncertain terms: 'A village, normally speaking, is backward intellectually and culturally and no progress can be made from a backward environment. Narrow-minded people are much more likely to be untruthful and violent.' Nehru's statement appears to suggest that villages (and thus villagers) have some sort of a monopoly over dishonesty, violence and cultural backwardness; that cities are uniquely free of such ailments.

Nehru felt that India had to urbanise and industrialise and expressed a degree of urgency with respect to the need to achieve 'sufficiency of food, clothing, housing, education, sanitation...for everyone.' 'It is with these objectives in view,' he said, 'that we must find out specifically how to attain them speedily.' He also felt it 'inevitable that modern means of transport as well as many other modern developments must continue and be developed. There is no way out of it except to have them. If that is so inevitably a measure of heavy industry exists.' Nehru wondered 'how far that will fit in with a purely village society'. He hoped that 'heavy or light industries' would 'be decentralized as far as possible'. But at the same time he justly feared that 'if two types of economy exist in the country there should be either conflict between the two or one will overwhelm the other.'

As a modern socialist-though sounding virtually as a gentle, euphemistic forerunner to a builder's billboard from an airport expressway to 21st century India-Nehru wanted a tempered urbanisation: 'There is no question of palaces for millions of people. But there seems to be no reason why millions should not have comfortable up-to-date homes where they can lead a cultured existence.' Recognising mildly some of the morally serious problems that inevitably grow with urbanisation, which Gandhi was trying to draw his attention to, he did concede his point in a limited way: 'Many of the present overgrown cities have developed evils which are deplorable. Probably we have to discourage this overgrowth and at the same time encourage the village to approximate more to the culture of the town.' Like Ambedkar, and unlike both Gandhi and Tagore (albeit in different ways), Nehru had unlimited faith in cities and no confidence in villages or villagers whatsoever. It seemed to matter little to him that more than four out of five Indians were living in villages at the time of independence. The same people who were not to be trusted as villagers somehow won his confidence as city-dwellers.

Nehru explicitly rejected Gandhi's vision as expressed in Hind Swaraj: 'It is many years ago since I read Hind Swaraj and I have only a vague picture in my mind. But even when I read it 20 or more years ago it seemed to me completely unreal.' Despite Gandhi's own statement to the contrary, Nehru felt that the former's own writings and speeches since the time that Hind Swaraj was published were 'an advance on that old position and an appreciation of modern trends'. He was 'therefore surprised' when Gandhi wrote to him saying how little his views had changed since the book was first written. He said that Gandhi's 'old picture' was never considered seriously by the Congress and nor had Gandhi asked it to 'adopt it except for certain relatively minor aspects'.

As a committed moderniser, Nehru rejected outright Gandhi's idea of Swaraj even before Independence. What is less known is that Gandhi wished to make their differences public, since to him they were significant

Nehru, while admitting that the approaches in question embodied widely divergent world-views, goes on to say in his letter that it was important to avoid any possible confusion in the top leadership which could potentially inhibit action: 'How far it is desirable for the Congress to consider these fundamental questions, involving varying philosophies of life, it is for you to judge. I should imagine that a body like the Congress should not lose itself in arguments over such matters which can only produce great confusion in people's minds resulting in inability to act in the present. This may also result in creating barriers between the Congress and others in the country.'

Nehru thus inadvertently expressed his preference for collective clarity over sustainable justice, never suspecting that the path (India's no less than the world's) could be altogether wrong. More justly stated- with sustainability never a thought in Nehru's mind, nor modernity a matter of moral doubt, despite its obvious inevitable concomitants of conquest and imperialism-he thought that what he was expressing and wished for, combined uniquely justice with clarity. He feared that the path the Mahatma was suggesting, on the other hand, would hurl India, against the momentum of modern history, to the same backwardness from the dark ages that he and his fellow-freedom fighters had fought so hard to dispel and banish to forgotten places under the debris of the past.

Nehru thought that Gandhi's ideas about Swaraj were anachronistically dated: 'I have a feeling that most of these questions are thought of and discussed in terms of long ago, ignoring the vast changes that have taken place all over the world during the last generation or more. It is 38 years since Hind Swaraj was written.' However, while claiming that 'the world has completely changed since then', Nehru, having lived through two barbaric world wars, also admitted that it had done so 'possibly in a wrong direction'. 'You are right in saying that the world, or a large part of it, appears to be bent on committing suicide. That may be an inevitable development of an evil seed in civilization that has grown. I think it is so. How to get rid of this evil, and yet how to keep the good in the present as in the past is our problem. Obviously there is good too in the present.'

