Only Subscribed user can access the archives

Get full access to our 16 year old archives

Subscribe Now

Already subscribed? Sign In

COVER STORY

24-11-2017

Down and out

One year of demonetisation and GST

Briefing

Yarn manufacturers

Jobless in Panipat

IN SEPTEMBER, the United Nations Conference on Trade and Development (UNCTAD), in its “Trade and Development Report” 2017, expressed apprehensions about India’s growth and stated that the country’s informal sector had been “badly affected by demonetisation and may take a further hit due to GST”. The optimism that the new tax regime will result in a shift from the informal to the formal in industry has been belied as both the formal and informal components of the formal economy have had to shut shop. According to a Consumer Pyramids household survey by the Centre for the Monitoring of the Indian Economy (CMIE), nearly two million jobs were lost between January and August because of demonetisation. It also estimated that job losses because of the new tax regime could be larger than that caused by demonetisation.

The effect of the downward trend in production continues. Industrial hubs that give employment to lakhs of persons have been all but reduced to ghost towns. The industrial district-city of Panipat in Haryana has been one such casualty.

“We don’t pay taxes? What is meant by that? We pay a huge amount of indirect taxes that the government doesn’t put to good use to improve infrastructure or give us subsidised power and so on. First, demonetisation hit us, now the GST regime is crippling us. Business had never been so bad before,” said Chetan Chhabra, a shoddy yarn producer, in Panipat. His father, a former office-bearer of the shoddy yarn manufacturers association in Panipat said Haryana had jumped three notches up in the “ease of doing business” ranking and wondered what it meant. The Chhabras had fled to Haryana from Punjab in the period when Punjab was plagued by terrorism. They made Panipat their base and became one of the leading shoddy yarn manufacturers in the district and the State. Their dealings, beginning with paying suppliers of discarded material from where the yarn is produced to paying labourers involved in production, were mostly in cash. Following demonetisation, the father-son duo had to sell off their machinery and lay off labour. Of the 800 spinning machines they had, only 200 are left. Raw materials used in the production of shoddy yarn were found piled up in the factory porch with a handful of workers doing the sorting of rag cloth. “We now just trade in rag cloth material. We sell it to those who are still able to do some spinning work. We’ve also had to let go of our labour force,” said Chetan Chhabra. Almost all the 600-odd shoddy yarn units in Panipat either have shut down completely or are operating with a skeletal workforce.

The sale of home furnishings such as upholstery, sofas and curtains, for which Panipat is famous, has taken a hit as well. The demand for home furnishings hit rock bottom with the introduction of GST in what was a tax-free industry. The cash crunch and the GST burden have virtually choked both supply and demand, according to yarn producers. But exporters of home furnishings do not have any problem. They are the beneficiaries of many tax exemptions and the GST regime does not apply to them.

Nearly five lakh persons are estimated to be employed in various textile and textile-related work, including power loom, handloom, home furnishings and shoddy yarn production. Panipat has the largest shoddy yarn industry in Asia. “The government says ‘make in India’. For that to happen, it has to encourage industry with support from banks and provide cheaper infrastructure. Rather than do that, it has depressed the industrial climate here, which was already facing tough competition from cheaper substitutes from China,” said Chetan Chhabra. China-made blankets and bed sheets have flooded the market and they are cheaper and seemingly of better quality too. “We cannot lower our costs as that would leave us bankrupt. And under the WTO regime, the government cannot apply the anti-dumping clause here. What it can do is support us with easy loans as well as cheap power so that those kinds of overhead costs are met. Ease of doing business will come about only then. There has to be business first before ease of doing business,” said a shoddy yarn trader.

Shoddy yarn manufacturers pointed out that weaving had not been covered even under Value Added Tax but now it came under the GST regime. “The loom owners and weavers were our main buyers. They have stopped buying from us, so rag material just piles up,” said Vijay Chhabra, former vice president of the Shoddy (Yarn) Mills Association. Yarn manufacturers used to pay VAT but blankets produced from the yarn did not attract tax at the retail or manufacturing level. The blanket manufacturing industry, a manufacture said, was very small and units kept four to eight power looms at any given point and employed part-time accountants. “A person with four power looms would have no option but to shut down now after GST,” said a power loom owner.

The producers of shoddy yarn also pointed out that when small manufacturers protested the government relaxed the cap for filing quarterly returns. Now only those whose turnover exceeded Rs.1.5 crore had to file such quarterly returns. The cap, they said, was still very low and needed to be increased as barring rare exceptions there was no one in the industry whose turnover was less than Rs.1.5 crore. “Turnover basically means sales. What is Rs.1.5 crore today in terms of business? The cap has to be raised as this is only leading to harassment,” said another textile manufacturer, requesting anonymity.

Ghost town

Panipat is famous for its “labour colonies” where migrants, mostly from Uttar Pradesh and Bihar, and the working class in the district stay. These colonies are basically urban ghettos from where migrant workers step out to work in environments that are as good or as bad as the cramped and ill-provided-for residential colonies. With much of industrial work having come to a standstill, workers had either left for their villages or were working in very precarious conditions. Frontline met workers in the Panipat Industrial Area located in the old parts of the city. Lined with spinning mills and shoddy yarn manufacturers, the industrial hub looked like a ghost town. “When we used to give a call for a strike, the lines used to be endless. Now there are hardly a handful of workers left,” said Anand Jawahar, district president of the Centre of Indian Trade Unions (CITU).

Ram Rattan Sharma is a dye master. The factory unit where he worked, Prem Spinning Mill, had shrunk its workforce from 250 to 25. He sat idle alongside the threading machines that had accumulated a thick layer of dust on them. The mill was among the bigger units and one of the oldest in the industrial area. Here the rag cloth is sorted out, dyed and then threaded. Dyeing, spinning and weaving units are located on the same premises but there was no work. Bales of thread lay packed, but there were no takers. The owner did not come in regularly, and an accountant and the dye master managed the premises. There were a handful of women, some from the local areas and others from Uttar Pradesh, who squatted and tore up rag cloth and sorted them. They were paid Rs.120 a day for eight hours, and they did not get work every day. “There is no work. It is all due to demonetisation. Things have come to a standstill here,” says Ram Rattan Sharma. The unit, set up in 1989, employed thousands of workers at one time. Work gradually began to shrink owing to cheap imports. Until recently, 300 persons worked in two shifts. “There was work for everyone—the blind, the deaf and the lame. Laley ke bhi kamai thi; aur labour ki bhi (the owner and the worker, both earned money). There’s nothing now,” he said.

Workers told to take “rest”

The “thekedaarni”, or woman contractor, through whom women had been hired, said even the rag-sorting work was not required as regularly as before. “I have to tell the women to take ‘rest’ every two days. This means they need not come to work,” she said. She complained that nothing good had come for them from demonetisation. Most of the women, including the woman contractor, Rajabala, were Dalits.

Rajabala complained that no money had come into their accounts as “Modiji had promised”. Most of the women, like her, had spent their youth in the factory. “Not one rupee came into our Jan Dhan accounts, including the gas subsidy. In Rs.120 a day what can we buy? Gas, sugar or vegetables? We cannot afford to buy onions today. There is also no clean drinking water in the colonies,” she said. The women said the work was back-breaking and resulted in constant pain in the shoulders, but they had little option but to persevere.

The problem was that as the effects of demonetisation began abating a little, the spinning and associated units were hit by the GST regime. “Orders did not pick up after demonetisation. All the bales you see are advance orders that we took, but there are no buyers now. Our buyers cancelled their orders after demonetisation. They used to pay in cash. Workers used to be paid in cash. The consumers are mainly ordinary people, and nobody is ready to compensate for the extra cost of GST now,” said Ravinder, the accountant.

The problem is that post-demonetisation, not all the devalued notes were deposited in banks. It was learnt that industrialists bought land from farmers, who were quite willing to sell their land (they did not have to explain where they got the cash from, and it was shown as agricultural income), and sold it further to smaller groups of people. But the resale of land did not happen to the extent they had expected. All that cash got locked up in land and could not be used for industrial activity. As a result, the entire chain got affected, and the worst-affected was the working class. “Even the local people are not getting work. Let alone migrants. They all went back. Nearly 40,000 workers were laid off. These units come under the Factories Act but no government official has even come to see what is happening. If this is the fate of ‘make in India’, I wonder who will make in India,” said the mill’s accountant. “The minute we produce something, like yarn from rags, it is taxable. The power looms also have shut down. If they were functioning, we could have offloaded the bales to them,” he said. The “spinning” workers were from Bihar, while the weavers were mainly from Uttar Pradesh. Many of them have now taken to driving autorickshaws and tempos.

Sukhbir Singh Malik was the district president of the Panipat Small Engineering Workshop Association. A graduate from the Industrial Training Institute in Panipat, he worked his way up to set up his own machine-making unit for the textile factories in Panipat. He exported to Bangladesh and Nepal too.

“This government is not interested in encouraging enterprise,” he said. He had applied, along with 25 others, to set up an industrial cluster to manufacture machines that would match the competition from other countries. He said the Central government (the Ministry of Micro, Small and Medium Enterprises) agreed to give its contribution after the plans were passed. The plots were identified and money was paid up by the partner-industrialists for the cluster, but the State government’s industrial department has stalled the sanction of payment from its end. “This government is only interested in advertising. Basically we didn’t pay a bribe to the consultant sent by the State government department. Now there is no work of any kind. The machines and workers are sitting idle,” he said. Earlier, a VAT of 5 per cent was charged; after the introduction of GST, the tax on machines was hiked to 18 per cent. Malik used to receive orders from Jaipur, Maharashtra and Uttar Pradesh. The orders for power loom machines have all but stopped. “ Agar unka maal bikta hai, to meri machine bikegi (if their product sells in the market, my machine will be in demand too), said Malik. There was some demand for “jacquard work” from Karnataka as the government there was giving some subsidy to the jacquard loom industry. Hence his “jacquard machines” were still in demand, he said.

Shaafat Khan, a brass handicraft manufacturer and exporter from Moradabad, Uttar Pradesh, told Frontline that handicraft manufacturers should be exempted from GST. “The artisans are uneducated. They do not know how to use computers. They do not earn enough. How can they file GST documents three to four times a month? Fifty per cent of our business is down. Taxes should be filed once a month and there should be two categories, 5 per cent for utility and 12 per cent for luxury items. Lakhs of people are employed in this sector with no burden on the government to create employment. They are self-employed. It is a huge foreign exchange earner as well. The government should help the handicraft sector instead of imposing taxes on it,” he said.

The perception that the National Democratic Alliance (NDA) government undertook the twin steps of demonetisation and GST to rid the system of corruption is slowly dying down. Those who have had to face the brunt of this are the ones who were already marginalised in the economy and labour market. The hope that a transition from the informal to the formal will take place has happened only in the realm of imagination. If anything, it has made things worse for the informal sector and the small industrialist.

Textile sector

A spanner in the works

ANUPAMA KATAKAM cover-story

IN OCTOBER this year, Gujarat Chief Minister Vijay Rupani announced that the Gujarat Industrial Development Corporation (GIDC) would set up 16 additional industrial estates to attract Micro, Small and Medium Enterprises (MSME). Rupani said the government planned to invest Rs.19,650 crore in the hope of encouraging enterprise as well as generating large-scale employment.

With 202 industrial estates, Gujarat has been at the forefront of encouraging small to medium businesses. After the demonetisation debacle, which affected this sector severely, the State has gone into overdrive to prop up an area that has been a significant contributor not just to the State exchequer but to the country. The announcement came a few months after the government gave away Rs.730 crore as incentives to 16,000 MSME units wanting to expand or set up new units in the State. “These companies play a significant role in our economy and in employment, we have to assist in their growth,” Rupani said at a public event.

Are these announcements part of wooing the large base of businessmen and traders in Gujarat in an election year? The 3,76,357 registered MSMEs in Gujarat are critical to the State’s growth. According to the Gujarat Industries Commissionerate, the MSMEs employ close to 26 lakh people.

In the initial weeks of demonetisation, the MSMEs were obviously hit hard, largely because of their dependence on cash. Gujarat, with its vast number of enterprises, secondary businesses and trading hubs such as Surat for textiles and Bhavnagar for diamonds, was initially gripped by paralysis. But no sooner had they recovered from it than GST was slapped on them.

Frontline spoke to several businessmen and traders in Vadodara and Surat about the initial impact of demonetisation as well as the situation a year since. Businessmen in Vadodara said it had been a rough year. However, they hope the slew of measures announced by the State government will help them tide over the rough patch.

“We did operate a considerable amount in cash, so post-demonetisation, the lack of liquidity in the system affected us. That took a toll on revenues as no one had money to purchase and the supply chain that worked on cash was affected. Just as that was settling, GST hit us, and putting that process in place set us back again,” says Nilesh Shah, who runs a steel-cutting tool unit at the Makarpura GIDC in Vadodara. He says his business has come down by 30 per cent following the introduction of the two economic policies.

“What has this all been for? Why did we have to go through all that pain when things are back to where they were? The money is back in the system and we have gone back to dealing in cash again. Demonetisation seems like a terrible nightmare,” says Shah.

With demonetisation, MSMEs were unsure of getting the payments due to them from customers in time. That meant less production and further slowdown for the people who provide them with raw materials, and shortage of supply, leading to inflation on what is available, says an analyst.

“Between demonetisation and GST our order book has gone down by 15 to 20 per cent. You will notice that there is hardly any activity in the area. We could hear the noise till quite late at night. Some factories would work two shifts. It’s very quiet now after 6 p.m.,” says Ahmed Memon, who runs a small machine tool industry. “There is a reduction in work and we do not need so much labour. As a result, people have lost jobs or get reduced daily wages.”

Memon’s words are not far from the truth. It is eerily quiet while walking around the Makarpura GIDC estate. The shutters of most factories are open, but there are fewer workers.

Once a significant princely state, Vadodara, also known as Baroda, developed into a major industrial hub with chemical, oil, engineering, plastics and pharmaceutical companies. Thanks to these large industries, the ancillary sector too evolved and thrived. GIDC estates mushroomed as the State recognised the value of these companies. There are now 13 GIDCs in Vadodara district alone.

