It was all so dramatic, the cheer and trepidation, on November 8 when the prime minister announced the demonetisation Rs 500 and Rs 1000 notes. It was the ‘surgical strike’ in his government’s crusade against ‘black money’. But for it to succeed, some ‘inconveniences’ were inevitable and had to be borne by all – which a teary-eyed prime minister assured will last no longer than the next 50 days. What has unfolded since has been an unmitigated disaster. Many prominent economists have analysed and critiqued the design and implementation of demonetisation. However, its politics bears the mark of an undemocratic and anti-poor state shielded by the persona of its leader.
The violence and violation of demonetisation
So what has this ‘inconvenience’ looked like? At the time of writing, there were 47 deaths connected to demonetisation. People have been made to stand in queues for hours, even days, outside banks and ATMs to access their own money as if it were charity. Weddings have been cancelled due to the cash crunch. Small and marginal businesses, who largely rely on cash transactions, have suffered a massive drop in trade. Farmers, in the middle of the sowing season, are unable to pay for seeds, fertilisers, other farm inputs or access loans. Patients, including infants and the chronically ill, have been denied treatment. Travel, both domestic and foreign, has been disrupted. Daily wage earners, agriculture labour, migrant and informal workers and contract workers, are some of the worst hit by this move, unable to earn a wage or use their savings. Women, children, the elderly and persons with disabilities are particularly vulnerable and face the severity of this move acutely. Every day, new tragedies unfold. All this brought about by just an executive order, without even the courtesy of an ordinance.
Calling these mere ‘inconveniences’ is both trivialising and insulting. It is a term appropriate for a minor traffic deviation or a flight delay. What this demonetisation has caused is a violation of fundamental and basic human rights. A quick word on ‘rights’ seems necessary these days. Every single individual has fundamental rights such as the right to life, property, health, livelihood, privacy and movement guaranteed under the constitution and under international human rights law.
These rights are not given by a ruling government and are not enjoyed at its discretion. They have to be respected and protected by the state at all times and it cannot violate them – not for 50, five or even one day. In fact, barring a few exceptions, these rights are protected even in times of national emergencies. These are vested as basic human rights precisely in order to prevent the state from trampling upon them at its discretion. Any interference should be an extraordinary exception and only if it meets the standards of necessity, proportionality and lawfulness for a specified period of time. None of these seem to have been fulfilled in this case. There was no impending exigency to explain why this measure couldn’t wait beyond November 8, till the government was better prepared, or that this was the most appropriate and proportionate means to address the government’s concern.
Apart from the impact of demonetisation, the policy and implementation also raise serious human rights concerns. The state has virtually expropriated the cash asset of its people, by excessively and unreasonably restricting the ability to use, access or earn money. There is a constitutional right to property (which covers movables like cash) under article 300A of the constitution, which guarantees “no person shall be deprived of his property save by authority of law.” The legal basis for this demonetisation is the gazette notification No. 2652, issued by a joint secretary, under section 26(2) of the RBI Act. While the demonetisation per se might not be illegal under the Act, other measures, especially limitations on withdrawal, find no authority in law. The constitutionality of the measure is rightly under challenge in the Supreme Court.
The government has tried to repeatedly tried to hide this colossal failure behind good intentions. Demonetising 86% of currency notes in a country where 90% of all transactions are done in cash hardly seems to be the smartest way to smoke out ‘black money’, only about 6% of which is held in cash. But even if one were to buy into it, a measure of this magnitude necessarily requires meticulous planning, infrastructural support and full preparation so as to ensure the least disruption. This is not simply an ideal or a better way, but the only way to execute a policy like this. The government has a legal duty to care for its citizens. The irrevocable harm and hardship that shoddy implementation could cause was reasonably foreseeable. In not taking enough steps to mitigate that, the state is guilty of more than just an innocent oversight; it is guilty of recklessness and gross negligence.
The politics of the economics of demonetisation
The politics of the economics. The justification around demonetisation has been spun around familiar tropes; one ‘the economy’ and other ‘the people’, where ‘the people’ have to suffer inconveniences to rid to ‘the economy’ of black money. What is the economy if not for the people? The economic is inherently political. It distributes power in particular ways by determining the material health of individuals, groups and sectors. Demonetisation is a political move couched in economic terms and calling its fallout as mere ‘inconvenience’ insulates it from popular dissent. But in constantly making these rhetorical distinctions, the economic is carved out as a distinct sphere, sanitised and separate from politics, decisions related to which are relegated to experts and technocrats. It escapes the scrutiny and rigour of political and democratic processes; ‘the people’ are alienated from ‘the economy’ and ‘the economy’ insulated from the polity.