In retrospect, Nehru's grand illusion was to imagine that the 'good' in the modern world could be somehow magically preserved while allowing the 'evil seed' (gluttony of power?) to flourish into a ravishing rainforest of destructive avarice, an inevitability our times on the 21st century globe are having to face, as barbarism knocks on every door. Gandhi's fears are globally vindicated today.

In his letter to Gandhi, Nehru had loftily written that the course that India ultimately ought to take 'will have to be decided by representatives of free India'. However, in actual fact, he and his fellow Congressmen paid but lip-service to the promise of a participatory democracy. There never took place any serious, open debate on the shape that India's economic future was to take. The idea of ' Hind Swaraj' was buried with Gandhi's ashes. We would have been living well today had ' prakritik swaraj ' (natural self-rule), instead of development, been our living national philosophy. Alas, it was not to be.

UNDER THE FIRST PRIME Minister's hopeful leadership, India embraced the development doctrine. Nehru's default development strategy after independence had the open support of his fellow party-men, communists and industrialists alike, as the consensus for a 'mixed economy', whose 'commanding heights' would be in the public sector, took shape-the opinion of ordinary people on the ground, peasants and workers, Adivasis and fisherfolk, children, housewives and village elders of no consequence whatsoever. At no stage did the leaders of Independent India deem it fit for the public to openly discuss and debate the question of Swaraj which Gandhi or Rabindranath Tagore (whose real-life experiment with Swaraj in Sriniketan only a few know about) would have counselled. India was to blindly follow the modern Western (and Westernising) world on the hasty, seductive path towards the ecological abyss into which 21st century global humanity now stares with the restless eyes of an anxious adolescent, a predicament of which both prophets had issued adequate warnings three to four generations ago.

As an idea, 'development' originated on the home grounds of the new inheritors of Western, Anglo-Saxon imperialism, the United States. That the idea of development took birth not in the hearts and souls of our freedom-fighters but in Washington DC and Bretton-Woods, New Hampshire, even before India's independence in 1947, is not something readily acknowledged (thanks perhaps to national vanity) among most intellectuals and scholars. Our ruling and policy-elites-in India and abroad-still do like (and need) to purvey the illusion of national sovereignty even as the evidence against it, in this so-called 'global' age, mounts by the day.

That 'development' was an idea 'whose time had come', an idea that the new rulers of the world, after the Allied victory in World War II, found handy to re-draw and extend the boundaries of their new global empire across the whole wide earth, that it was (along with 'democracy' and 'human rights') the newer, upgraded version of 'the White Man's Burden' and the 'Christian Mission' (both having run their course), entitling them to rule the world in the latter's own interest (thus saving them and themselves from the fear of communism), is acknowledged even less. It would perilously expose our shared national hypocrisies to admit all this. So we still need the smiling Mahatma on our new (post- demonetisation) Rs 2,000 currency notes to hide our lies and sins.

The most stark evidence that our freedom- fighters under Gandhi's leadership did not think about our people's challenges and problems primarily in terms of the American notion of 'development' is to be found by the virtual absence of the word from India's 1949 Constitution. On a quick online word search through the document framed by Ambedkar, the word 'development' showed only a handful of references to the concept, mostly in connection with 'economic development and social justice' in urban municipalities, village panchayats and 'Scheduled Areas', inhabited by 'Scheduled Tribes'. A word which has become so loud in the political rhetoric of recent India barely makes an appearance in the index to the Constitution. (There is a single entry for 'Development Boards').

What is more important than the above is the timing of the entry of the word 'development' in global public discourse. While the word itself had been in usage in a variety of scientific and other specialised contexts for a long time, it made its first big appearance in the discourse of global public policy at the all-important conference at Bretton-Woods, New Hampshire, in July 1944. It was in these beautiful mountains of the US north-east that the present-day world economy was first crafted towards the end of World War II, initiating the global era which came into its own only after official communism had withdrawn from the Cold War by 1990.

Nehru's default development strategy had the open support of his fellow partymen, as the consensus for a 'mixed economy', whose 'commanding heights' would be in the public sector, took shape

At Bretton-Woods powerful leaders in the Western world met-in the absence of any leader from the still colonised world. They laid out the architecture and road-map for the entire system for international trade and monetary payments after the end of the War. This was the occasion when the two most powerful institutions (some refer to them as 'the shadow state') that continue to shape the global economy to this day were created. The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), later to become the World Bank, were conceived and formed by Western leaders. Europe was to be 'reconstructed' and the poor world, about to be decolonised from European influence by freedom struggles, under the benign eye of American liberators, was to be 'developed'. This was the plan that the Americans, led by Harry Dexter White, succeeded in pushing through, overriding significant objections from no less an Englishman than last century's greatest economist John Maynard Keynes.