“Our businesses run on small margins, a large part on cash and in many ways using traditional methods of entrepreneurship. Demonetisation and GST forced us to change this and modernise,” says Memon. “However, it is a capitalist approach and a pro-big industry move. They need to realise that in India we are the backbone, we grease the economy and generate employment.”

Several economists have pointed out that the post-demonetisation reforms in MSMEs will apparently make companies comply with tax obligations, become more transparent and reduce unaccounted transactions. This would, in turn, help scale up operations and lessen corruption, leading to an overall improvement in the economy.

But there is a flip side to it. Take, for instance, a paper box-making company supplying packaging requirements of FMCG (fast-moving consumer goods) companies. The scrap that the company buys to make cardboard is paid in cash and often unaccounted. The final product that big companies buy too is paid out in cash. This helps the small businessman to distribute wages to daily wagers and others who work for him.

“The fundamental mistake they made was to treat all cash as black money. Not all cash is black,” says Memon. “The worst for us was the drying up of cash and accounting for it. But within eight to ten months it has settled. So why was it done is the main question.”

Memon gives an example of a situation which explains the problems of an MSME. An acquaintance of his bought for Rs.3 crore a machine that makes cardboard boxes. However, he needs to buy scrap paper to make cardboard. The scrap dealer wants only cash. Even if he had an account, he would not take a cheque as that money would need to be accounted for. But the MSME has GST to contend with. The machine is lying unused and the businessman is in debt.

Minimum wages for unskilled labour at a GIDC estate is Rs.380 a day and they work for 26 days a month. For skilled labour it starts at Rs.500. It is a substantial amount, says Abhay Khatri, a mechanic in a small tool-making factory. “Many unskilled workers lost jobs and went back to their villages soon after notebandi [demonetisation]. Some had to reduce jobwork, but I think we are okay now. Because of lack of cash we had problems shopping for day-to-day goods, but even that has settled.”

The lack of cash and reduction in purchasing power was probably what hit the small-scale industry the most, says Memon.

Surat still reeling

Among Gujarat’s several industrial hubs, Surat is the biggest in terms of MSMEs and small traders. As Asia’s largest market for man-made fabric, the city is an economic powerhouse. Textiles and diamonds are its largest businesses. The textile trade has several industrial processes at different stages. For instance, weaving grey fabric, dyeing, printing and embroidery are part of the process that involves thousands of workshops. According to the Federation of Surat Textile Traders Association (FOSTTA), the livelihoods of almost 25 lakh people are dependent on Surat’s textile trade.

“When demonetisation hit, the first thing people did was to deposit cash and spend the surplus. Initially, traders saw very good business as women were trying to offload cash. Then it dried up. Last Deepavali we witnessed a drop of 50 per cent in sales,” says Champalal Bothra, FOSTTA president. “No one wanted to spend. It has improved, but then we got hit with GST.

“Looms that would operate for 24 hours have reduced to eight hours. Our production, which was at 4 crore metres a day, has come down to 1.5 crore metres. Close to 89,000 looms were sold in the past year. Lakhs of workers have returned to their villages. The situation is quite dire,” says Bothra. “People’s spending power has come down, the demand has come down, and Chinese imports are affecting us now,” he says.

Diamonds, textiles and dyeing are the worst affected, says Arun Mehta, vice president of the Gujarat branch of the Centre of Indian Trade Unions. “It is not a good situation as labour is leaving in thousands. Many small diamond units have shut down as there is no demand in the market.”

“More than demonetisation, it was GST that hurt us. They announce these things without having a process in place. In demonetisation, there was no cash available and in GST, few tax people even know what to do,” says Nitin Kungwani, a trader in Surat’s Millennium market. “We have had a 30 per cent drop in sales this year. But we are hopeful that after the Assembly elections, business will pick up and the government will find ways to revive us.”

Vivek Deswani was in Surat to take a consignment of sarees to Pithampur in Madhya Pradesh. He says before demonetisation he would come to Surat every 20 days. His last trip was three months ago. “People are not buying.”

Do they see the situation improving? “Now that we have GST under control, we can focus on sales. It should improve this year as there are many auspicious dates so the wedding season will help us bounce back,” he says.

The MSME sector accounts for 8 per cent of India’s GDP, 45 per cent of manufacturing output, 40 per cent of exports, and 21 per cent of employment, the second highest after agriculture. As a State with the highest number of MSMEs (according to the Vibrant Gujarat summit 2017 report), Gujarat plays a large role in this contribution. The government has perhaps realised that it would be wise to keep the incentives flowing.

Construction workers

Migrants’ misery

SAIDUR SHEIKH, a construction worker from Goalbari village in Farakka block of West Bengal’s Murshidabad district, sits helping his wife bind beedis, a job traditionally done by the womenfolk of the district to supplement the family income. The women are paid Rs.126 for every 1,000 beedis bound. The majority of the men of Farakka, a region known to be one of the biggest suppliers of construction workers to the labour market, spend most part of the year away from the villages, working in other States. However, since demonetisation in November 2016, more than 50 per cent of the construction workers of Farakka have been languishing at home, unable to find work.

Saidur, who hardly had any work in the past one year, watched helplessly as his mother died of cancer practically without any treatment. The local people could not help even if they wanted to as they were in the same boat. Saidur has run up a debt of Rs.60,000 of which Rs.50,000 has been borrowed from moneylenders at an exorbitant rate of interest. At construction sites, he used to earn Rs.300-400 a day. Now he earns only around Rs.60 a day from binding beedis. “As things stand today, I do not know if I will ever be able to come out of this debt,” he said. Saidur has two children, a two-year-old son and a three-year-old daughter.

It is the same story with only minor variations, in all the villages in the region. Hundreds of families of construction workers face a bleak, uncertain future. Before November 2016, hardly any able-bodied men in the 18 to 50 age group remained in the village; they would all be out in other States earning a livelihood. Today, these men can be seen loitering blank-faced and angry or sitting with sullen faces at tea stalls.

Bedaruddin Sheikh, a labour contractor in Farakka, told Frontline that the entire economy of the region, which is dependent on construction labour and beedi binding, has been on the verge of collapse ever since demonetisation came into effect. “One year ago, I was supplying at least 200 labourers every two months to different parts of the country. Today, I have just 50 men working outside. More than 50 per cent of the labourers are not getting any work anywhere and are without an alternative source of income. Construction companies are not able to provide enough work for us in view of demonetisation and Goods and Services Tax,” said Bedaruddin. His phone keeps ringing constantly with men calling to ask for work, any work. “People are getting desperate for work, but I cannot give them any,” said Bedaruddin. Some of the places he has regularly supplied labour to from Farakka are Etawah in Uttar Pradesh, Gujarat, Tamil Nadu, Odisha, Tripura and Kolkata.

Major players in the construction business, while maintaining that the industry has slowed down all over the country, also acknowledge that some of the measures taken by the Central government have further aggravated the situation. “In the expectation of a boom, a lot of projects got launched, and now the demand is far behind supply. All these measures—demonetisation, GST and RERA [the Real Estate (Regulation and Development) Act, 2016, was framed to establish the Real Estate Regulatory Authority]—have had their impact and have slowed down the industry further. The measures may be good in the long term, but it is certainly causing some problems now because there are a number of stringent conditions that have to be met, and one has to recalibrate one’s projects to meet those terms,” one of the top builders operating in Kolkata told Frontline.

In the villages of Murshidabad, it is not the custom for men to bind beedis. Even in times of distress, there are men who scoff at the prospect of helping their wives and daughters to bind beedis. “Is that a man’s job? I have never done it in my life; I can’t start now,” said Monirul Sheikh of Bhairabdanga village. Monirul has had barely three months of work in the past one year. “The moment I get a job anywhere in the country, I will leave.” But as months go by and no work comes their way, more and more men in the villages are learning to swallow their pride and lend their wives a helping hand in binding beedis. Abdul Bari, who has had no work in the past eight months, feels there is no other option. He and his wife have seven children to support, and beedi is the only source of income for them. “We make around Rs.80-90 a day. There is no way that I can give my children an education; just keeping them fed is the main challenge for us now,” he said.

The beedi industry is facing a crisis. It is not able to sustain the increasing demands made on it. Mosharraf Hussein, a middleman in the beedi industry, acknowledged that he was not able to distribute enough raw materials to the families to bind beedis. “I am not able to give work to as many people as I could before because the companies are not giving me a large quantity of leaves for distribution,” he said. People like Mosharraf obtain raw materials such as leaves, tobacco and strings from the beedi companies and distribute them to the families. They collect the bound beedis and take them to the factory for processing. Since the supply of raw materials has come down, the income of the families has also declined.

Imani Biswas, a prominent leader of the ruling Trinamool Congress and one of the biggest beedi barons in the State, said that more than 12 lakh people who solely depended on the beedi industry in Murshidabad had been affected by demonetisation and the implementation of GST. “We are in a very bad way. Owing to the implementation of GST, the sale of beedis has come down, and so we also have had to reduce our production. In Murshidabad, beedi production has come down by around 30 per cent,” said Imani Biswas, who owns Howrah Beedi, one of the biggest beedi brands in the State. According to him, GST has been slapped on practically all the components that go into beedi manufacturing—tendu leaves, tobacco and even the strings that are used to bind beedis.

The 28 per cent GST rate on beedi has led to a hike in price and, as a result, a fall in demand. “Beedi is one thing that poor people can afford. With the hike in price, following the introduction of GST, they can no longer afford it. They are taking substitutes. This has hit the industry badly,” West Bengal Labour Minister Jakir Hossain, who is also the owner of the popular Shiv Beedi brand, told Frontline.

There has been a constant fear since demonetisation that beedi factories will become economically unviable and shut down. It is a fear bred by an increasingly hopeless situation faced by the people, particularly women. “With the men sitting at home without work, if beedi binding work is stopped we will starve to death.” said Tuera Biwi of Jorpukuria.

With failing eyesight and arthritic fingers, Hajara Bewa, a 65-year-old widow whose three sons are construction labourers now out of work, can barely earn Rs.30 a day. One thing she finds difficult to come to terms with is seeing her grandchildren go hungry. In the past one year, almost all the families in the Farakka region have run into deep debt. “It is women who go and ask for a loan as they are the ones who are earning now,” said Abdul Jabbar of Jorpukuria village. Abdul, who has borrowed Rs.35,000 from a moneylender for a tenure of two years, has to repay Rs.1,900 on the third of every month. Failure to pay on time entails a penalty. “The conditions of the loan are harsh, but we have no other choice but to accept them,” he said, adding that more than 95 per cent of the villagers are in debt.

A unique local problem

Another problem facing the people of the region is that local markets and even nationalised banks do not accept large sums of money in small denominations, particularly in coins. “The beedi companies pay us in coins of Rs.10, Rs.5 and Rs.2. Markets and banks are not willing to accept small denominations. As a result, we are stuck with money we cannot use,” said Asma Biwi. The women said they complained to the middlemen against payment in coins, but it evoked no response. “They simply tell us to either accept the payment or take up some other work,” said a woman.

Local shopkeepers stuck with cash in coins are unable to buy bulk stocks. Akhmal Sheikh of Jorpukuria, who has been accepting payment in coins, is now holding more than Rs.40,000 in small change. He is unable to replenish his supplies using loose coins. “It will be difficult to reject coins from my customers as they are all my friends and neighbours. But after a point I will have to stop accepting coins for payment. My stock is getting depleted and I cannot do anything about it,” he said.

Excerpts from Com. P.V. Raju Memorial Lecture

Demonetisation, corruption and black money

ON the evening of November 8, 2016, Prime Minister Narendra Modi went on all media channels to announce that his government had decided to demonetise 500-rupee and 1,000-rupee currency notes “to break the grip of corruption and black money”, and announced that the “five-hundred and thousand-rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper”. It is not that demonetisation as a monetary measure is not resorted to by other countries. In fact, the Economic Survey 2015-16 does refer to over 20 countries resorting to demonetisation with different purposes and different rationales, with varying results. But the manner in which Prime Minister Modi made the announcement brought a certain sensationalism to this measure of the government. “Demonetisation” is a financial or monetary measure, and normally involves the central bank or the Finance Ministry. But in this case, neither the RBI Governor nor the Finance Minister came to announce it, raising serious doubts whether they were involved at all in the decision-making. The Prime Minister took it upon himself to personally announce the decision for almost 40 minutes in Hindi, and another 40 minutes in English. The speech did not stop with the policy decision and soliciting the people’s support for it but went on to list over 20 points of procedural detail which would normally be part of any government notification. But the choice of such a method of announcement was obviously a well-designed strategy to make people believe the priority that the Prime Minister was according to wiping out the past evils. As many behavioural psychologists or even behavioural economists would know, the less one knows about the reality behind the numbers or the procedures, the more awe and respect people would develop for them and for those using them. Such political strategies are increasingly in evidence across the world. There was no sign of any financial or economic crisis. On the contrary, the Prime Minister began his speech by describing how, when he took over, there was a feeling that “I” in the BRICS was shaky, and how, under the new government, India became strong and emerged as an economy with the highest GDP growth. True, the magnitude of the measure of withdrawing almost 86 per cent of currency in circulation was an extraordinary measure that needed convincing the people. But more than that, much of the speech was devoted to whipping up people’s anger against corruption and black money, and building on people’s imagined notion of black money stashed in cash that could be wiped out. There was an emphasis that whatever “pain” people were likely to face would be short-lived, and wiped out by the gains of unearthing black money and wiping out corruption.

Several questions

Demonetisation did more harm to the economy, and certainly did not make a big dent on corruption or black money. This leaves us with several questions: Why did Prime Minister Modi choose demonetisation as an instrument to demonstrate his commitment to flush out black money and control corruption? What made him decide on demonetisation as a measure that would shore up his image as a leader with a will to deliver his promises? Or was he totally oblivious of the ineffectiveness of demonetisation and the adverse consequences it was likely to bring about?

