Economy

On Demonetisation, It's the Process, Stupid

What the current arguments and debates around demonetisation are getting wrong.

After the verdict of the Reserve Bank of India, the TV debates are searing the airwaves – was demonetisation right or wrong for India? However, the direction of most debates is wrong. Typically, the direction is – whether or not it worked out well for India i.e. its contribution to increase in the taxpayers net, the push towards digitalisation, the loss of jobs, the closure of small scale industries and the 150 deaths in queues, among others. As you must have noticed, all these points are simply an enumeration of the outcomes of the demonetisation decision.

Isn’t the act of counting the plusses and minuses that result from a decision, the right act? Why are we having this discussion at all? It is simply to check out whether this was a good decision or not. If yes, we should encourage such calls in the future. If not, we should take steps to stop them. That much is incontestable.

To know whether or not it was a good decision, we should be clear on what makes a good decision.  No problem there: it is one which results in the desired outcome.

Wrong. That’s contestable, so let’s contest it.

If you blindly bet $1,000 on a random number and it wins you sweepstakes of several billion dollars, it has resulted in the desired outcome, hasn’t it? But does it make the decision-making technique of investing $1,000 blindly, a good technique? Should others copy your technique? Should you be regularly using this technique yourself in future?

Also read: It’s Finally Official: RBI Says 99.3% of Demonetised Money Returned to Banking System

Visualise another scenario. As a marksman, you took aim at a target after duly factoring in temperature, breeze velocity and the rise of the land. You pressed the trigger, but did not hit the target because it moved at the last moment. While your technique was right, the outcome was not a desired one. So, will you stop taking careful aim and factoring of the variables in future? Surely not.

Which decision making technique is a good one, it depends not on the outcome, but on the process used. And, as we’ve seen, it does not follow that the archer aimed, just because the arrow hit.

People standing in long queues to exchange their old Rs 500 and 1000 notes and withdraw cash from the ATM in New Delhi. Credit: PTI/Subhav Shukla/Files

Demonetisation caused a cash crunch lasting six months. Credit: PTI/Subhav Shukla/Files

In this case of demonetisation, and many others, a reality check into whether or not the process of taking the decision-making was a good one will help us in future decision making. Several such techniques are available in management books. But, as a nation, we don’t have to discuss the merits and demerits of the available ones. The one we’ve already agreed to follow is clearly given in the nation’s approved management book – the constitution of India.

Our constitution lays down the philosophy, if not the exact technique, of decision making by the government. The decision must emanate from the concerned ministry, its ramifications be commented upon by other ministries and experts, then discussed formally in the cabinet – yielding to the decision by the top leader in the case. If such a process is followed, it needs to be emulated in the future even if the arrow does not hit the mark. If this process is not followed, this tendency must be curbed even if the arrow hit.

Watch: Why is PM Modi Silent on Demonetisation?

In this case, it is widely believed that the process of consultations and assessments by experts and stake-holders was not followed. It seems that the finance minister and RBI were not part of the decision-making process, at least not in the true spirit. It was the show of Prime Minister Narendra Modi as an individual.

Now, that’s terrible decision making for a country of 130 crore, even if it did result in increase in the tax-payers net and the very desirable push towards digitalisation. This tendency can be condoned if a one-off show. However, in Modi’s case, this seems to be the norm. It is alleged that announcement that BJP is pulling out of the alliance with PDP in Jammu and Kashmir came as a surprise to the home minister, while that of purchase of Rafale jets for IAF was a surprise for the defence minister.

Since this short-circuiting of philosophy and process established by India’s constitution is becoming the norm of India’s governance, it must be opposed rigorously.

As a broader picture, this thinking is what guides us away from dictatorship and pulls us toward democracy and its consultative process.

How would you rate a dictator who seems to be taking unilateral decisions that are working out well for the country? Well, ultimately he is much more harmful to the country than a consultative democrat, who for the time being, is not yielding quantifiable results. How one rates these two personalities depends on whether one values the short term or the long term. Also, it hinges on what one values more – the difficult to articulate social aspects of a nation or the easy to list success indicators.

In the case of India, however, it is not left to individuals to choose between the two techniques based on one’s preferences. It is all laid down in the constitution, so there no choice. Any deviation from the constitution is an anti-national act.

A judge is expected to sentence an accused only if the evidence brings out the crime, not because he hates the accused. The decision has to be process-based, not viscerally personal or to satisfy some other motive.

Alok Asthana is a retired colonel of the Indian Army.