Is India’s Public Discourse Ill-Equipped To Analyse A Reform Like Demonetisation? 

That is not true. A casual conversation with any former central banker in India would tell you that this idea has been in the works for a long time and had been suggested by many. Why, even in the Western context, earlier in the year, Peter Sands, former Standard Chartered Bank head, had suggested banning high denomination notes for the same reason. The article is here and his full report is here.

Artha Kranthi would do well to pause and not thump its chest too much or too loudly. This idea is not a novel one in the world. Therefore, it should not embolden them to come up with ideas such as this one. One cannot eliminate cash and then tax banking transactions. It is equivalent to an indirect tax and a consumption tax and it is regressive. It makes no sense to eliminate income tax.

Second, it would be interesting to see if their claims to parentage of the current demonetisation measure would be quickly abandoned if it results in a severe economic setback as well as an electoral setback for the ruling party. That risk is non-trivial. They should beware of the law of unintended consequences and not succumb to hubris.

In the meantime, a friend told me that this decision of the Prime Minister made him angrier than he felt during the 2008 financial crisis. That is quite something because the 2008 crisis produced private gains and public losses. This one is in an altogether different league.

But, this is indeed a war and in wars, innocents do suffer. Here, it is minimal and, more importantly, the ones who suffer appear to be prepared to accept it stoically. Even scroll.in, not very well disposed towards the government or the Prime Minister, had to admit that.

Indeed, in surveys after surveys, Indians had said that corruption was the biggest bane of the country and the intellectuals have blamed politicians for being the leading perpetrators and hence unable to or unwilling to tackle it. However, when a politician actually does something about it, the elites appear to become confused and disoriented. They flail and mumble incoherently.

In my joint report/book with Gulzar Natarajan, published recently by Carnegie India, we wrote the following about the kind of leadership that India needed (p.127):

“Leaders can break down resistance with appeasement or with empowerment, combined with accountability. Appeasement buys peace and cooperation in the short term but at the cost of potential long-term damage.

At the same time, enforcing accountability is not cost free. In the short term, adverseeconomic consequences are possible, resulting in personal unpopularity. But visionary leaders trade off short-term popularity for long-term national interest. When decisions— choices and trade-offs—are made with the consistent application of values and ethical norms, the credibility of the decisions and that of the leadership will be enhanced. The public will understand and accept decisions better. This takes time, often longer than an electoral cycle. Hence risks need to be taken. But conviction and communication could make such risk taking electorally rewarding, too.”

This decision of the Prime Minister ticks the above boxes very well. There has been a consistent application of norms. BJP and its supporters have not been spared. Sample this:

In his piece for the Times of India, Swapan Dasgupta reinforces her story about the Prime Minister’s personal conviction on not rewarding bad behaviour:

“In 2007, during the Gujarat assembly election, Modi had come under intense party pressure to waive the dues and the prosecution of more than one lakh farmers caught pilfering electricity through unauthorised connections. At that time Modi had privately told his colleagues that he would rather step down from leadership than agree to this short-sighted amnesty. His calculation was that the electorate will appreciate forthrightness and loftiness of purpose.

Swapan correctly praises the Prime Minister’s leadership qualities:

“What we are witnessing is the leadership of a man who looks far beyond narrow calculations and towards the rebuilding of India as a world power. His audacity is admirable, but equally praiseworthy is his vision of India’s future.”

But, most critics seem to be overweighting the economic difficulties. At one level, it is reasonable but it comes up very short on objectivity and perspectives.

By its very nature, this operation entails immediate and visible costs and the gains are both diffuse and accrue over time. Plus, direct attribution of certain economic changes that occur in future to this move may also be difficult in a rigorous academic sense. Therefore, it is far too easy to calculate the NPV of this decision right now – it is negative. But, is that the right approach?

In economics, structural reforms entail immediate pain and it shows that India has not really had structural reforms at all, since most commentators are recoiling at the signs of trouble in about ten days since the move was announced.

Our responses and reactions also throw a harsh spotlight on the extent of each of our own unpreparedness for any leadership role in public or other spaces, if we recoil from immediate costs. For many, that is worthy of quiet and long reflection.

What are the lessons that this exercise holds for GST implementation?

Where did the preparation go wrong, if it did? Could it have been done better or is this how it would be and that every alternative had their own elements of unacceptable costs?

These are all important questions but we must be patient for answer. The speed with which questions can be raised is unlikely to be matched by nature and time, in giving us responses. Our craving for instant gratification is not going to be satiated.

This exercise has plenty of scope for wonderful case studies – the decision, its implementation, project planning, state capability, public response and innovation, economic costs and impact, economic and other benefits, etc, in the years ahead.

Indeed, there should be a case study on why some commentators manage to tie themselves up in knots in evaluating public policy. Whether it is intellectual confusion arising out of not setting out their benchmarks ex-ante or is it due to cognitive dissonance arising out of the inability to accept a very brave decision from a man that they had not been able to accept as their leader?