It is difficult to believe that Prime Minister Modi was not aware of the limitations of demonetisation in dealing with corruption and black money or its adverse effects on the economy and the people at large. The available evidence shows that he was aware of these consequences. For instance, the former RBI Governor has broken his silence, and informs us in his latest book I Do What I Do that in February 2016 he was orally consulted on the advisability of demonetisation to rein in black money. But his advice was that demonetisation was not an appropriate measure, and that whatever its long-term benefits, they would not outweigh short-term economic costs, and that there were potentially better alternatives to achieve these goals. A written note was asked by the government. The RBI put together these views and also outlined the preparations needed and the time it would take. Besides, the RBI note also flagged what would happen if the preparation was inadequate. He also writes that the government (possibly the PMO) subsequently set up a committee to consider the issue and a deputy governor of the RBI also attended the meetings of the committee. It is clear that the Prime Minister’s decision was taken with the full knowledge of the limited impact that demonetisation would have on black money and corruption and the adverse consequences it would have on the economy and people. Of course, there was also wide speculation in the media that the Prime Minister also lent his time to a Pune-based group of chartered accountants passing as economic advisors with special knowledge of the Indian economy in contrast to “Western” knowledge.

This raises a critical question: Why did the Prime Minister, with such an awareness, choose demonetisation to demonstrate his commitment to handle black money and corruption? To answer this question one may have to pay more attention to the nature of transformation in the public imagination about the notions of black money and corruption. Somehow, the enormous intellectual energies spent on critically debating demonetisation did not pay adequate attention to contextualising the images constructed around black money and corruption, and the effective way in which these images were put to political use by Prime Minister Modi.

One explanation is that the critics were overly obsessed with the financial and economic impact of demonetisation and neglected to pay adequate attention to the political design underlying it. And the other explanation is that just as the larger public was mesmerised to believe, the critics also were trapped in the belief that the Prime Minister was setting an agenda to unearth black money and check corruption through demonetisation.

The following sections attempt to contextualise corruption and black money and then understand how the changing images of these phenomena have been congenially turned to serve the political ambitions of the Prime Minister.

Neoliberal regimes and corruption

What follows is the proposition that the emergence of neoliberal regimes across the world is not only at the root of the widespread eruption of corruption and black money, but also instrumental in raising them to phenomenal magnitudes, so as to shift public attention and imagination of these transactions to “scam” scale that is associated with piles of cash stashed away. For the public, unearthing this cash also requires a strong and determined leadership of virtue against the forces that perpetuated the evil. Riding on this public imagination needs a strategy that appeals to their imagination and could rouse their emotions along with building up of a self-image of leadership of virtue and unwavering strength to cleanse [society of] the evil.

Let us first have a quick overview of the metamorphosis of the concept of corruption and the shifts in the imagery and in the popular imagination. Corruption has an antiquity dating back to ancient times, and Kautilya’s Arthasastra indeed discusses its pervasiveness extensively as a social aberration with a long history even by that time. Notwithstanding the history, for quite some time even after the Second World War, it was not politically correct or not fashionable in social science research to work on corruption. But all that has changed. By the mid 1980s there was a surge in “corruption studies” in social sciences. This surge is not accidental but rooted in the developments that followed the unfolding of the effects of the “Washington Consensus”.

It was not a mere coincidence that “liberalisation, privatisation and globalisation” and the global interest in corruption research emerge from the mid 1980s. In 1986, a separate international research journal called Corruption and Reforms was launched. By the mid 1990s three reputed social science journals, the International Social Science Journal (149, September 1996), the IDS Bulletin (Vol. 27, No. 2, 1996) and the Third World Quarterly (Vol. 20, No. 3) had brought out special issues on the subject of corruption.

Nearer home, “…research on corruption in the Asia-Pacific countries has mushroomed into a growth industry since the 1990s. Indeed, globalisation of corruption has generated tremendous interest among many international organisations on finding effective measures to curb corruption in Asia-Pacific region and other parts of the world.”

The World Bank established an Anti-Corruption Knowledge Centre. The UN Convention Against Corruption (UNCAC) was adopted in October 2003 and its provisions have legally binding international anti-corruption instruments for countries that ratify the convention. It was signed by 140 countries. India signed the convention in 2005 and ratified the same in 2011.

Broadly, corruption is understood and defined in two ways. One is in the narrow sense of the term, viz. corruption that is “petty”, “street-level”, “day-to-day”, or “retail”. It is widely associated with “bribes”. The other is “grand” corruption associated with large monetary sums or transfer of resources generally involving high-level political leaders, bureaucrats and big business. The widely used definition of corruption—“misuse of public office for private gain”—has been largely associated with a narrow sense of corruption that is familiar since the times of Arthasastra, which shows its pervasiveness even in those times: “Just as it is impossible not to taste the honey (or the poison) that finds itself at the tip of the tongue, so it is impossible for a government servant not to eat up, at least, a bit of the king’s revenue. Just as fish moving under water cannot possibly be found out either as drinking or not drinking water, so government servants employed in the government work cannot be found out (while) taking money (for themselves).”

It is in this “narrow” sense that corruption was understood for a long time, and most of the time, and when people talked about corruption, it related to the bribes associated with departments like police, revenue, commercial taxes and forest and public utilities like water, electricity, etc.

But during the past three decades there has been a gradual change in the corruption perception of the public from concerns of “petty” corruption to that of “grand” corruption. The push and spread of structural adjustment programmes rolled out across the countries at the behest of the “Washington Consensus” and the resulting restructuring of development strategies from state-led process to corporate-driven agenda that ripped open the natural resources and the key industrial and infrastructural sectors to privatisation is at the root of this “gestalt” in corruption from what people encountered as “petty”, “day-to-day”, “retail”, “street-level” notion to that of “grand” scams. In the name of “competition” and “efficiency”, liberalisation and privatisation were extensively pursued as the core of economic reforms. It is ironical that what emerged out of the economic reforms was neither competition nor efficiency but “crony capitalism”, which could acquire hugely valuable natural resources dirt cheap in the name of priority allotments and access to contracts for infrastructure projects like highways, airports, and ports, and privatisation of public utilities like power projects including hydroelectric projects and telecommunications. Socially critical public goods like education and health became the most sought after avenues for private profit. It may sound paradoxical that the entire theoretical foundation for liberalisation and privatisation was based on the proposition that the commanding heights of the state or public sector in the economy results in excessive regulation and controls like licensing that lead to “rent seeking”, i.e. corruption in the form of bribes to get licenses, permissions and clearances, resulting in “directly unproductive profit seeking”, and hence, it was argued, the state should withdraw from direct economic activities and create a regulatory system that would govern the private sector.

But in reality, neoliberal reforms gave birth to extensive “crony capitalism” with powerful self-interested actors gaining control over the state to their advantage, a process that has come to be known as “state capture” or “regulatory capture”. The capital can create policy strategies like “special economic zones”. “Crony capitalism” gains the ability to get the laws consciously “adjusted” to its advantage and to the detriment of the public good. When business interests succeed in shaping the legal, political or regulatory environment to suit their own interests and distort public policies, it would provide unlimited opportunities for corruption. Thus, economic reforms and the resulting “crony capitalism” are at the root of the eruption of corruption as “grand scams” that has come to occupy the public notion of corruption, and revulsion to those associated with it.

It is very difficult to objectively measure corruption. Most corrupt transactions transpire out of public view and the parties involved have incentives to keep it that way. But the “grand” scams are often hard to hide, and the media often, to sensationalise, focus on scams involving billions of rupees worth of sleaze. In the post-liberalisation era many such scams did come out in public in India. One inventory of the biggest public corruption scandals covered from the beginning of the 21st century includes 28 scams involving hundreds of thousands of crores of rupees. The average value of these scams was Rs.36,000 crore and the median value Rs.12,000 crore. Of course, these scams include the ones at both the State and the Union government levels, and also involve different political parties in power. But one regime that was in power at the centre for the longest time during this period was the United Progressive Alliance (UPA). Perhaps, never in the recent history of neoliberal regime, corruption scandals reached such a meteoric peak nor was there such an amount of media attention that provoked extensive public revulsion against the Congress party that headed the UPA regime.

Here are a few select scams under the UPA which could be seen as textbook cases of the unfolding of economic reforms that unveiled the emergence of “crony capitalism”. It was shocking to the conscience of the nation to be a witness to the blatant mortgage of the primordial natural resources like earth (land and coal), water (hydroelectric projects), air (2G) and sea (offshore oil) as the sources of amassing wealth by corporate and political interests. With the coal scam (2012), the government was estimated to have suffered a loss of Rs. 1.86 lakh crore. The CAG presented a report and stated the irregularities involved in the auctioning of 194 coal blocks. The government decided not to auction coal blocks between 2004 and 2011. The coal blocks were then sold to different firms. Many of these firms were owned by or closely linked with sitting politicians. This decision led to huge losses in terms of revenue.

In the name of development of hydroelectric power in Arunachal Pradesh, about 160 MoUs were undertaken in 2013-15 between the Union and State governments and big capital in the form of public-private partnerships (PPP). Clearances were obtained flouting all reports from feasibility, environmental impact and public hearing through the collusion between political leaders, big business and bureaucrats.

The 2G spectrum scam of 2008 was one of the biggest scams in India in which the Telecom Minister was charged for issuing 2G licences to private telecom players at very cheap rates. No rules and regulations were followed but only favouritism was preferred while issuing the licences. The Comptroller and Auditor General (CAG) estimated that the scam caused a loss of 1.76 lakh crore to the government.

The offshore allotment of oil blocks and the manipulation of payments due from Reliance Offshore has been a continuing saga of several hundred crores of rupees of loss to the government, often caught up in unending litigation. Even international sports events to boost the image of the regime were turned into a source of “grand” misappropriation. The Commonwealth Games Scam (2010) involved an estimated amount of several thousand crores of rupees, involving Congress politicians, bureaucrats and corporate bigwigs. The charges involved payments made to non-existent parties and inflated prices while purchasing equipment. By the end of the UPA regime in 2014, the “gestalt” or steep shift in the public perception of corruption being seen in narrow, day-to-day retail, local bribes to that of “grand” scams got crystallised. The shift from “retail” bribes-based corruption to “grand” kickbacks was not confined to the parties in power at the national level but spread to the States as well.

And in this spread, what is noteworthy is that the more reform-oriented the State, the more seems to be the progress in the direction of scams. The model is that parties in power would avoid extraction of rents from government programmes, especially welfare programmes. They would also go a step further and introduce more populist welfare programmes with better vigilance, but go all out for mega projects, land allotments and big contracts that would spin more money.

“For instance, one hypothesis about why retail corruption has declined in States such as Andhra Pradesh and Tamil Nadu compared to Bihar is that in the former States, the ‘bribes’ politicians (and bureaucrats) used to extract from service delivery or entitlement programmes have been replaced with kickbacks (often larger in magnitude and less cumbersome to collect) from infrastructure projects or contracts.” The authors of this observation were aware that such hypotheses were difficult to test, but confirm that this view of shift in corruption was backed up by multiple conversations the authors had with bureaucrats, politicians, and academics. (The reference to Andhra Pradesh here is to the “AP land scam” in which the CAG alleged that the allotment of almost 90,000 acres of land, valued at Rs.1,784 crore, by the A.P. government during 2006-11 was characterised by grave irregularities involving allotment in an ad hoc, arbitrary and discretionary manner to private persons and entities at very low rates in exchange for investments in companies owned by the son of the then Chief Minister. The T.N. case refers to the amassing of wealth by former Chief Minister Jayalalithaa.)

It is not that “retail” corruption had vanished from the daily experience of the larger public. On the contrary, there are estimates that suggest that the total extent of bribes forced from the public continues to be as large or even more than the total sum involved in “grand” corruption. But the public anger and revulsion has turned entirely against the latter with far-reaching political implications. The mobilisation against corruption was largely based on the reaction of the middle class and the poor against the scams. The India Against Corruption (IAC) movement, launched by Anna Hazare, Arvind Kejriwal and their colleagues and supporters, shot to prominence in 2010 following revelations of massive corruption scandals in the final years of the UPA-II government.

This extensive anti-corruption mood of the nation was an opportune moment for the prime parties like the Bharatiya Janata Party (BJP) to capitalise in the political arena. It needed a political leader who could capture this public imagination by creating a belief that he or she could clean the nation of the scourge of corruption. There is an element of remarkable political magic in this whole design of constructing the weapon of demonetisation to destroy corruption and black money. The magical deception is in keeping the public at large in the dark on the root cause, viz., economic reforms, since the launch of which corruption has exploded, and making them believe that all corruption was the deed of a political party and all proceeds of corruption were in black money stashed up in cash. And this in spite of all evidence to the contrary.

How are corruption spoils held? For example, let us look at a real life case of monumental amassing of wealth through corruption by a political leader and how the illegal wealth was held by him. The former Chief Minister of Jharkhand, Madhu Koda, was arrested in 2009 and successfully prosecuted. The case revealed that his ill-gotten wealth was invested in 700 shell companies, in mines, in an island offshore of India, in real estate, sponge iron plants, private colleges in his constituency, transport and trucking as far away as Punjab and Haryana, hotels in New Delhi and Puri, a theme park, distilleries, print media and TV channels. Much of the corrupt black money amassed thus flows out as white. And where is the cash for the demonetisation to unearth?

Myth of seeing flow as stock

Let us turn to the basic known facts about the nature of black money, the sources of its generation, the forms in which it is held and the means of mitigating it. In simple terms, “black money” is that which escapes taxation. An equally important simple fact is that black money is a flow, not a stock, meaning that it cannot be captured, accounted and eliminated in one stroke. The existence of “black money” in the Indian economy is not a new phenomenon, but the magnitude of it has reached phenomenal proportions with the unfolding of the economic reforms since the 1990s. There have been estimates of the black economy and the “black money” generated in the country from time to time. Like the national income, the estimates of “black money” refer to the sum generated in an accounting year. Since it is not a stock, black money generated in one year may find ways of investment or use as white money in the successive transactions. Since accounting of all the shadow activities is by certain attributed values, the estimates could vary widely.

According to the World Bank, India’s “black money” in 2007 was about 23 per cent of its gross domestic product (GDP). Since there were no “reliable” estimates of “black money” generated in India and held within and outside the country, the UPA government commissioned the National Institute of Public Finance and Policy (NIPFP) to estimate “black money”. Though its report was submitted to the Finance Ministry in December 2013, the then Finance Minister did not place it in Parliament. Nor has his successor, Arun Jaitley, done so. But unofficial sources reveal that the estimated “black money” in 2012 was of the magnitude of 75 per cent of the GDP. And much of it is held in the form of gold, real estate, land, shares and stocks and offshore accounts.

