Dear Modi Ji, Time Will Tell If Your Move Was Heroic or Erratic

I am writing this letter to you not on an emotional front but as an economics student, talking numbers.

(Photo: AP/ Altered by The Quint)

Dear Modiji,

I begin with quoting you from your recent speech – “I know what kind of powers I have taken on. I am aware they will not let me live. Let them do what they want. Brothers and sisters give me 50 days.”

I am writing this letter to you as a responsible and a vigilant citizen of India. I am a third-year Economics student from a reputed college of this country. In the capacity of being aware of the economic policies and also the national interest, I would like to bring to your notice some of my concerns about the economic policy of ‘demonetisation’ implemented by your government.

First of all, we should stop this habit of raising doubt, questioning the authorities and the police. This is not a good culture. But what we have been observing in India, is that the people have developed this habit of raising unnecessary doubts and questions.

<b> Kiren Rijiju, Minister of State for Home Affairs</b>

A Strong Message

Quoting the exact same words by this minister, I would like to clear my stance. I have no authority and in no way will I question you or your government because even I know what kind of powers I will take on and I won’t be forgiven. As a prime minister when you are uncertain about your security and I am just a common citizen. I will be crushed. However, as a concerned citizen and an inquisitive student, I just have a few doubts which need to be answered to quench my curiosity. I hope that this will be taken in good spirit.

I am an economics student, so let’s talk in numbers.

The Economic Cost of a Revolutionary Step

Policemen control a crowd of people standing in a queue to enter a bank to exchange discontinued currency in New Delhi. (Photo: AP)

People think that this policy will curb black money. Within days’ time, the rich will go bankrupt and cashless. We Indians are very innocent, Sir; we believe in what we are told and shown. In almost all the rallies, you have been chest-thumping about this revolutionary step. It was a bold move, indeed. However, the success of this move will depend on the proportion of black money held in cash. This year, during the various income tax probes from 1 April to 3 October, black money worth Rs 7,700 crore was detected. The cash component was merely Rs 408 crore, Sir. Do the math, that’s just 5.29 percent of the total black money. The remaining were invested in stocks and real estate, and who knows about the Panama Papers and the Swiss accounts!

Rs 14 lakh crore that is 86 percent of the total value of Indian currency currently in circulation went useless with one move. According to the RBI, there were 16.5 billion ‘500 rupee’ notes and 6.7 billion ‘1,000 rupee’ notes in circulation.

Let’s take into account the economic cost of this revolutionary step. The printing cost of a 500 denomination note is Rs 2.5 and for a Rs 1,000 denomination note, it is Rs 3.17. Hence, Rs 62.5 billion will be required to reprint this currency.

Here, I am excluding the social cost, the cost of streamlining the infrastructure and other variables that should be further taken into consideration. However, I do not wish to make false allegations here. Unfortunately, as of now, I do not have data to back my claims. I wonder, how would the government function if it was made mandatory for them to speak only with such evidence and records?

Going Cashless: A Distant and an Ill-Sighted Dream

Several claims were made to show that this step would be a sure-shot measure against the fake currency in circulation. It definitely will be, but for how long? The effectiveness of this measure to end counterfeiting depends on two variables: How many fake notes are there in circulation, and what steps has the government taken to control this counterfeiting in future?

According to the Indian Statistical Institute, Kolkata, in 2015 there was Rs 400 crore worth of fake currency in circulation. This is around 6.4 percent of just the printing cost that would be taken to reprint the demonetised currency. Are you serious, Sir? In no way, am I demoralising the need of such radical shifts in the economy. I doubt that any step would be enough to resist such future discourse; of course, until we go completely cashless.

Out of 6,00,000 villages in the country, only five percent that is, 30,000 had commercial bank branches till 2015. (Photo: AP)

Going cashless reminds me of other such baseless claims. Sweden, I believe is the only developed country which is completely cashless as of now. Again, I would like to raise a few points, not questions, Sir. There has to be a certain level of fundamental and structural infrastructure to be in place for an economy to go cashless.

As per the 2011 census, nearly half of the population in rural areas did not avail any kind of banking services whatsoever. The extent of financial exclusion in India is so rampant that out of 6,00,000 villages in the country, only five percent, that is, 30,000 villages had commercial bank branches till 2015.

For an economy to go cashless, there should be an excellent internet penetration rate. Forget about the penetration rate, we do not even get proper internet speed.

With the slowest speed in the Asian Pacific region of 2 Mbps, we talk about going cashless. Brilliant! It is a distant and an ill-sighted dream for a country that is still struggling to provide something as basic as electricity to all its villages!

‘Not A Proud Moment For The Nation’

I do not understand politics, Sir. I am from a small village in Uttar Pradesh. However, I heard some rumours of this step being politically motivated. Talking about politics, I think in 2017, elections are due in two key states, Punjab and Uttar Pradesh. Will this step affect the elections in any way? Will it favour your party, Sir? I certainly can’t comment without backing it with authentic data. However, I certainly wish to distinguish between a bad economic policy and a brilliant political move. Not questioning, in any way, Sir.

A few weeks back there were debates raging against the rise in intolerance in this country.

According to a recent survey, 82 percent Indians favoured the government’s decision to demonetise Rs 500 and Rs 1,000 denomination currency notes. I find this extremely paradoxical. If India would have been intolerant, you would have seen politicians, ministers and rich businessmen begging on the road by now instead of poor and middle-class families in large queues.

We are common citizens, Sir. It’s not a proud moment for this nation. You will forever be remembered, but only time will tell if this nation will treat you like a superhero or a fascist leader.

Yours Truly,

An Indian.

Also Read: Dear PM, Your ‘Kadak Chai’ More Bitter for the Poor than the Rich

(The writer is a student at the Symbiosis School of Economics. This piece first appeared in Prakharnomics. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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