Rajiv Bajaj Wades Into DeMo Debate But It Does Not Necessarily Do Him Credit

In an arena where angels fear to tread – the arena of politics where businessmen avoid open critiques of government – Rajiv Bajaj comes across as a refreshing change. Like his dad Rahul Bajaj, he speaks his mind, even if what he says may be disliked by the powers-that-be, and even at the risk of saying or doing something less than palatable.

Just when you thought the heated debate over demonetisation (DeMo) had cooled down, the managing director of Bajaj Auto threw a lighted match stick on it, claiming that the idea of DeMo itself was wrong, not just the implementation. The Times of India quoted him as saying: “If the solution or the idea is right, it will go like a hot knife through butter… if the idea is not working, for example demonetisation, don’t blame execution. I think your idea itself is wrong.”

Thus far, from foreign critics to domestic, the criticism of DeMo has usually been about its botched implementation, not the idea itself. Some critics have said that the cash part of the black economy was very small and hardly merited the use of a blunt instrument like DeMo. But while we should give full marks to Rajiv Bajaj for questioning the idea itself, we should also not give him a free pass and assume that his argument holds water. Not that he has given a clear argument to back his bold statement.

Logically, there can be three kinds of valid criticisms against the idea of DeMo. One is that efforts should focus on prevention of the generation of black money, rather than try to attack the existing stock of it, since this can be economically disruptive. Two, real black money is in gold and real estate, so the wrong end of the problem was attacked. A third reason could be that DeMo will achieve nothing, which is what Rajiv Bajaj seemed to hint at when he noted that if a solution is right, it will overcome problems of implementation on its own.

One can easily agree that DeMo is not a complete solution to the problem of attacking the existing stock of black money or preventing its future flows, but it is quite another thing to suggest that it is not a useful instrument at all. If the government thought it will bring out all the black money in one stroke, it was wrong. But even assuming this was the belief, it does not follow that DeMo was a failure. A good general changes battle plans when his initial strategy, worked out at GHQ, has not panned out as imagined. The Narendra Modi government, when it saw how people were trying to use chinks in the system to launder money post-8 November, not only changed the goalposts (a less cash economy, expansion of the tax base), but also made frequent changes in cash deposit rules to checkmate the crooks. Far from criticising the government for its frequent rule changes, one could (arguably) praise its nimbleness on this front. So Rajiv Bajaj is not on solid ground on this argument.

The other argument, that the wrong end of the problem was attacked first, is also questionable. Any general knows that you don’t attack the strongest part of the enemy’s fortress first. Chandragupta Maurya was said to have faced initial setbacks when he tried to attack his enemy where he was strong, but once he shifted to the periphery, where defences were weak, he started achieving greater success. DeMo attacked the weakest part of the black economy, and, if one assumes that all other forms of black wealth accumulation also use cash as lubricant, DeMo could well be seen as the equivalent of throwing sand in the works.

The last argument, that one should not attack stock but future flows, is largely a matter of opinion. The right answer is that one must do both – prevent future black money flows, and dent the stockpile of existing black wealth. DeMo dealt partially with the latter, but no one – including this government – is claiming that it is the end of the story. The fact that the budget also took tentative steps to tackle political funding and that benami properties are now under scrutiny shows that DeMo is not going to be the Modi government’s panacea for tackling black money. It is one arrow in the quiver.

To my mind, the single biggest reason to support DeMo is that it jolted the system. It disrupted some ways of thinking about black money. In future, no black money generator can be sure that he can take unlimited risks with cash, and notice has been served that other forms of black money will also be targeted. With the goods and services tax (GST) now the next disruptive idea on the table, avenues for generating incomes that can be kept out of sight of the taxman are slowly being closed.

Rajiv Bajaj is wrong. The DeMo idea may be disruptive, but it is broadly in the right direction as long as it is not thought to be the end of the process of shrinking the black money economy.

He can look at his own choices to understand this point. He backed Arvind Kejriwal when businessmen were shocked over his intemperate utterances. One does not know if Rajiv Bajaj still backs Kejriwal, but the idea of Kejriwal – that corruption cannot have any place in society – is right. It is an idea that Modi shares in some way.

On the corporate side, Rajiv Bajaj abandoned his company’s best-known product – scooters – and decided his would be a mobike company. As an idea, this positioning was right. But he could also ponder over whether he missed some bets: Bajaj Auto handed over the scooters business on a platter to Honda.

Sometimes, even the right ideas don’t pan out as planned. The right thing to do is to make course corrections as and when necessary.