According to some estimates, only about 6 per cent of the “black money” is held in the form of cash. “Black money” is a continuous flow as a part of the illegal and legal activities that are part of the socio-economic system. Illegal sources of black money that escape the tax network include smuggling, bootlegging, trafficking in drugs and sex- and crime-related extortions. Estimates suggest that criminal and illegal sources account for only a fraction of the total black money flow in the economy, while almost three-fourths are generated from the legal production, service, financial and trade activities.

Cost manipulation, manipulation of wage data and under-reporting of production lead to unreported income or profits from privatised public goods like education and health services, which have emerged as a large source of “black money” flow through unreported capitation and other charges. Corruption in State services like revenue, police, forest, etc., are the familiar sources of the so-called bribes. Apart from these retail types of corruption, there has been, as observed earlier, a growing “grand” corruption through allotment of access to natural resources like land, mines and infrastructure contracts. But relatively less known in the popular perception is the “black money” generated through international trade and financial transactions. These transactions are not only the largest channel for capital flight of the “black money” generated in this sector but also the main conduit for outflow of “black money” abroad.

‘Misinvoicing’ and black money

Since in the debate following the demonetisation, the international trade as the major source of black money and also as the mechanism for siphoning of resources abroad, and often to offshore tax havens, did not receive as much attention as it deserved, I spend some time in placing before you some academically and administratively well-known facts. Besides “hawala” transactions and illicit “hot money” through balance of payments, deliberate trade “misinvoicing” (or transfer pricing) constitutes almost 80 per cent of the “illicit financial flows” from developing countries. For quite some time, because of the complexity in obtaining the data on the comparable actual and reported prices of thousands of goods traded, estimating the “black money” generated through mispricing (over-invoicing of imports and under-invoicing of exports) was rather difficult. But more detailed data flowing from the International Monetary Fund on trade transactions has enabled Global Financial Integrity (GFI) [a U.S.-based think tank] to come out with fairly reliable estimates of “illicit financial flows” from developing countries since 2003.

“Illicit financial flows” refers to the movement of money that is illegally earned, transferred or utilised. This encompasses a broad range of activities: official corruption, laundering of criminal proceeds, terrorist financing and tax evasion. “trade misinvoicing” or over-invoicing of imports and under-invoicing of exports, involves falsifying the values listed on commercial invoices. This is an extraordinarily common tool by which corporations and individuals in developing countries avoid import or export tariffs, alter their income tax positions, evade foreign exchange controls or simply move their wealth to developed countries or tax havens. “Trade misinvoicing” is also a common method of shifting the proceeds of crime or corruption and is typically referred to in these cases as trade-based money laundering.

Deliberate “mispricing” or “misinvoicing” takes two forms, viz., “under-invoicing of exports”, which hides part of the export earnings which are retained in undisclosed foreign accounts; in addition, under-reporting of export earnings shows lower profits, resulting in tax avoidance in the domestic country. Similarly, “over-invoicing of imports” would show an inflated domestic cost of production and reduced profits in the balance sheet, evading domestic taxes to that extent. In addition, inflated payments shown for imports are retained in undisclosed foreign accounts. According to one report, in 2014 India accounted for half of global “mispricing” disputes.

The available estimates by GFI show that between 2003 and 2012, in a matter of 10 years, developing countries lost $6.6 lakh crore in illicit outflows. The top five exporters of illicit capital over this period were China, Russia, Mexico, India and Malaysia. There was a surge from India in 2009 and the country moved from fifth to fourth rank in this activity. India, during this period, accounted for a cumulative illicit outflow of about $440 billion or about Rs.30 lakh crore, which works out to an average annual outflow of about $44 billion or Rs.3 lakh crore. All this is what is described as “black money” and none of it is in Indian currency or in Indian accounts.

To understand the transactions in trade “mispricing”, even at the risk of sounding as an academic exercise, it may be useful to exemplify the process by an actual case under investigation. A typical case of “mispricing”, in this instance over-invoicing of imports, as a means of generating abnormal margin of profits that escape the tax network and end up as black money in offshore accounts of the corporate entities, could be illustrated by a live case of the Adani group of companies. This is about the contract to develop two electricity transmission networks in Maharashtra. This could also be used as a textbook case to illustrate as to how as a part of a structural adjustment programme in the name of reforms in the public utilities, the power sector faced liberalisation in the form of unbundling into segments of generation, transmission and distribution, and privatisation of these segments ending up as fertile sources of black money.

But, for the present, let us confine to this story of the contract for development of transmission network to illustrate “transfer pricing” or over-invoicing of imports. Based on a 97-page file of the Directorate of Revenue Intelligence’s (DRI) investigation, which it could access, The Guardian (August 15, 2017) reported in all forensic detail the process of generating profits through over-invoicing that escape taxation and end up as “black money”.

Here is the simplified version of the case. In 2010, an Adani company (AC) was awarded a contract to develop two electricity transmission networks in the northeastern parts of Maharashtra. This company (AC) used another Adani subsidiary (PMC projects) to source equipment it needed to build the network. PMC, in turn, sub-contracted the work to a company in Dubai (EIF). EIF procured equipment from South Korea and China and sold it to PMC in India. EIF placed about 26 orders from Hyundai Heavy Industries and procured equipment paying $65 million and sold the same to PMC for $260 million, with a clear mark-up of more than 400 per cent. EIF also purchased equipment from three Chinese companies and sold them to PMC with a mark-up of 860 per cent. The total assessable value of the marked-up invoices at which EIF sold to PMC was estimated at Rs.1,500 crore.

All this was paid by the Indian company through huge borrowings from Indian banks. Possibly this forms part of the stressed accounts of banks in India. While this will end up as a clear profit for the company in Dubai, where profits are nominally taxed, the cost of the transmission project in Maharashtra gets inflated and to that extent people end up paying inflated charges for electricity. Well, what does AC in India get? EIF was directly controlled by the Adani Group since it was owned by EIH, another group company, which, in turn, was owned by Asankya Resources Family Trust based in Mauritius and headed by one of the Adani brothers.

What is important to note here is that those involved in illicit financial outflows that get parked abroad are not content with the “black money” that hardly earns any returns in the tax havens. They would like to “round route” it as white money for making profits in the domestic financial markets or stock exchanges. In 1983, the Government of India entered into a double taxation avoidance agreement (DTAA) with Mauritius, by which if a registered company in Mauritius pays taxes in that country on profit or capital gains from investments in India, it need not pay taxes in India.

In the early 1980s, the financial markets or stock exchanges in India were hardly open for foreign investments, and the profits earned on these transactions were insignificant. But with the launch of liberalisation and economic reforms, the Government of India opened up the financial markets (stock exchanges) for foreign institutional investors (FIIs) and the economy for foreign direct investment (FDI) on liberal terms.

As part of promoting the FIIs in the stock market, the government in the 1990s extended the Mauritius-type DTAA to Singapore and Cyprus. With the opening up of financial markets, opening of offshore accounts and shell companies of those trading in the Indian stock markets boomed. Round routing of the spoils of illicit financial earnings made by “misinvoicing”, hawala or other routes of money laundering found the Indian financial markets as “white money” through shell companies in several tax havens including Mauritius, Singapore and Cyprus.

The 1990s also saw the invention of the Participatory Note (PN). PNs were not registered to trade in Indian domestic capital markets, and the nature of beneficial ownership or identity of the investor remains unknown. The result is no one can identify the ultimate holder of the PN. Unlike the stringent know your customer (KYC) norms that applied to domestic investors, the KYC norms for PNs were criminally lax. Those pushing their illegal wealth back into India took huge advantage of the PN tool. Most of the money was funnelled through the PN route by opening sub-accounts with FIIs.

Much of the black money held abroad was round routed into the Indian stock exchanges through PNs bought in Mauritius through front shell companies. According to certain estimates, a substantial proportion of FII investments were made through the PN route. And that almost all FIIs were running sub-accounts for dubious clients was well known, but repeated RBI warnings against it were ignored. In all this, there is hardly any hard cash involved, nor is the accumulation in the Indian banks but in offshore. Well, what does demonetisation do to curb this?

Since trade “misinvoicing” accounts for a substantial part of illicit financial flows, curbing it should be the major focus of measures of controlling black money. It requires cooperation between trading countries in sharing information on country-specific information on goods trades and their prices. Much more important is to boost customs enforcement by equipping and training officers to better detect the international “misinvoicing” of trade transactions. Trade transactions involving tax havens should receive highest scrutiny by customs, income tax and law enforcement departments.

Politics of the era of post-truth

As shown earlier, it is difficult to believe that the Prime Minister was not fully aware of the limited effect of demonetisation on corruption and black money and about the adverse effects on the people and the economy. The criticism against demonetisation is not based on any special knowledge but that which could have been available as advice to the Prime Minister, and there is evidence that he did get such advice. Possibly there might have been some overestimation of the extent of demonetised currency not reaching the banks and certain underestimation of the adverse impact. But it is certain that the Prime Minister had adequate information on the possible impact to a substantial extent. But then, why did he venture into this demonetisation measure that, as some people feel, has taken some shine out of his image? For an answer to this question we may have to go beyond conventional economic explanations to the nature of politics in this era of post-truth.

The Oxford English Dictionary comes out every year with its ‘International Word of the Year’, and its choice for 2016 was “post-truth”. “Post-truth” is defined as “…relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief”. In this context, truth, meaning a description of the world as it really is, has ceased to be important. Once corruption has evolved in the imagination of the people as big scams, and once people are made to believe corrupt accumulations of black money are hidden in piles of currency, the truth of describing that spurt in corruption scams were sparked by the neoliberal reforms and that much of what is accumulated as black money is hardly kept in cash does not seem to matter much to the people at large. It is on this post-truth “reality” that Prime Minister Modi has built up his political strategy of the grand narrative of destroying corruption and black money with demonetisation.

Ever since the big corruption scams occupied the political space and mobilisation of public opinion against the corrupt regime by movements like IAC offered ideal conditions for exploiting people’s images by whipping up their emotions, Modi saw a great political opportunity in building up a grand narrative against corruption and black money from the early days of the campaign for the 2014 Lok Sabha election.

The BJP Election Manifesto 2014 made corruption and black money the prime part of the “imminent” agenda. It began with the accusation: “All pervasive corruption under the Congress-led UPA has become a ‘National Crisis’.” It went on to add that by “minimising the scope for corruption, we will ensure minimisation of the generation of black money”. It also stated that the BJP was “committed to tracking down and bringing back black money stashed in foreign banks and offshore accounts. We will set up a task force for the purpose and recommend amendments to existing laws or enact new laws”.

The space and priority accorded to corruption and black money in the manifesto was to match the anger of the people against these issues. Narendra Modi launched a nationwide campaign trail on the plank of fighting corruption. It was a different matter that his whirlwind campaign by chartered planes and helicopters across the country was supposed to have been funded by the likes of Adani; his major theme of campaign was telling people that the Congress stood for the “ABCD of corruption”—A for Adarsh, B for Bofors, C for Commonwealth Games, and D for “demand ka karobar”. He wanted to demonstrate that the fight against corruption was on top of his government’s agenda, and on the very first day of his office, May 28, 2014, he announced the constitution of a Special Investigation Team (SIT) headed by a retired judge of the Supreme Court to probe “black money” abroad.

It was rather pathetic and also the reality of the post-truth era that the Congress’ manifesto 2014, which carried a long list of “landmark legislations” of the UPA-II (2009-2014) that included issues ranging from food security, land acquisition, sexual harassment, Lok Pal and Lok Ayukta, RTE, NGT, street vendors and abolition of manual scavenging, was overwhelmed by the deadweight of the corruption image. The corruption narrative was designed to keep alive people’s anger against the previous regime, as much as their hopes on salvation in the present regime.

As the months passed, the party agenda gradually took the shape of a one man-agenda: that of Prime Minister Modi. On August 15, 2015, from the ramparts of the Red Fort, the Prime Minister announced: “I want to reaffirm that this nation will get rid of corruption.…we have to start from the top.…corruption is like termite, it spreads slowly, reaches everywhere but it can be beaten with timely injection. …there is work to be done. …with your support, I pledge a corruption-free India.” There were also measures like a new black money Act with provisions for strict penalties and a new income disclosure scheme for domestic black money. As part of the 2015 Budget, the Prevention of Money Laundering Act was amended with provisions for confiscation of domestic assets if illegal assets are located abroad, and renegotiation and revision of DTAAs with Mauritius, Singapore, Cyprus and Switzerland were initiated. Even the notorious PNs through FIIs were regulated through SEBI intervention.

Although these measures in themselves were important steps, none of them got as much public attention as to raise the intensity of the feeling among the public that the government was doing something that would effectively bring the corrupt to book and “black money” to confiscation. Added to this was the growing public feeling that the government drew a near-blank in bringing back “black money” hoarded abroad. If these feelings were allowed to pass, all the political gains that were designed on the wave of anti-corruption were in danger of vanishing. It was to stem this danger of popularity downswing that the demonetisation measure came, with all the mythological refurbishments to bolster the grand narrative of fighting corruption and “black money”.

When the Prime Minister went on to personally announce the demonetisation decision on November 8, 2016, he was trying to build moral binaries by painting the previous regime as all evil, and that the task of the present regime was to cleanse [society of] it. In the process, what unfolds is not as much as the regime or the government, but Modi himself with a sacred mission. In this, full advantage was taken not only of the corruption syndrome associated with the UPA but also its images of indecision, weak leadership and “policy paralysis”. Modi began by saying that “there comes a time in the history of a country’s development when a need is felt for a strong and decisive step”, and that step was demonetisation, to break the grip of corruption and “black money”.

He went on to say that “time and again, I have seen that when the average citizen has to choose between accepting dishonesty and bearing inconvenience, they always choose to put up with inconvenience. They will not support dishonesty”. Even as he appealed to their image of “black money” as cash, he turned rhetorical: “Which honest citizen would not be pained by reports of crores worth of currency notes stashed under the beds of government officers? Or by reports of cash found in gunny bags? … So, in this fight against corruption, black money, fake notes and terrorism, in this movement for purifying our country, will our people not put up with difficulties for some days? I have full confidence that every citizen will stand up and participate in this ‘mahayagna’.”