The latter commitment to the development of what one influential Western premier later came to describe as 'the Third World' (after the 'Second', communist one), found its formal American statement in President Harry Truman's Second Inaugural Address when he once again became President of the US in January 1949. The precise date is important, since India's Constitution was passed ten months thenceforth.

The first significant thing to notice about Truman's Address is the appearance of a new word, 'underdeveloped', applied to decolonising countries struggling with long-standing poverty, in good measure on account of the European colonial impact (India's literacy rate in 1947, for all the tom- toming these days about Thomas Macaulay's heroic efforts at educating Indian people, especially lower castes, was a measly 12 per cent, an order of magnitude lower than what it was 150 years prior to that, as Gandhi had noted in London in 1931). Here is what Truman precisely said: "We must embark on a bold new programme for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas." Suddenly, hundreds of millions around the world, having just woken up from the European nightmare of centuries of conquest, pillage, genocide, slavery, exploitation and colonialism, discovered that they were all variously underdeveloped.

It is noteworthy that we hardly hear from Western leaders of poverty and underdevelopment in the decades preceding World War II. Even when the IBRD was set up in 1944, poverty was not a big stated concern. Other goals were more important- and dare one claim, continue to be in the 21st century. A good statement of the founding goals of the World Bank can be found in Article 1 of its statutes, a document adopted at the 1944 Bretton-Woods conference. The institution, which claims to work, since Robert McNamara's 'end poverty' decade of the 1970s, for 'a world without poverty' (if you visit its website), failed to mention even the 'basic needs' of people (a term which became popular with UN later) or the need to end mass poverty across large areas of the hitherto colonised world. Instead its aims, according to the document, was to 'promote private foreign investment' the 'growth of international trade' and various related goals.

This was of course in line with the official goals of the American government. In his 1949 Address, Truman duly claimed that "the old imperialism-exploitation for foreign profit-has no place in our plans. What we envisage is a programme of development based on the concept of democratic fair dealing." However, in the same speech, and virtually in the same breath, he spoke of "guarantees to the investor" (something the global age is now fully familiar with), which of course "must be balanced by guarantees in the interest of the people", as though there could never possibly be a trade-off between these two stated goals.

Virtually taking a leaf out of Nehru's 1945 letter to Gandhi, Truman said "our aim should be to help the free peoples of the world, through their own efforts, to produce more food, more clothing, more materials for housing, and more mechanical power to lighten their burdens." Clearly, despite the fact that Nehru adapted a Soviet-style model of economic planning to achieve the same goal, his vision had more in common with Truman's, than with Gandhi's. Not that Gandhi glorified poverty-far from it. However, like Tagore, he did not interpret and diagnose material challenges in purely material terms, which is why Swaraj was so important to him.

Once the World Bank became influential, 'development' arrived in the economics profession too, as a new field. Funds were allocated to expand economics departments in American and British universities to include development studies, seminars and conferences were organised, books and papers were published. In subsequent decades, Nobel Prizes were also awarded (to Gunnar Myrdal, Arthur Lewis and Theodore Schultz, and much later to Amartya Sen and Joseph Stiglitz too).

Powerful Western elites had succeeded in forging a set of institutional and intellectual arrangements with which continued economic domination of the rest of the planet could be ensured. A new kind of 'empire', in which 'development' was promised to the recently decolonised poor countries, had come into being to take the place of declining European powers. Such a trend had long been foreseen decades earlier by men who had fought for India's freedom from Britain. Ironically, none other than Jawaharlal himself had written eloquently to his daughter from Ahmednagar jail in 1934:

'Most of us think of empires... like the British in India, and we imagine that if the British were not in actual political control of India, India would be free. But this type of empire is already passing away, and giving way to a more advanced and perfected type. This latest kind of empire does not annex even the land; it only annexes the wealth or the wealth-producing elements in the country. By doing so it can exploit the country fully to its own advantage and can largely control it, and at the same time has to shoulder no responsibility for governing and repressing that country. In effect both the land and the people living there are dominated and largely controlled with the least amount of trouble... It is quite possible that Britain's visible hold over India might go before long, and yet the economic control might remain as an invisible empire. If that happens, it means that the exploitation of India...continues... Economic imperialism is the least troublesome form of domination for the dominating power. It does not give rise to so much resentment as political domination because many people do not notice it.'

If this sounds familiar to readers today, it is because of the fact that we all now live our times in the digital shadow of the globally networked cloud elites-mostly anchored in the Western world, though new centres of metropolitan power have developed elsewhere too.

