The Government Must Assure That Demonetisation Has Been Thought Through To The End

I had economics as a subsidiary subject alongside my honours course at Delhi University, in the days when we zipped from India Gate to the Ridge in 15 minutes on Jawa motorcycles. Perhaps that is why my knowledge on economics never rose beyond the virtual kindergarten and I struggle so much to pick up snippets of wisdom in this field. That is why it took me time to understand just why the government of India decided to go in for demonetisation. Yet, even now, my discernment of the nuances of this extremely difficult issue are well below base level. What is extremely gratifying is that 99 per cent of the well-educated people I interact with are in a similar dilemma although every good Indian believes he is an expert on the subject.

Never to flinch from ideas and innovations, I came out in full support of the government's initiative and remain loyal to the idea because it's black money which is being targeted. I don't usually analyse economics or development aspects, leaving it to better brains to explain them to me. However, some things I learned from friends in the last few days are all common sense issues and worth placing in the public domain.

A person of excellent understanding of economics and administration happened to explain his view on how the excellent decision could have been handled better. I suppose it is easy to be wise after the event but this opinion did come within 24 hours. According to him, Swiss mint authorities could have been taken into confidence and one or two mints drafted at a cost. These mints could have printed the necessary notes of the required quantum in less than four to five days. Their capacity is such. Indian Air Force's C 17 Globemaster, the largest strategic lift transport aircraft in its inventory, could have been harnessed. Three or four of these, with technical and security resources, may actually have been sufficient to fly in enough newly printed currency. The challenge would then begin towards the redistribution. That is where the IAF would again be brought in to mobilise on an emergent basis to take the currency to different, identified parts of India from where the distribution process would begin.

The Indian Army, as the efficient, high integrity organisation with its nodes all over the country, would have been the right agency to be entrusted with the task of currency distribution under supervision and coordination of the Reserve Bank of India. I can see eyebrows lifting and foreheads creasing at the proposal of employing the Indian Army on another non military task. In fact this is a virtual emergency like situation and to ameliorate the negative fallout, every national resource has to be made available. The Army would have been proud to have been given this job, just like the preparation for the nuclear tests in 1974 and 1998. The Army's communication, transport and security systems are tailor made to handle emergencies and this was a challenge, which could have been met most effectively. Monitoring of ATMs and ensuring refilling could have also taken Army assistance for least hiccups.

I could not find fault with this theoretical explanation. I wonder if there will be too many people who will. Of course, it is devoid of detail but in concept, utilising the world's fastest printing facility, the nation's fastest transportation system and the most efficient utiliser of human resources, together in response to a desire by the government of India may very well have worked wonders.

The next discussion I had was with the owner of a Non Banking Financial Unit (NBFU), an honest hardworking CEO who had worked passionately to build his company from less than a crore of rupees to an over 1,000 crore rupees company. I would term it a virtual social revolution. In a nation where bank loans for land or house construction and splurging on consumer goods are reserved only for those with social standing, reliable collaterals and an approach to the right quarters, it is people like him who honestly brought the scope of small loans to the most common among people. A struggling but hardworking family could start hoping for a loan of Rs 8 or 9 lakh to buy a one-room apartment they could call their own. The loan would come their way without the rigmarole of bribing bank officials and the endless run of finding meaningless documents.

The company has its regional centres all very professionally managed and an army of salesmen whose take home resources are contingent upon their ability to sell the loans. This was apparently a system where defaults were few; with a monthly 5 per cent default in loan repayment, the company was still making excellent profits. There are quite a few such companies all over India but perhaps not as high in integrity as this one. These companies have spawned a large job market. The employees are the ones earning upwards of Rs 15,000 per month including average incentives. They are also the purchasers of motor cycles and other consumer goods, which help the economy grow.

So how is this sector affected by demonetisation ? When I spoke to the CEO on the second day after the decision, he was still a happy man because his hard work in setting up systems and repayment of all loan instalments online or through banks had created transparency and ensured full legality being followed in his company. The cleaning up of the black markets wasn't going to affect him since he did not deal in cash. Loan repayments were made by the clients paying their dues to banks who had standing instructions for transfer.

Now, here is the core problem area which has arisen unwittingly from demonetisation. It's not cash which has dried up. The problem is that the clientele to which the company subscribes is the one which could have daily wage earners and low salaried class. They aren't receiving any payments. Since many businesses, even those partially run on daily cash intake, there are closures taking place due to low availability of cash. That in turn is leading to loss of jobs, of those very people who are NBFU's clients. Suddenly the debt servicing, so to say, is becoming a problem. A jobless debtor isn't going to pay his loan; he has no way of paying it. The loan repayment default may go up to 60 to 70 per cent making business non profitable. The company may have to retrench a percentage of its strength, making loan recovery and further selling of loans to viable clients extremely difficult.

Is this just a temporary setback? I hope and let every Indian hope that it is. Because continued defaulting on loans, say for three months or more, may result in collapse of such companies, leading to mass unemployment. Suddenly 'joining dots' (my favourite term) is becoming necessary in every sphere of commercial activity leading to lowering of confidence. That can be disastrous in a nation which has ridden monetary crises of the past so well. With growth probably taking a beating for a while, the government must convince people more confidently that it has thought through to the end.

I still believe what Prime Minister Narendra Modi and Finance Minister Arun Jaitley are saying. Some top notch economists must say that with more gusto too. There aren't enough of them saying so. We Indians are immensely patient people. I still think we will ride this through the mud and blood to the green fields beyond; but my friend, the CEO of the NBFU, is my barometer and I hope all goes well for his company, his employees and his clients. All are good Indians eking an honest living. They deserve to survive this.