He went on to appeal: “…after the festivity of Diwali, now join the nation and extend your hand in this imandari ka utsav, this pramanikata ka parv, the celebration of integrity, this festival of credibility.” The entire speech was also replete with morality binaries, with him as honest, clean, credible and of unimpeachable integrity, while the previous regime was all indecisive, immoral and dishonest. Within weeks, as the adverse effects of demonetisation unfolded and even as people were complaining about the inconveniences suffered, instead of addressing them, he tried to show that the criticism was by evil forces against him. “I know what kind of forces and what kind of people are against me now ...They will not leave me alive. They will destroy me.”

He was alluding to his earlier narrative “…those who looted the country for 70 years” and to contrast, he claimed: “I am a fakir they are out to destroy.” And went on to add: “They thought if they pull my hair, I will stop and do nothing. I will not stop doing these things, even if you burn me alive.”

The rhetoric seemed to have worked, emotions roused, beliefs both in the leader and his determination to do “shuddhi”, or cleansing, of the nation strengthened. What puzzled many was that even as they suffered, people chose to be carried away by his rhetoric rather than look at the factual analysis of the critics.

A group of cultural anthropologists raised the question: “Why did the experience of suffering across the nation not manifest in mass protests or mobilisation but in fact brought BJP back to power in 2017 in Uttar Pradesh?” The suggested answer is that in the wake of economic liberalisation since 1991, there has been “erosion and slow death of civil society” and the resulting “passive conditions of citizenship”. Perhaps not. The truth may be close to the “post-truth” era in politics which is also a product of neoliberalism which brought a great divide among the people—with the vast majority being “left behinds” of the economic liberalisation, while a few including those in scams and those outside in the corporate world, had most of the share of growing wealth.

For the people at large, what counted was their own perception and imagined “reality” that was perpetuated by the popular media and exploited by opportunist politics, rather than laboured intellectual analysis. It was, to repeat post-truth, objective facts which were less influential in shaping their opinion than appeals to emotion and personal belief. It has been happening to the imagination of “left behind people” elsewhere—in the United States and in the United Kingdom during Brexit. And it happened for Modi. Even if a superior narrative called him a failure, in popular perception he was acceptable because he tried. Even if he failed he won the hearts of the “left behind people” (who were often the butt of ridicule as people waiting for Jan Dhan accounts to be filled by the “black money” unearthed) because of the sick venality all around.

As a perceptive political commentator pointed out, there are three significant aspects one can observe in the Modi political narrative. The first is moralisation of politics, the second is the infusion of emotion into policy debates, and the third is the reduction of all debate to a single question: whether one is in support of him or not?

Any policy criticism is likely to be brushed aside as criticism of the leader, the emerging strong, determined leader. Ironically, it is this success by perpetuating false belief and rousing that is a great threat to the democratic fabric of the country exposing it to the dangers of a tendency towards fascism. The vulnerability lies in the possible parallel that the “demonetisation story” holds to the ongoing “nationality story” of the present regime. It may be instructive to recall what the incisive political commentator, G. Sampath, had drawn attention to. To see whether the nationalist ideology espoused by the present regime has anything in common with the ideology of fascism, he suggested going back to Benito Mussolini and his seminal work, The Doctrine of Fascism, published in 1935, which identifies five central principles of fascist ideology.

The first and most fundamental is the primacy of the state’s interest over an individual’s interest. (In the present context, let us read state and leader interchangeably.) “The fascist conception of life stresses the importance of the state and accepts the individual only in so far as his interests coincide with those of the state.” To understand what it means under the present regime, we cannot have a better authority than Amit Shah, who recently stated that “… NDA regime believed in taking decisions that were good for people, not those that people would like”. Those who know better, like Arun Shourie, call it a “pyramidical mafia state”.

The second principle of fascism is the primacy of state over nation: “It is not the nation which generates the state …rather it is the state which creates the nation.” Since we are reading state and leader interchangeably, this does not require any authority to explain.

The third is the rejection of democracy. “In rejecting democracy, fascism rejects the absurd conventional lie of political equalitarianism.” Although it is heard that some of the supporters of the present regime think that the Indian Constitution is based on Western ideas, the discourse has not yet reached the heights of denying democracy, certainly, but systematically denigrating it to clientilism. After all, our democracy is already as hollow as the proverbial “carrot plant” that Arundhati Roy talks about. It appears when going to school, she along with friends would steal carrots from an old lady’s garden, eat the carrots and plant the leaves back in their place so that the old lady by seeing the leaves would feel the carrots were safe. Already there are several descriptions of the Indian democracy as “authoritarian populism”, “oligarchical democracy”, etc.

The fourth principle of fascism is the state’s non-secular character: “The fascist state sees in religion one of the deepest of spiritual manifestations and for this reason it not only respects religion but defends and protects it.” And which religion, by what means and with what effect the present regime promotes, needs no explanation. The fifth principle is a combination of all the four: that the state as the repository of all virtue, and the state (here the leader) is “the conscience of the nation”.

There is no greater political danger than constructing an image, making the people believe in it and ride on those beliefs—nothing short of reducing citizens to subjects. One is reminded of the proverbial Telangana leader Kaloji’s apt description of make-believe politics. He used to say that it was like the sheep’s belief that the wool on their skin was from the shepherd’s woollen rug due to his generosity. So much for citizenship.

The looming danger is more imminent, particularly with the opposition parties almost without any promise of a leadership that could challenge the present regime nor with strategies to capture the imagination and confidence of the people.

The moral bankruptcy of the main opposition party was exposed when it failed to link corruption and “black money” to economic reforms, since it was its own sin. The opposition parties together have failed to provide any comprehensive agenda for the eradication of corruption and “black money”. Nor are they ready for electoral reforms, one of the main causes perpetuating corruption and “black money”.

I would like to close by recalling one of the perceptive observations on what the “demonetisation” episode has thrown as a challenge before us. “History will tell if demonetisation proves to be the thin edge of the wedge that sets back India’s institutions, creates a brotherhood of elite ‘experts’, who feel compelled to validate post-truth policies, and which bypass the citizen while pretending to minister to his or her true needs.”

(The announcement of the action of demonetisation by the Prime Minister of India on November 8, 2016, brought extensive response or reaction in both popular press and academic writings from all over the country, and even from abroad. Also, there has been extensive literature on corruption and black money over the last several decades. I have benefited from these writings and also made use of many of them. I am grateful to all of them, and also sorry for not referencing them here.)

(Excerpts from the Com. P.V. Raju Memorial Lecture titled "Demonetisation, Corruption and Black Money: The Unfolding Dangers of Opportunistic Politics in the Era of Post-Truth" delivered by Prof. D. Narasimha Reddy, Professor of Economics (retd), University of Hyderabad, in Vijayawada on September 22, 2017.)

China

Paradigm shift

ATUL ANEJA in Beijing world-affairs

UNDER grey skies and amid a steady downpour, Chinese President Xi Jinping delivered a stirring address at the imposing Great Hall of the People, one of the 10 iconic buildings built by Mao Zedong to mark the 10th anniversary of the People’s Republic of China (PRC).

On October 18, Xi read out his work report at the inaugural of the 19th congress of the Communist Party of China (CPC). In the twice-a-decade event, he took stock of the gains and pitfalls of the previous five years. But, more importantly, he unveiled a grand two-stage rolling plan. In tune with the PRC’s centenary in 2049, China will become a leading developed nation, having accomplished the unprecedented goal of becoming the world’s first advanced socialist country, he said.

A few decades ago, when its enemies rejoiced over the collapse of the Soviet Union, such words would have sounded anachronistic—the grieving utterances of diehards in a deep denial mode. But in Xi’s China, socialism rocks. China is already the second largest economy in the world. It is fast becoming the centre of a new wave of inclusive globalisation. Its Belt and Road Initiative is industrialising large parts of the world on the pillars of connectivity and investment in billions of dollars. China’s bullet trains are the envy of the world, as are its quantum satellites—the future of its unhackable cyber security.

In his marathon speech that lasted over three hours, Xi said his grand mid-century vision would be realised in three distinct phases. China will become a “moderately prosperous society” by 2021, the year that will mark 100 years of the CPC’s formation. China’s new stage of development will be consolidated by 2035. From then onwards, China will be on the home stretch to become an advanced socialist country, and the goal will be accomplished by 2050. Xi was unambiguous in declaring that China stood at a “new historical juncture” and would pursue its own path of developing “socialism with Chinese characteristics”. This implied that a Western-style “opening up” was not on Beijing’s agenda.

In the presence of former icons Jiang Zemin and Hu Jintao, Xi also underscored that developing countries can appropriately adapt China’s path of development. Rather than being on the defensive, China was confidently offering the Global South its model as an alternative to Western-style democracy. In doing so, Xi was openly challenging the “end of history” ideologues who had posited the permanence of Western-style liberal democracy and neoliberal economics following the fall of the Soviet Union.

Beijing consensus

Scholars such as Joshua Cooper Ramo have proposed that the “Beijing Consensus” supporting China’s economic development model can emerge as an alternative to the Washington Consensus of policies advocated by the International Monetary Fund (IMF), the World Bank and the United States Treasury.

Xi stressed that the Chinese model was “blazing a new trail for other developing countries to achieve modernisation”. He added that the Chinese path offers “a new option for other countries and nations who want to speed up their development while preserving their independence…”

In an interview with the state broadcaster China Global Television Network (CGTN), China commentator Robert Lawrence Kuhn observed that Xi’s speech recognised the linkage and integration between achieving the goal of a “moderately prosperous society” by 2021 and the eventual goal of becoming an advanced nation by 2049. He added that by the mid-century, China will have evolved “into an advanced nation and will be a global leader in all categories of human importance—economics, governance, science and technology and culture”.

Without referring to the U.S. administration under Donald Trump, Xi underscored China’s proactive support for inclusive globalisation and combating climate change. “No country alone can handle all the challenges that mankind faces and no country can retreat into self-isolation,” he said, listing regional and economic instability, a widening wealth gap, terrorism, major epidemics, cyberspace insecurity and climate change as major challenges facing humankind.

In remarks meant to allay fears among neighbouring countries triggered by China’s rise, Xi invited “peoples of all countries to join China’s effort to build a common destiny for mankind and enduring peace and stability”. He said that Beijing would maintain a defensive policy on national security and refrain from interfering in the domestic affairs of other countries. The President unveiled his vision of China’s high-minded and momentous goals in what was, at the end of the conference, encrypted, “Xi Jinping’s Thought on Socialism with Chinese Characteristics for a new Era”. Xi summed up his approach in eight points. He said that China aspired to become a “great modern-socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful by the middle of the century”.

Principal contradiction

Turning to theory, he underscored that the “principal contradiction” facing Chinese society in the “new era” was between “unbalanced and inadequate development and the people’s ever-growing needs for a better life”.

An explainer published by Xinhua, the state news agency, has tried to decode the hidden meaning behind the “principal contradiction,” purposefully highlighted by Xi. “Principal contradiction” is not an “obscure piece of political jargon” but a central part of the “dialectical materialism” through which Marxists interpret the world, the commentary observes.

It adds: “Contradictions—or ‘dynamic opposing forces’—are omnipresent in society and drive social change. The ‘principal contradiction’ is what defines a society. By identifying and solving it, society develops peacefully. Left unsolved, it can lead to chaos and eventually, as Marx predicted, to revolution.”

An inaccurate reading of the “principal contradiction” can lead to disastrous consequences. China faced “prolonged social turmoil” after the CPC wrongly diagnosed “proletariat versus bourgeoisie”, or an irreconcilable class war between the working people and the affluent, as the “principal contradiction” during the Mao era. But in 1981, the CPC changed its assessment of the “principal contradiction”, which led to structural market economic reforms, leading to nearly 10 per cent expansion of the Chinese economy for the next 30 years.

The situation has changed yet again. Pointing to the dawn of a “new era”, Xi has underscored that the principal contradiction was now “between unbalanced and inadequate development and the people’s ever-growing needs for a better life”. The commentary explains that aspirations among the Chinese people have spiralled. Many of them are now seeking an education at Oxford or Cambridge, a vacation in California, or a villa in Sydney. “This demand for a better life overseas is derived from an inability to satisfy these desires at home. The very highest level of education is not available or in acute short supply. There are long waiting lists in the very best hospitals. Tourist sites are crowded and services there have hardly advanced at the same pace as people’s expectations.”

Chinese regions have also developed unevenly. Besides, the gap in personal wealth is a major concern. “The country’s three richest men—two Internet gurus and one property magnate—are each worth more than 30 billion dollars. Meanwhile, millions of people struggle to get by on less than a dollar a day,” the report observes. The fulfilment of aspirations for equitable growth, a cleaner environment, a richer cultural life, and a secure external environment identified by the current “principal contradiction” will guide policy formulation in the coming decades.

Xi’s Thought embeds his earlier “Four Comprehensives” formulation. With focus on achieving what are called the two century goals of 2021 and 2050, Xi has made relentless “all-round” reforms—economic, political, cultural and ecological—as the centrepiece of his doctrine. He has also stressed strict internal vigilance over the CPC, including a relentless anti-corruption campaign, and the “rule of law” as the pathway for China’s all-round socialist modernisation.

Analysts point out that the slogan of “deepening reform” includes the focus on “supply-side” economics. That covers production and consumption of the most advanced goods and services, achieved by pursuing and developing Germany’s Industry 4.0 model. It includes focus on 10 most advanced industrial sectors, such as eco-friendly electric vehicles, aviation products and Big Data.

The “Four Comprehensives” have highlighted the relevance of a supporting legal regime, showcasing the importance of “rule of law,” in tune with achieving economic, environmental and other goals.

Xi has insisted on a corruption-free party as the bedrock to steer the country’s current “decisive stage” of transition. The “strict” governance of the CPC, one of the “four comprehensives, has unleashed an anti-corruption campaign that has already netted six tainted leaders who once occupied the top echelons of the party: the former security Czar Zhou Yongkang; two former vice-chairmen of the Central Military Commission, Guo Boxiong and Xu Caihou; Ling Jihua, a powerful insider in former President Hu Jintao’s camp; and former Chongqing party chiefs Bo Xilai and Sun Zhengcai.