This alienation is not new or particular to this government. We have followed an expert and executive-driven, technocratic and undemocratic system of economic policy-making during most of independent India. Be it during the days of planning, the 1991 reforms or post reforms, the larger polity has never actively participated in formulating economic policies, except voting on its approval or otherwise every five years. The demonetisation drive is the imposition of the same executive will on the people for the sake of ‘the economy’. Although it affects every individual, it was brought about by subverting federalism, parliamentary debate and judicial scrutiny. It was cased in an ‘economic’ shell, shielding it from the ‘the people’s’ most fundamental right of citizenship – to participate in the governance of the country.
The politics of demonetisation. Rallying around ‘black money’ generates greater political benefits than economic ones. In chasing this illusive villain, the government spins a Robin Hood narrative for itself – robbing the rich to help the poor. The redistributive effects of demonetisation are narrated simplistically – no black money means better welfare for the poor. This cannot be further away from the truth.
Let’s be clear – with or without demonetisation, the rich would remain rich and the poor would remain poor. Demonetisation has, at best, made a few very rich people a little less so. For that matter, even a ‘white economy’, while undoubtedly necessary for the rule of law, does not by itself ensure prosperity for all, unless policy and politics fundamentally change from serving ‘the economy’ to serving ‘the people’. If the current policies are continued, whatever the colour of the economy, India will not see any significant fall in malnutrition levels, infant or maternal mortality, increase in education, health, employment or wage levels. ‘Black money’ serves as a convenient explanation, ‘the other’ that we need to build, to explain the economic inequalities and poverty of the nation. This is indeed a masterstroke, only because it has deflected from the anti-poor measures of the government. On the one hand, it hails demonetisation as pro-poor and anti-rich, on the other, it is weakening the Mahatma Gandhi National Rural Employment Guarantee Act, increasing corporate tax concessions, stripping labour protections, lowering wages and diluting whistleblower protection.
So the anti-poor urban bias of demonetisation is not difficult to understand. Overnight, the cash economy has been discredited. There is a lazy and misleading link being made between cash and black money, vilifying the people, mainly the poor, who overwhelmingly rely on and almost exclusively transact and save in currency notes. The excessively stringent measures to curb cash outflows, the monitoring, surveillance and inking of people as if they are potential criminals, the constant berating to move to a cashless economy, has cast a shadow of suspicion on all things cash. There is nothing inherently ‘bad’ about cash or inherently ‘good’ about cashless transactions, except that this shift would heavily favour bigger businesses over smaller ones. On the other hand, the rural economy and the informal sector, which employ most of the poor, have been paralysed. We have used a cannon to kill a fly and made the poor cannon fodder.
The politics of ‘inconvenience’
Terming the serious damage that has been inflicted, as a mere ‘inconvenience’ is not just a matter of misplaced semantics. An ‘inconvenience’ is minor, temporary, innocent and even inevitable. A government can impose them and expect compliance. Resisting demonetisation due to its impact on the people, then gets framed as a refusal to accept minor ‘inconveniences’, a resistance that can be easily dismissed as unreasonable, destructive, malicious and even childish. It negates the legitimacy of the opposition and absolves the government of accountability. Calling the ‘inconvenience’ what it really is – a violation of human rights and fundamental freedoms by the state – is necessary in order to make such resistance not just serious but also a political necessity. The state cannot denounce its most basic democratic and constitutional duties chasing an illusive ‘black money’. Neither can one group of citizens ask of others to suffer such abuses, let alone do so enthusiastically.
Any responsible and reasonable government is bound to assess the extent and nature of this ‘inconvenience’ before unleashing its policy. Nothing of what has followed was unforeseeable. Especially when only 53% of the adult population has banks accounts and even those suffer a very high dormancy rate, only 39% of all account holders in India own a debit or ATM card and only 1.4 million POS (point of sale) terminals service the country, mainly in urban centres. This leaves recklessness, insensitivity or malice as the explanations.
If eliminating black money was the intention, demonetisation should have been the last step, not the first. The government should have taken more targeted measures on off-shore accounts, non-performing assets and benami transactions before it decided to steam-roll this ill-thought out measure on the whole population. But they wouldn’t have had the same theatrical effect as demonetisation – the sudden announcement, the asking for ‘sacrifice’, the higher morality of the people willing to suffer at the call of their leader, the discovery of ‘sacks of cash’ and the euphoria of a retributive justice. The ‘inconvenience’ is very much a part of its theatrics.
Demonetisation is a political gamble that might or might not yield the results that its architects imagined. Its economic gains look fleeting. The long-term macroeconomic impact of this measure is to yet to be seen, but it has crippled the economy for now by delivering a demand shock. No matter how ‘the economy’ performs, the distress that ‘the people’ have suffered will go unaccounted and un-redressed. The medicine that the prime minister has served us will be far worse than the disease.
Rashmi Venkatesan is an assistant professor at the National Law School of India University, Bangalore. She teaches human rights law and law and development.