IN HIS LAST years, there were some signs that Nehru regretted the grand idea of development, and perhaps secretly longed for the Mahatma's foresight. Here is what he told a bunch of irrigation engineers in 1958: "For some time past, however, I have been beginning to think that we are suffering from what we may call, 'disease of gigantism'. We want to show that we can build big dams and do big things... the idea of having big undertakings and doing big tasks for the sake of showing that we can do big things is not a good outlook at all...We have to realise that we can also meet our problems much more rapidly and efficiently by taking up a large number of small schemes, especially when the time involved in a small scheme is much less and the results obtained are rapid. Further, in those small schemes you can get a good deal of what is called public co-operation, and therefore, there is that social value in associating people with such small schemes."

This was long before vast shopping malls, expressways and airports came to dominate India's visual metropolitan landscape. But Nehru was already too late in 1958. His own words and actions of the previous decade-and-a-half had already set the powerful initial conditions which continue to shape India's cultural, political and economic destiny in profound respects. For the nation's first Prime Minister's failure to see that development was the latest well-masked imperial idea, millions-from hundreds of thousands of farmers who have committed suicide to tens of millions whose lives, livelihoods and cultures have been eviscerated and uprooted to make room for 'development' projects in the 'national interest' -have been paying the price for seven decades.

Those who have ruled the world for centuries never gave up their lust for conquest. They only changed the global ruling lie when Europe made imperial way for the American way of life, now a terminal ecological cancer hung around the planet's neck like a fatal garland. 'Development' was always their idea for us, but an idea seductive enough to lure us into a false feeling of sovereignty. Their plans for us are always crafted with due respect to our intelligence and vanity.

Now, seven decades on, and three decades after the demise of communism and the Cold War, India and the world are ruled by a globally networked corpocracy which says in every other commercial that it wants everyone to help it 'build a smarter planet', as if it is the planet that was always stupid.

Sadly, thanks to digital hubris, our children and our grandchildren are about to find the grim truth about modern human existence, as growing ecological chaos and climate change overrun a digitally civilised modernity after the famed 'conquest of nature'.

After searching for 'development' in our Constitution, I hesitantly looked for 'swaraj'. Guess how many results I found? Zero.

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" They no longer use bullets and ropes. They use the World Bank and the IMF " -Jesse Jackson Given the frenzied pace of change in the modern world, 70 years is a very long time in the life of an independent nation.

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After the government had surprised the country by banning Rs 500 and Rs 1,000 currency notes in November 2016, it was not just industry that was crippled temporarily, but the common man too. Scroll.in extensively covered the impact demonetisation had had on the public, from those in Tamil Nadu to Kashmir.

Here are some of the pieces that examined how daily life was affected by demonetisation:

Chaos on the streets as Indians struggle to break Rs 500 notes: The poor were hit the hardest the day after India's two biggest currency denominations were demonetised to fight black money.

Low-income patients are hobbled by the currency-note ban: Demonetisation or not, doctors had no business denying emergency healthcare services.

For bank employees, it's been 12-hour days filled with frustrated customers: Arguments are breaking out as some customers want only small denominations, and the well-off are demanding priority over the poor.

What of the women who hide cash to feed their children or to escape abuse?: A large section of women in India are out of the banking system, and the currency withdrawal has hit them hard.

A morning spent in a queue to withdraw cash is a day without earning a wage, say factory workers: Several workers in Delhi got their wages for October and November in old currency notes while others got cheques. Now, the challenge for both is withdrawal.

Nagaland struggles with demonetisation: Kashmir's frequent internet bans prompt shops to still accept demonetised currency.

Indians travelling abroad face demonetisation wall: Debit card use overseas seems to have cap too: The RBI's cap on card withdrawals seems to apply even to currencies that have not been demonetised.

Nobody has any cash in this village in Maharashtra: The government's demonestisation has devastated farmers, landless labourers, pensioners, petty traders and many others across Maharashtra.

Farmers suffer as cooperative banks barred from exchanging, depositing old currency: Insiders said the RBI's move could be because of incomplete Know Your Customer forms and money laundering allegations.

How four families have survived two weeks of demonetisation: There has been a dip in both incomes and spending.

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Reading list: How the common man had to cope with demonetisation

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After the government had surprised the country by banning Rs 500 and Rs 1,000 currency notes in November 2016, it was not just industry that was crippled temporarily, but the common man too. Scroll.in extensively covered the impact demonetisation had had on the public, from those in Tamil Nadu to Kashmir.

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Around the world, several countries are currently undergoing demonetization, or currency reforms in which the government removes banknotes of a certain denomination from circulation and replaces them with new notes. Governments pursue demonetization for a variety of reasons, but some efforts go better than others.

Featured

Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton's Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

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Demonetization on Five Continents by Jeffrey Frankel - Project Syndicate

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Around the world, several countries are currently undergoing demonetization, or currency reforms in which the government removes banknotes of a certain denomination from circulation and replaces them with new notes. Governments pursue demonetization for a variety of reasons, but some efforts go better than others.