Xi stressed that the “defining feature of socialism with Chinese characteristics is the leadership of the CPC…The Party is the highest force for political leadership”.

Xi’s Thought in the Constitution

In its closing session on October 24, the CPC formally embedded Xi’s Thought in the Constitution. Only Mao’s “Thought” and Deng’s “Theory” have been incorporated in the basic law of the party-state. Deng’s name was added after his death in 1997.The contributions of two other former Presidents—Jiang Zemin and Hu Jintao—do not carry their names in the Constitution. Xi’s Thought will act as a guide to the party’s work in the coming decades.

As expected, the amended Constitution affirmed that Xi’s signature fight against corruption will continue. The Belt and Road initiative, an ambitious programme to build infrastructure linking China with its neighbours and beyond, was also included in the party Constitution.

At the end of the party congress, the 2,336 delegates drawn from across the nation approved the new central committee consisting of 204 members along with their 172 alternate members. They also voted for the 133 member Central Commission for Discipline Inspection (CCDI), the county’s top anti-corruption body. A day later, the central committee endorsed a 25-member Politburo, and the top seven leaders comprising the apex standing committee of the Politburo. On October 25, after the new central committee concluded its first plenum, the stage was set for Xi to present the seven-member standing committee, China’s highest decision-making body. Xi was to become general secretary of the CPC for a second consecutive five-year term.

New team

Against the backdrop of a giant Chinese painting, Xi’s team made a carefully choreographed appearance on a vast red carpet. The President smiled and waved at the selected media pool assembled hours in advance in the spacious hall hand-picked for the ceremony. Xi then introduced the remaining six men of his team: Li Keqiang, Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng.

In his opening remarks, Xi, flanked by his brand new team, underscored the importance of achieving China’s two centenary goals. “Not only must we deliver the first centenary goal, we must also embark on the journey toward the second centenary goal,” he observed.

There appeared to be no dearth of talent in the seven-member panel. Li Keqiang, who has served his first term as Premier and headed the State Council, China’s cabinet. is expected to continue as Prime Minister for a second term. The portfolios of the rest of the team are yet to be announced. Observers point out that the new standing committee is the result of a delicate balancing act that the CPC carried out, steered by Xi.

“Among these seven leaders, Xi Jinping is very familiar with Li Zhanshu and Zhao Leji. They really worked as a team in the past five years,” said Cheng Li, senior fellow at the Washington-based Brookings Institution, in an interview with Chinese state broadcaster CGTN.

He added: “Li Keqiang and Wang Yang—they are actually the proteges of Xi Jinping’s predecessor Hu Jintao. Han Zheng and Wang Huning both worked in Shanghai—very familiar with another predecessor Jiang Zemin. So this is actually a team of rivals who will be working together. That shows the solidarity and unity of the leadership.”

Regarding specific portfolios, there is widespread expectation that Li Zhanshu will take over as the head of China’s National People’s Congress (CNPC), the country’s top legislative body. The decision will be in tune with Xi’s focus on cementing the Socialist Rule of Law in China, requiring extensive interaction with the CNPC.

Wang Yang is likely to head the Chinese People’s Political Consultative Conference (CPPCC), the country’s top advisory body tasked with generating fresh ideas.

Wang Huning, 62, the top party theorist and director of the Central Policy Research Office, appears set to assume charge of ideology, propaganda and party organisation. He is expected to play a major role: Xi in his inaugural address stressed that CPC members must be adequately armed with “theory” to guide their professional conduct.

Zhao Leji, currently the head of the organisation department of the party and personnel, is likely to replace Wang Qishan, China’s anti-corruption czar who has retired. Han Zheng, 63, the Shanghai party chief, appears all set to become the executive vice premier, assisting Prime Minister Li.

Xi’s career

Xi’s team is emblematic of China’s abiding faith in meritocracy, rooted in its history. The emphasis on rule by gifted elite can be traced more to Confucius and perhaps less to Mao or Marx. Xi fits naturally into China’s new-age meritocracy. But so does the rest of the standing committee. He graduated from China’s prestigious Tsinghua University, majoring in Marxist theory and ideological and political education, according to CGTN. After his graduation, Xi rose steadily in the ranks of the CPC, which he had joined in 1974.

He gained substantial administrative experience by assuming leadership positions in four Chinese provinces, starting with Hebei, a province on the doorstep of Beijing. Later he also served as vice mayor in Xiamen, the coastal city and also the capital of Fujian province, well recognised for recently hosting a summit of the BRICS grouping comprising Brazil, Russia, India, China and South Africa. Xi later served as Governor in two coastal provinces, Fujian and Zhejiang. A pension-fund scandal brought him to Shanghai, where he played the role of a troubleshooter, serving as the party secretary of the municipality. His successful handling of the Beijing Olympics in 2008 further enhanced his reputation, laying the foundation for a leadership role within the ranks of the standing committee of the Politburo. In 2012 he became the general secretary of the CPC.

Li Keqiang also has top academic qualifications. He graduated in economics from Peking University and followed it up with a doctorate in the same subject.

Li Zhanshu, Xi’s right-hand man during his first term, has an executive master’s degree in business administration.

Wang Yang also has a master’s degree from the University of Science and Technology of China. China’s chief ideologist, Wang Huning is a post-graduate in law from Shanghai’s Fudan University.

Zhao Leji has majored in philosophy from Peking University, followed by a master’s degree from the CPC central committee school. Han Zheng, the departing party secretary of Shanghai has a master’s from East China Normal University.

Core values

“We are witnessing the return of a more historical and humanistic perspective on the world, an emphasis on education, a concern for family across several generations, and a new assessment of the value of China’s tradition of political meritocracy,” says Daniel Bell, author of the bestseller The China Model: Political Meritocracy and Limits of Democracy. In an interview to The Diplomat magazine, he highlights that for long the Chinese have believed that “the selection and promotion of leaders with superior abilities, ethical qualities and social and cultural skills” are best equipped to exercise leadership.

He adds: “The perspective has Confucian roots, but it has been modernised and has been the core of the strategy for economic development in China and other East Asian countries such as Korea and Japan.”

Apparently, in China, “core Confucian values” are regaining salience, not only in government, but also in other sectors such as business and education. The return of Confucianism and meritocracy signals growing sophistication in Chinese ideology, re-energising Marxism.

It was therefore not accidental that before the 19th CPC congress folded up, it was announced that the Second World Congress on Marxism would be held in Peking University next May. It will coincide with the 200th anniversary of Karl Marx’s birth and the 40th anniversary of China’s reform programme.

Wang Huning’s presence in the team best exemplifies the strong return of ideology in Xi’s China. In fact, Xi’s speech may have echoed some of Wang’s ideas. Even before entering the elite leadership panel, Wang had established himself as a blue-chip ideologist. In tune with Xi’s emergence as China’s leader in 2012, Wang’s influence as a leading theoretician had also been rising. He has been credited with arming former President Jiang Zemin with ideas for his “Three Represents” code. He had also advised President Xi’s predecessor, Hu Jintao, the architect of the Scientific Outlook on Development. In a show of unity and cohesion within the CPC, both Jiang and Hu were part of Xi’s entourage at the inaugural of the 19th party congress.

Though known as an intellectual who spent his formative years in Shanghai’s Fudan University, Wang is not unacquainted with Beijing’s political universe. He was inducted in the central secretariat that manages the day-to-day running of the Politburo and its Standing Committee by former President Hu. Ahead of his formal induction in the standing committee, the Hong Kong-based South China Morning Post reported that Wang’s “possible ascension reflected the pressing need for Xi to have someone at the top to provide ideological backing for his ambitious reform programmes”. Despite spending time in the U.S., Wang shows no signs of being enamoured by Western-style liberalism. On the contrary, he seems inclined to back an independently developed homegrown ideology, rooted in China’s unique national experience.

In an article published in March 1988 in a Fudan University journal, titled “Analysis on the Ways of Political Leadership During the Modernisation Process”, Wang advocated the adoption of a “centralised” political model over a “democratic” and “decentralised” one. He said centralised leadership would promote “rapid economic growth” and better steer distribution of “social resources”.

Wang also underscored that as China modernises, “the scope of the policymaking by the political leadership will expand without precedent”, requiring the steadying presence of a centralised leadership armed with a broad vision and a high sense of responsibility.

Wang’s rise can be largely attributed to his talent and his Shanghai roots. People’s Digest, a state-run magazine, points out that Zeng Qinghong and Wu Bangguo, former Shanghai officials who later became members of the Politburo’s standing committee, strongly backed Wang during his formative years. When Jiang, a former Party Secretary of Shanghai, became President, Wang found a place in the CPC’s Beijing-based Central Policy Research Office.

No clear succession plan

The new leadership, however, does not suggest a clear succession plan. “There have been no surprises in the lineup, but the issue of the next generation of leadership remains unresolved,” says Einar Tangen, a Beijing-based current affairs commentator, in a conversation with Frontline.

Commenting on the CPC’s decision not to earmark succession, the South China Morning Post pointed out that President Xi has made a decision of “far reaching consequences”. “This opens the way for China to rethink its power transition mechanism and to give several possible candidates time to prove themselves,” the daily observed. The newspaper’s former editor Wang Xiangwei said Xi’s decision not to pick a successor “could prove pragmatic from a historical perspective”.

“China’s feudal history from the Qing dynasty has shown that anointing an heir early can be problematic, as lower ranking officials try to ingratiate themselves with the heir apparent, thus creating two power centres and making the heir himself a potential target of attacks.”

Though the practice of appointing a shadow leadership, instituted by Deng, may have its merits, it does have serious drawbacks. Wang Xiangwei underscored that designating successors “has tended to lead to more intense power struggles, as exemplified by the long-standing rumours of an attempted coup against Xi back in 2012 during his rise to the top”. “The rumours have been partly confirmed by a number of senior officials who have recently praised Xi for saving the party and the country by foiling the activities led by Zhou Yongkang, a former Politburo Standing Committee member, Bo Xilai, a former Politburo member, and Ling Jihua, former chief of staff to Hu Jintao. All three, along with many of their allies, have since been jailed on corruption charges, among other crimes.”

Move to modernise PLA

The day he was appointed general secretary, a new lineup of the apex Central Military Commission (CMC) was announced. A day later, Xi urged military leaders to transform the People’s Liberation Army (PLA) into one of the leading fighting forces by 2050. He said the Chinese military must be fully modernised by 2035.

The move is not surprising. President Xi has made the PLA’s modernisation one of the core themes of his Thought. In his speech, he underscored that the “Party’s goal of building a strong military in the new era is to build the people’s forces into world class forces that obey the People’s command, can fight and win, and maintain excellent conduct.”

Xi heads the CMC, but its size has now been shrunk to seven, from the previous 11. He has appointed PLA Air Force General Xu Qiliang as the first Vice Chairman of the CMC. Gen. Xu served as the second vice chairman during President Xi’s first term. General Zhang Youxia will now become the second vice-chairman.

Chinese media reports say that President Xi and General Xu worked together in the coastal city of Fuzhou. Xu was appointed local commander of the Air Force in Fuzhou in late 1989, a year before Xi became the party head of the city.

General Zhang, the second vice chairman, is also well known to President Xi. Both are natives of Shaanxi province, and their fathers worked together in the 1940s during the Chinese revolution.

The other four CMC members are General Wei Fenghe, General Li Zuocheng, Admiral Miao Hua and Lieutenant General Zhang Shengmin.

General Zhang Shengmin is the chief of the CMC’s anti-corruption Discipline Inspection Commission. Analysts say that his appointment in the CMC signals that there will be no slide in Xi’s massive anti-graft drive in the PLA, which has already felled more than 100 generals.

Two former CMC Vice Chairmen Guo Boxiong and Xu Caihou were arrested for corruption. Xu later died of cancer while in detention.

President Xi has already brought in major structural changes in the military focussing on joint tri-service combat, undertaken by five newly formed theatre commands. Clearly, even before the dust had settled on the 19th party congress, Xi was walking the talk of instituting relentless reforms in tune with his Thought. Rapid changes in other avenues can be assuredly predicted as China, steered by Xi, begins another Long March to achieve the two centenary goals.

Textile sector

A spanner in the works

ANUPAMA KATAKAM cover-story

IN OCTOBER this year, Gujarat Chief Minister Vijay Rupani announced that the Gujarat Industrial Development Corporation (GIDC) would set up 16 additional industrial estates to attract Micro, Small and Medium Enterprises (MSME). Rupani said the government planned to invest Rs.19,650 crore in the hope of encouraging enterprise as well as generating large-scale employment.

With 202 industrial estates, Gujarat has been at the forefront of encouraging small to medium businesses. After the demonetisation debacle, which affected this sector severely, the State has gone into overdrive to prop up an area that has been a significant contributor not just to the State exchequer but to the country. The announcement came a few months after the government gave away Rs.730 crore as incentives to 16,000 MSME units wanting to expand or set up new units in the State. “These companies play a significant role in our economy and in employment, we have to assist in their growth,” Rupani said at a public event.

Are these announcements part of wooing the large base of businessmen and traders in Gujarat in an election year? The 3,76,357 registered MSMEs in Gujarat are critical to the State’s growth. According to the Gujarat Industries Commissionerate, the MSMEs employ close to 26 lakh people.

In the initial weeks of demonetisation, the MSMEs were obviously hit hard, largely because of their dependence on cash. Gujarat, with its vast number of enterprises, secondary businesses and trading hubs such as Surat for textiles and Bhavnagar for diamonds, was initially gripped by paralysis. But no sooner had they recovered from it than GST was slapped on them.

Frontline spoke to several businessmen and traders in Vadodara and Surat about the initial impact of demonetisation as well as the situation a year since. Businessmen in Vadodara said it had been a rough year. However, they hope the slew of measures announced by the State government will help them tide over the rough patch.

“We did operate a considerable amount in cash, so post-demonetisation, the lack of liquidity in the system affected us. That took a toll on revenues as no one had money to purchase and the supply chain that worked on cash was affected. Just as that was settling, GST hit us, and putting that process in place set us back again,” says Nilesh Shah, who runs a steel-cutting tool unit at the Makarpura GIDC in Vadodara. He says his business has come down by 30 per cent following the introduction of the two economic policies.

