The compelling arguments against demonetisation as a policy instrument for tackling black money are now well-known. Demonetisation ignores the processes that produce black money as well as its biggest hoards in forms like foreign currency, gold or real estate; also, its toxic side-effects in terms of “collateral damage” are astronomically high. These reasons would be relevant if demonetisation were really an economic policy, but as many commentators have rightly pointed out, it is a political ploy rather than an economic initiative. There is nothing inherently wrong in this. Accusing elected governments of playing politics is like accusing fish of being wet. What matters is the kind of politics being played and its consequences for our society.
Ever since it came to power, the current regime has been trying to invent or promote issues that are media-friendly, impact large numbers and seem important — but lack clear criteria for determining success or failure. Once identified, these are presented first as sharp binaries of good versus evil and second, and most important, as the personal initiatives of he-who-must-be-named, the Great Leader. Examples include Swachh Bharat; the “Give it up” campaign on LPG subsidy; “Beti bachao, beti padhao”; Make in India and others.
However, it is now amply clear that demonetisation outstrips all of the above by a great distance. It affects all citizens directly and guarantees saturation media coverage. For the average Indian, the objective of rooting out black money is both plausible and fuzzy, with no obvious criteria for measuring success. Demonetisation is an ideologue’s blessing because dissenters can be instantly denounced as supporters of corruption. Lastly, even at the cost of flouting constitutional norms, this decision has been exclusively associated with Narendra Modi and no one else, not even the RBI governor.
As media reports attest, resentment against the rich is the primary emotion prompting people to give demonetisation the benefit of doubt. As someone at the post-morning walk addas in my neighbourhood park put it: “Ab raeeson ki bajegi!” (Now the rich are going to get it). A large swathe of the citizenry, from the poor to the affluent, is rejoicing at the supposed suffering of the super-rich. It is this resentful satisfaction that enables them to bear serious hardship or considerable inconvenience with remarkable fortitude.
Resentment has long been recognised by philosophers as a potent defence mechanism for powerless people enduring sustained suffering. But current forms of resentment-fueled fortitude are threatened by two main factors which the government must tackle to avert a mass revolt. The first challenge is to manage public perceptions, once the inevitable failure of demonetisation to significantly reduce black money becomes obvious. Its willingness to lower norms of public propriety suggests that the government may scrape through this test. But the second hurdle is much harder to overcome because it remains unrecognised, namely the unthinking escalation in the scope of “black”.
In the popular imagination, the phrase “black economy” conjures up a dark den, far from the well-lit “white” economy, where shadowy criminals somehow produce “black money”. Except the economically insignificant case of counterfeiting, black money necessarily implies black incomes. Only a small proportion of the goods and services through which black income is earned are themselves illegal, like drugs, bribes or hawala commissions. Except for the fact that it is hidden, the bulk of black income is in fact indistinguishable from its white counterpart since it is earned from the very same, perfectly legal activities.
In sum, the black economy is not a separate or even separable entity — it is simply the concealed portion of the white economy. The moral reach of “black” is greatly expanded when associated with the conflation of “concealed” with “unrecorded.” In India, a huge number of daily economic transactions are unrecorded, but only a small proportion is actively concealed. The vegetable seller, domestic servant, hair dresser or chaiwala run unrecorded operations, but not in order to earn black money. In its anxiety to cover up the self-created currency crisis, the ruling regime’s rhetoric disparages the cash economy, insinuating that it is a shade of black. At the same time, it is silent about the commissions and other costs involved in the transition to the digital economy which will make most micro-enterprises unviable. The patience of the poor is unlikely to survive the piling of insult on injury.
For the affluent at the other end of the stoically suffering spectrum, demonetisation is already a guilt-edged policy. This group recognises its own complicity in the black economy, but harnesses its state-stoked resentment against an imagined super-rich minority sitting on vast stockpiles of black money to rationalise its own minor hoards. Too much talk of digitisation will surely make it uncomfortable because its lifestyles depend on unethical euphemisms like “informal sector” and “unorganised labour”.
A large part of Indian affluence is really the masked dividend of an unequal society — our consumption is underwritten by sub-minimum wages, which cannot be legally recorded. It is therefore uncertain how far the campaign for digitisation will go. In any case, digitisation without accountability and transparency is a worse nightmare because it cedes enormous power to the state.
By trying to encash popular resentment against the unscrupulous rich, the Modi regime has embarked on a risky road. There is little reason to rejoice at the apparent morphing of the Hindu Hriday Samrat into the Raja of the Resentful.