National Press Release – to be released across India
13 November 2016 – for immediate release
Mr Sanjay Sonawani, President of Swarna Bharat Party, India’s only liberal party, said that demonetisation can at best play a minor supportive role in the systemic reform of the governance system to attack black money and counterfeiting. Implementing demonetisation without associated system-wide reforms is at best a band aid, at worst a signal that the Modi government has no understanding of the causes of black money.
So long as an incentive to trade exists, a range of mechanisms can be used to exchange value. Black money is a trade (including corruption) that is not declared to government. If cash is made harder to use, that means other means will be used. Money is fungible. This means a wide range of assets ranging from furniture, laptops, cars, scooters cars, to gold, real estate, shell companies, Bitcoin, foreign currency and assets can be used to complete an undeclared trade.
Even if the economy becomes 100 per cent cashless, there will be no major change to black money and corruption till the underlying causes are addressed. The way to extinguish black money is to extinguish the incentives for undeclared trades. That requires a deep understanding of the governance system.
Additionally of course, a huge deadweight loss has been imposed on India by the manner in which demonetisation has been rolled out. People who wait in long lines to exchange currency are producing nothing with their time. Apart from this, the personal plans of millions of people have been disrupted, causing additional costs.
Logistically, the design of the scheme is a nightmare. Cash has run out repeatedly in banks. Hardly 20 per cent of the ATMs are working in some cities. Many ATMs have not been reconfigured to dispense Rs. 100 notes. Many people are receiving only Rs. 2000 denominations from banks, which is useless for there is no change available. Moreover, it is unclear to what extent some of the poor are losing a part of their lifetime savings because of lack of access to financial institutions, thereby being forced to sell their savings at a discount. The scheme seems to have been implemented without due diligence to logistics. SBP also understands that the truck industry is suffering badly, potentially creating a risk to the supply of essential commodities.
The objective of reducing counterfeit money will probably be achieved, but it is unclear whether sudden demonetisation was the most efficient way to do this. The greatest problem with this policy, Mr Sonawani said, is that the people are being made to believe that demonetisation will destroy black money and root out corruption. It will do nothing of that sort. Black money and corruption are symptoms of our system. Unless we repair the system, nothing will change; black money will return with a vengeance. So long as our politicians are necessarily corrupt due to our electoral system, and bureaucrats are necessarily unaccountable (and often corrupt) – as detailed in SBP’s manifesto – black money cannot be rooted out.
Mr Sonawani wondered aloud whether this action is intended to divert attention from the Government’s chronic failures in number of areas, including its unfulfilled promise to bring back black money from abroad, the festering Kashmir problem, and total failure of Swachh Bharat and Nirmal Ganga Sahbhagita.
Mr Sonawani oped that Mr Modi will soon roll out real reforms, instead of engaging in further theatrics. Should that happen, SBP will be the first to applaud him. The government should immediately start implementing the reforms of the electoral system and bureaucracy listed in SBP’s manifesto.
Notes for Editors
SBP is India’s only liberal party, committed to defending liberty and promoting prosperity.
Sanjay Sonawani (Pune), National President, +91 9860991205
Alok Kumar (Ghaziabad), National Vice President and President UP State Unit, +91 9999755334