“What has this all been for? Why did we have to go through all that pain when things are back to where they were? The money is back in the system and we have gone back to dealing in cash again. Demonetisation seems like a terrible nightmare,” says Shah.

With demonetisation, MSMEs were unsure of getting the payments due to them from customers in time. That meant less production and further slowdown for the people who provide them with raw materials, and shortage of supply, leading to inflation on what is available, says an analyst.

“Between demonetisation and GST our order book has gone down by 15 to 20 per cent. You will notice that there is hardly any activity in the area. We could hear the noise till quite late at night. Some factories would work two shifts. It’s very quiet now after 6 p.m.,” says Ahmed Memon, who runs a small machine tool industry. “There is a reduction in work and we do not need so much labour. As a result, people have lost jobs or get reduced daily wages.”

Memon’s words are not far from the truth. It is eerily quiet while walking around the Makarpura GIDC estate. The shutters of most factories are open, but there are fewer workers.

Once a significant princely state, Vadodara, also known as Baroda, developed into a major industrial hub with chemical, oil, engineering, plastics and pharmaceutical companies. Thanks to these large industries, the ancillary sector too evolved and thrived. GIDC estates mushroomed as the State recognised the value of these companies. There are now 13 GIDCs in Vadodara district alone.

“Our businesses run on small margins, a large part on cash and in many ways using traditional methods of entrepreneurship. Demonetisation and GST forced us to change this and modernise,” says Memon. “However, it is a capitalist approach and a pro-big industry move. They need to realise that in India we are the backbone, we grease the economy and generate employment.”

Several economists have pointed out that the post-demonetisation reforms in MSMEs will apparently make companies comply with tax obligations, become more transparent and reduce unaccounted transactions. This would, in turn, help scale up operations and lessen corruption, leading to an overall improvement in the economy.

But there is a flip side to it. Take, for instance, a paper box-making company supplying packaging requirements of FMCG (fast-moving consumer goods) companies. The scrap that the company buys to make cardboard is paid in cash and often unaccounted. The final product that big companies buy too is paid out in cash. This helps the small businessman to distribute wages to daily wagers and others who work for him.

“The fundamental mistake they made was to treat all cash as black money. Not all cash is black,” says Memon. “The worst for us was the drying up of cash and accounting for it. But within eight to ten months it has settled. So why was it done is the main question.”

Memon gives an example of a situation which explains the problems of an MSME. An acquaintance of his bought for Rs.3 crore a machine that makes cardboard boxes. However, he needs to buy scrap paper to make cardboard. The scrap dealer wants only cash. Even if he had an account, he would not take a cheque as that money would need to be accounted for. But the MSME has GST to contend with. The machine is lying unused and the businessman is in debt.

Minimum wages for unskilled labour at a GIDC estate is Rs.380 a day and they work for 26 days a month. For skilled labour it starts at Rs.500. It is a substantial amount, says Abhay Khatri, a mechanic in a small tool-making factory. “Many unskilled workers lost jobs and went back to their villages soon after notebandi [demonetisation]. Some had to reduce jobwork, but I think we are okay now. Because of lack of cash we had problems shopping for day-to-day goods, but even that has settled.”

The lack of cash and reduction in purchasing power was probably what hit the small-scale industry the most, says Memon.

Surat still reeling

Among Gujarat’s several industrial hubs, Surat is the biggest in terms of MSMEs and small traders. As Asia’s largest market for man-made fabric, the city is an economic powerhouse. Textiles and diamonds are its largest businesses. The textile trade has several industrial processes at different stages. For instance, weaving grey fabric, dyeing, printing and embroidery are part of the process that involves thousands of workshops. According to the Federation of Surat Textile Traders Association (FOSTTA), the livelihoods of almost 25 lakh people are dependent on Surat’s textile trade.

“When demonetisation hit, the first thing people did was to deposit cash and spend the surplus. Initially, traders saw very good business as women were trying to offload cash. Then it dried up. Last Deepavali we witnessed a drop of 50 per cent in sales,” says Champalal Bothra, FOSTTA president. “No one wanted to spend. It has improved, but then we got hit with GST.

“Looms that would operate for 24 hours have reduced to eight hours. Our production, which was at 4 crore metres a day, has come down to 1.5 crore metres. Close to 89,000 looms were sold in the past year. Lakhs of workers have returned to their villages. The situation is quite dire,” says Bothra. “People’s spending power has come down, the demand has come down, and Chinese imports are affecting us now,” he says.

Diamonds, textiles and dyeing are the worst affected, says Arun Mehta, vice president of the Gujarat branch of the Centre of Indian Trade Unions. “It is not a good situation as labour is leaving in thousands. Many small diamond units have shut down as there is no demand in the market.”

“More than demonetisation, it was GST that hurt us. They announce these things without having a process in place. In demonetisation, there was no cash available and in GST, few tax people even know what to do,” says Nitin Kungwani, a trader in Surat’s Millennium market. “We have had a 30 per cent drop in sales this year. But we are hopeful that after the Assembly elections, business will pick up and the government will find ways to revive us.”

Vivek Deswani was in Surat to take a consignment of sarees to Pithampur in Madhya Pradesh. He says before demonetisation he would come to Surat every 20 days. His last trip was three months ago. “People are not buying.”

Do they see the situation improving? “Now that we have GST under control, we can focus on sales. It should improve this year as there are many auspicious dates so the wedding season will help us bounce back,” he says.

The MSME sector accounts for 8 per cent of India’s GDP, 45 per cent of manufacturing output, 40 per cent of exports, and 21 per cent of employment, the second highest after agriculture. As a State with the highest number of MSMEs (according to the Vibrant Gujarat summit 2017 report), Gujarat plays a large role in this contribution. The government has perhaps realised that it would be wise to keep the incentives flowing.

Construction workers

Migrants’ misery

SAIDUR SHEIKH, a construction worker from Goalbari village in Farakka block of West Bengal’s Murshidabad district, sits helping his wife bind beedis, a job traditionally done by the womenfolk of the district to supplement the family income. The women are paid Rs.126 for every 1,000 beedis bound. The majority of the men of Farakka, a region known to be one of the biggest suppliers of construction workers to the labour market, spend most part of the year away from the villages, working in other States. However, since demonetisation in November 2016, more than 50 per cent of the construction workers of Farakka have been languishing at home, unable to find work.

Saidur, who hardly had any work in the past one year, watched helplessly as his mother died of cancer practically without any treatment. The local people could not help even if they wanted to as they were in the same boat. Saidur has run up a debt of Rs.60,000 of which Rs.50,000 has been borrowed from moneylenders at an exorbitant rate of interest. At construction sites, he used to earn Rs.300-400 a day. Now he earns only around Rs.60 a day from binding beedis. “As things stand today, I do not know if I will ever be able to come out of this debt,” he said. Saidur has two children, a two-year-old son and a three-year-old daughter.

It is the same story with only minor variations, in all the villages in the region. Hundreds of families of construction workers face a bleak, uncertain future. Before November 2016, hardly any able-bodied men in the 18 to 50 age group remained in the village; they would all be out in other States earning a livelihood. Today, these men can be seen loitering blank-faced and angry or sitting with sullen faces at tea stalls.

Bedaruddin Sheikh, a labour contractor in Farakka, told Frontline that the entire economy of the region, which is dependent on construction labour and beedi binding, has been on the verge of collapse ever since demonetisation came into effect. “One year ago, I was supplying at least 200 labourers every two months to different parts of the country. Today, I have just 50 men working outside. More than 50 per cent of the labourers are not getting any work anywhere and are without an alternative source of income. Construction companies are not able to provide enough work for us in view of demonetisation and Goods and Services Tax,” said Bedaruddin. His phone keeps ringing constantly with men calling to ask for work, any work. “People are getting desperate for work, but I cannot give them any,” said Bedaruddin. Some of the places he has regularly supplied labour to from Farakka are Etawah in Uttar Pradesh, Gujarat, Tamil Nadu, Odisha, Tripura and Kolkata.

Major players in the construction business, while maintaining that the industry has slowed down all over the country, also acknowledge that some of the measures taken by the Central government have further aggravated the situation. “In the expectation of a boom, a lot of projects got launched, and now the demand is far behind supply. All these measures—demonetisation, GST and RERA [the Real Estate (Regulation and Development) Act, 2016, was framed to establish the Real Estate Regulatory Authority]—have had their impact and have slowed down the industry further. The measures may be good in the long term, but it is certainly causing some problems now because there are a number of stringent conditions that have to be met, and one has to recalibrate one’s projects to meet those terms,” one of the top builders operating in Kolkata told Frontline.

In the villages of Murshidabad, it is not the custom for men to bind beedis. Even in times of distress, there are men who scoff at the prospect of helping their wives and daughters to bind beedis. “Is that a man’s job? I have never done it in my life; I can’t start now,” said Monirul Sheikh of Bhairabdanga village. Monirul has had barely three months of work in the past one year. “The moment I get a job anywhere in the country, I will leave.” But as months go by and no work comes their way, more and more men in the villages are learning to swallow their pride and lend their wives a helping hand in binding beedis. Abdul Bari, who has had no work in the past eight months, feels there is no other option. He and his wife have seven children to support, and beedi is the only source of income for them. “We make around Rs.80-90 a day. There is no way that I can give my children an education; just keeping them fed is the main challenge for us now,” he said.

The beedi industry is facing a crisis. It is not able to sustain the increasing demands made on it. Mosharraf Hussein, a middleman in the beedi industry, acknowledged that he was not able to distribute enough raw materials to the families to bind beedis. “I am not able to give work to as many people as I could before because the companies are not giving me a large quantity of leaves for distribution,” he said. People like Mosharraf obtain raw materials such as leaves, tobacco and strings from the beedi companies and distribute them to the families. They collect the bound beedis and take them to the factory for processing. Since the supply of raw materials has come down, the income of the families has also declined.

Imani Biswas, a prominent leader of the ruling Trinamool Congress and one of the biggest beedi barons in the State, said that more than 12 lakh people who solely depended on the beedi industry in Murshidabad had been affected by demonetisation and the implementation of GST. “We are in a very bad way. Owing to the implementation of GST, the sale of beedis has come down, and so we also have had to reduce our production. In Murshidabad, beedi production has come down by around 30 per cent,” said Imani Biswas, who owns Howrah Beedi, one of the biggest beedi brands in the State. According to him, GST has been slapped on practically all the components that go into beedi manufacturing—tendu leaves, tobacco and even the strings that are used to bind beedis.

The 28 per cent GST rate on beedi has led to a hike in price and, as a result, a fall in demand. “Beedi is one thing that poor people can afford. With the hike in price, following the introduction of GST, they can no longer afford it. They are taking substitutes. This has hit the industry badly,” West Bengal Labour Minister Jakir Hossain, who is also the owner of the popular Shiv Beedi brand, told Frontline.

There has been a constant fear since demonetisation that beedi factories will become economically unviable and shut down. It is a fear bred by an increasingly hopeless situation faced by the people, particularly women. “With the men sitting at home without work, if beedi binding work is stopped we will starve to death.” said Tuera Biwi of Jorpukuria.

With failing eyesight and arthritic fingers, Hajara Bewa, a 65-year-old widow whose three sons are construction labourers now out of work, can barely earn Rs.30 a day. One thing she finds difficult to come to terms with is seeing her grandchildren go hungry. In the past one year, almost all the families in the Farakka region have run into deep debt. “It is women who go and ask for a loan as they are the ones who are earning now,” said Abdul Jabbar of Jorpukuria village. Abdul, who has borrowed Rs.35,000 from a moneylender for a tenure of two years, has to repay Rs.1,900 on the third of every month. Failure to pay on time entails a penalty. “The conditions of the loan are harsh, but we have no other choice but to accept them,” he said, adding that more than 95 per cent of the villagers are in debt.

A unique local problem

Another problem facing the people of the region is that local markets and even nationalised banks do not accept large sums of money in small denominations, particularly in coins. “The beedi companies pay us in coins of Rs.10, Rs.5 and Rs.2. Markets and banks are not willing to accept small denominations. As a result, we are stuck with money we cannot use,” said Asma Biwi. The women said they complained to the middlemen against payment in coins, but it evoked no response. “They simply tell us to either accept the payment or take up some other work,” said a woman.

Local shopkeepers stuck with cash in coins are unable to buy bulk stocks. Akhmal Sheikh of Jorpukuria, who has been accepting payment in coins, is now holding more than Rs.40,000 in small change. He is unable to replenish his supplies using loose coins. “It will be difficult to reject coins from my customers as they are all my friends and neighbours. But after a point I will have to stop accepting coins for payment. My stock is getting depleted and I cannot do anything about it,” he said.

Prioritising the poor

JEAN DREZE may not be a familiar author for some readers though he is one of India’s outstanding economists. A Belgian by birth, he came to India after studying mathematical economics at the University of Essex, London, and did his doctoral work in economics at the Indian Statistical Institute. Although he went back to teach at the London School of Economics, his heart was in India, especially in its rural areas. Hence, he was in India again, teaching and doing field studies and becoming an Indian citizen in 2002. Currently, he is Visiting Professor at Ranchi University. He has co-authored several studies with Amartya Sen and a couple of other Nobel laureates. In fact, Amartya Sen is reported to have said that the agreeable thing about working with Dreze is that “he does most of the work and I get most of the credit”.

What distinguishes Dreze from many economists is his solidarity with the lower strata of Indian society. He has used his understanding of economics to study their day-to-day problems, of making a living, of attending to their health problems, of educating their young ones, and much more. This is the content he gives to what has come to be known as “development economics”.

Development economics as a field of study has been quite popular since the end of the Second World War, when many countries, formerly colonies of the Western powers, gained independence. They were designated as “underdeveloped” by economists and referred to collectively as the Third World.

Development as numerology

Development has also become a popular political slogan. But for economists, by and large, and for politicians in general, development has come to be identified with a number called “growth”, the annual increment in the country’s gross domestic product (GDP), yet another number. In essence, therefore, development has become just numerology.

Growth of GDP has its place in understanding development, but if development is essentially the development of people, it is much more complex. And, while an upward movement of growth will benefit some people, it may not touch the vast majority. It is this paradox that constitutes the theme of the pieces brought together in the volume under review. Consider the plight of a family in Kusumatand in Jharkhand. During a field visit to this village in 2002, Dreze noticed that the people often died “from the combined burden of malnutrition, weakness and hunger-related diseases”. Here is a specific instance of Kunti Devi’s family. “Her husband, Bageshwar Bhuiyan, suffers from TB [tuberculosis] and is unable to work. His illness goes untreated because he has no money and the staff at the local health centre charge patients for TB drugs that are meant to be given free. The burden of looking after him and his six children falls on his mother, a courageous seventy-year-old widow who walks to Manatu from time to time to glean rice from the local mill. The rice is barely fit for human consumption, but there is nothing much else to be had—the family survives exclusively on wild food…”

Are there not others in a similar situation in Jharkhand and, indeed, in the rest of India? And recall that in 2002 politicians (and many economists too) were celebrating the “India Shining” slogan because growth had begun to pick up.

That is the paradox that this collection of some 50 pieces written and published from the early 2000s to 2016 in newspapers and other popular publications features. It is economics for everyone.

A claim that is frequently put forward by economists and politicians alike is that India is the fastest growing among the major economies of the world. Factually correct. But consider the following facts that Dreze quotes in a piece he wrote in July 2014 from the World Development Indicators:

“Public spending on health and education is just 4.4 per cent of GDP in India, compared with 7 per cent in sub-Saharan Africa, 7.2 per cent in East Asia, 8.5 per cent in Latin America, and 13.3 per cent in OECD [Organisation for Economic Cooperation and Development] countries. Even the corresponding figure for the ‘least developed countries’, 6.3 per cent, is much higher than India’s.”

He gives further comparative figures from a recent Asian Development Bank report: India spends only 1.7 per cent of the GDP on social support compared with an average of 3.4 per cent for Asia’s lower-middle-income countries, 5.4 per cent in China, 10.2 per cent in Asia’s high-income countries, and 19.2 in Japan. He concludes: “If anything, India is among the world champions of social under-spending.”

Food security

Dreze has been championing the cause of comprehensive food security, that is, a minimum quantity of foodgrains for all citizens, say 35 kilograms of grain per household every month. He calculates that it may cost something like one lakh crore rupees a year. This may sound like a mind-boggling price, he concedes, but goes on to point out that it is just about 1.5 per cent of India’s GDP. By way of comparison, he shows that the fertilizer subsidy, too, is in the realm of one lakh crore rupees, the beneficiaries being better-off farmers. From such instances, Dreze makes a call to use “lived experience to put statistical data in perspective”.

A related issue is the public distribution of foodgrains, about which a number of related questions have to be raised. To begin with, it may be noted that what is usually referred to as “food subsidy” is not the amount spent to bring food within the reach of poor families but essentially the deficit of the Food Corporation of India (FCI), whose operations are chiefly geared to keep food grain prices up rather than down. It may be recalled that there have been times when foodgrains stored in FCI godowns tended to rot and there were calls to make the grain available to those in need. The fear of a fall in foodgrain prices stood in the way of feeding the millions. But what stands in the way of using mounting food stocks via a food-for-work scheme or other anti-poverty programmes?

“Possible reasons include political inertia, organisational gaps, and reluctance to bear the financial costs”. Another widely debated issue is whether all households should be eligible for grains under the public distribution system or whether it should be restricted to those below “the poverty line”. Dreze favours the former mainly because many deserving households will get excluded when public distribution is selective.

Because of his awareness that the interest of the poor is not in condescending charity but in opportunities to earn a living, Dreze has been a champion of employment guarantee schemes. As a member of the National Advisory Council set up by the United Progressive Alliance government in 2004, he and his colleagues, who shared his enthusiasm, worked hard to draft the National Rural Employment Guarantee Act (NREGA) to provide 100 days of work to anyone who wanted it. Combined with attempts to create productive assets in rural areas and to activate gram sabhas, the programme has been rightly acclaimed as a major attempt to empower the rural population, especially women, to protect the environment and to restrain distress migration.

Dreze admits that the implementation of the scheme ran into problems, especially those of administration, but maintains that what is required is more effort to achieve the objectives of the programme.

Two sections of the book are devoted to a discussion on child development and elementary education along with a critical evaluation of school meals. Dreze was the moving spirit behind the widely acclaimed Public Report on Basic Education (PROBE), 1999.

There is much more in the book—critical evaluation of the development agenda and performance of the States, corporate power and technocracy, war and peace. At a time when development has become essentially an emotive political slogan and is used to build the power and prestige of the nation, Dreze reminds us that the priority must be to meet the basic needs of the neglected people, and if that is taken seriously, the agenda will change. To academics, I strongly recommend the Introduction in the book, especially the section on research and action where the author brings out the complementarity of the two pointing out that action-oriented research need not compromise on scientific methods or objective inquiry.

Research can help with arguments and evidence that contribute to more effective action. A major difference between what may be called academic research and action-oriented research is the language they use: the former will be more in line with the language of the profession (theories and their derivations, for instance), whereas the latter will have to be largely in the language of day-to-day discourse. Economics started as a discussion of problems of daily life, but in its attempt to become a science, like physics, it developed a language of its own. Those who are engaged in action-oriented research on real-life problems must, therefore, become “bilingual” in a very meaningful sense because theory can throw light on real problems and earthiness can prevent theory from escaping into abstractions. If economics deals with social issues, it cannot pretend to be a “pure” science. Development economics is surely policy-oriented. But what is policy without action?

Border disputes

THIS excellently produced book, in the good tradition of the publishers, I.B. Tauris, is very relevant to our situation, locked as we are in boundary disputes. More, it provides vital clues to understanding the situation in the Gulf region with Saudi Arabia mounting a disgraceful confrontation against Qatar.

Husain M. Albaharna’s classic The Arabian Gulf States is a study of their legal and political status and their international problems. The scholar Farzad Cyrus Sharifi-Yazdi pursues the study further by analysing a vital element in territorial disputes that we in India tend to neglect, namely, that they arouse hubris. The element of prestige makes the dispute a power play, which impedes and even foils efforts at settlement.

There is another aspect that the West conveniently overlooks now in its arrogant campaign to isolate and harm Iran. The Shah’s policies on boundary disputes were far more arrogant than those of the Islamic Republic of Iran.

President John F. Kennedy aptly said at American University on June 10, 1963: “World Peace, like community peace, does not require that each man love his neighbour—it requires only that they live together in mutual tolerance, submitting their disputes to a just and peaceful settlement. And history teaches us that enmities between nations, as between individuals, do not last forever. However fixed our likes and dislikes may seem, the tide of time and events will often bring surprising changes in the relations between nations and neighbours.” Infusion of prestige in the contest renders a sound approach impossible. This book focusses largely, though not exclusively, on sources pertaining to the policy orientations and decisions of official decision-makers on Tehran (that is, “the Shah and his close associates”) with respect to the issues of Bahrain, Shatt al-Arab and the Tunbs and Abu Musa islands between 1957 and 1969. Moreover, it scrutinises the conduct of the disputes in this period, which in part was a product of the given Iranian policy orientations and decisions under the Shah. Iran abandoned its claim to Bahrain in 1969. In 1975, it settled the Shatt al-Arab dispute with Iraq. The Shah occupied the islands of Tunbs and Aba Musa in November 1971. The dispute over them festers still. The facts as narrated by the author are simple.

“The island of Abu Musa has an area of 20 km and a permanent population of some 2,500 whilst the greater Tunb has an area of approximately 10 km (no reliable figures on the population of the island are available). The Lesser Tunb is an uninhabitable 35 m high rock with an area of approximately 2 km. Dispute over the three islands originated in the early nineteenth century and came to involve Iran, Britain and the British-protected (up until 1971) sheikhdoms of Ras al Khaimah and Sharjah; with Britain having occupied Abu Musa on behalf of (so it claimed) Sharjah and the Tunbs on behalf of Ras al Khaimah in the 1820s. From the early twentieth century Tehran periodically began to assert a claim to the islands, arguing that before Britain had seized the islands, they had been under Iranian sovereignty. Following the announcement by Britain in 1968 that it would be withdrawing from the Persian Gulf by 1971, on-going Anglo-Iranian negotiations over the fate of the islands, amongst other issues, were stepped up. On 30 November 1971—a day before Ras al Khaimah and Sharjah joined with seven other lower Persian Gulf sheikhdoms to form the United Arab Emirates and only days before Britain vacated Persian Gulf waters—Iranian forces landed on and took control of Abu Musa under the terms of a Memorandum of Understanding arrived at by Iran and the Ruler of Sharjah through British auspices.… A day earlier, Iranian forces also landed on and gained control of the Tunbs, despite not having reached any agreement with the Sheikh of Ras al Khaimah.… The matter essentially became dormant throughout the 1970s and 1980s.” It was revived in 1992 for political reasons.

The book is based on archival research in the British Foreign & Commonwealth Office and in several places in the U.S. Iran’s power projection began with the Shah with tacit U.S. support. The author emphasises the Shah’s “hegemonistic” approach in the disputes.

Letters

Letters to the Editor

letters

Cow policy

fl10 cover

EVER since the BJP-led National Democratic Alliance government stormed into power at the Centre, there has been no dearth of instances across the country pointing to its unbridled enthusiasm in implementing policies clearly aimed at intimidating religious minorities and marginalised sections of society such as Dalits (Cover Story, November 10). The rise of cow vigilantes in BJP-ruled States against those involved in the cattle trade is a cause for great concern. These States have instituted unwarranted restrictions on the cattle trade. The livelihoods of millions of farmers and cattle traders are in disarray now. The menace of stray cattle must come to an end sooner rather than later. It is time that these States took stringent action against cow vigilantes and refrained from measures that affect poor farmers and cattle traders.

M. Jeyaram, Sholavandan, Tamil Nadu

THE Prime Minister seems to be working hand in glove with Chief Minister Yogi Adityanath as can be seen with the Centre’s decision on the sale of cows for slaughter. The cow menace is palpable across BJP-ruled States, and cow vigilantes, who are nothing but lumpen elements, are having a field day.

With elections due in Madhya Pradesh and Rajasthan, the cow menace could turn out to be a monster for the BJP.

S. Murali, Vellore, Tamil Nadu

Air pollution

SADLY, the Supreme Court’s temporary ban on the sale of firecrackers in the NCR did not have the desired effect as many people burst crackers on Deepavali (“Breathing space for the capital”, November 10). There was an overall reduction in pollution levels, though. This start that the Supreme Court has made must result in better awareness of the health hazards of air and noise pollution. All citizens must think of the nation first rather than of their customs and habits.

Mahesh Kapasi, New Delhi

Gravitational waves

IT is well known that chirp-like pulses are generated in electronic amplifiers by feedback (“Catching cosmic chirps”, November 10). Are the LIGO chirps caused by gravitational waves from outer space as claimed or by electronics? To completely settle the question, it is an absolute must that independent investigators check this using a matching noise generator over a similar period of time. Otherwise, the far-too-few events (four in two years) assigned indirectly to far-off (in space and time!) sources are not convincing. Recall the fate of the European neutrino speed experiments.

T.M. Jayaraman, Palakkad, Kerala

Nationalism

ONE cannot but admire A.G. Noorani for his candid, incisive, scholarly and relentless campaign to expose the sham and hypocrisy of the Sangh Parivar (“Betrayal of Indian nationalism”, November 10). The violent strides the Sangh has been making, particularly in recent decades, to the detriment of history and reality is so alarming that if we cannot wield the truth as our sole weapon, we may soon have to exclaim like the German philosopher Martin Heidegger was supposed to have done: “Only a God can save us.”

H. Pattabhirama Somayaji, Mangaluru, Karnataka

The economy

CONCEPTUALLY, demonetisation and GST may be sound, but the implementation was lousy, affecting all and sundry adversely (Cover Story, October 27). If the proof of the pudding is in the eating, this twin-pudding leaves a sour taste in the mouth. The one-size-fits-all approach in the GST to economic entities regardless of their size ended up favouring only big business. The Jan Dhan Yojana was well conceived and satisfactorily implemented, but over 40 per cent of JDY accounts are “second accounts”, which dilutes the very purpose of the scheme. The imaginative and gargantuan Swachh Bharat Mission has failed to gather the expected momentum. The too-little, too-late cosmetic exercises being carried out as damage control may not stem the rot.

Ayyasseri Raveendranath, Aranmula, Kerala

I THANK Frontline for the excellent Cover Story, which was well explained and analysed. The government’s bad policy decisions on the economy, which is in a tailspin, are affecting people adversely. Its economic policies are only useful to corporates. BJP leaders and the Amit Shah-Modi team are threatened by the political progress of Rahul Gandhi and the Congress, which has allied with local parties , especially in States facing Assembly elections.

Muhammed Adil Edayannur, Kannur, Kerala

I WISH to applaud Frontline for the Cover Story, especially the article “Unrealistic initiative”, which gave a clear picture of the Centre’s rural electrification schemes. Modi once declared that the whole of India would be electrified before 2019, but it is clear that the government is not taking the steps needed to achieve this. Instead, it is promoting worthless projects that can be shown to the masses as a great thing but which in reality will surely cause a budget deficit. An economic crisis is looming.

N. Haseeb Rahman, Mannarkkad, Kerala

THE nexus between politicians and industrialists that has allowed the swindling of public funds over the decades is what has caused the present economic crisis. Nationalised banks were in danger of collapse because of NPAs, bad debts and ineffective regulatory checks until the drive former RBI Governor Raghuram Rajan launched to clean bank balance sheets. Recent laws targeting chronic defaulters flopped owing to half-hearted implementation and legal hurdles.

M.N. Bhartiya, Alto-Porvorim, Goa

The Australian outback

Land of the Aborigines

travel

As the first rays of the rising sun caress its smooth flanks, Uluru glows red-hot against the surrounding flat scrubland. From this height, it seems every bit as iconic and seductive as the posters make it out to be. But there is no time to admire the spectacular views. Our tiny tinbox plane is already cruising at 15,000 feet (4,572 metres) and it is time to jump off. Aloïs, my tandem guide from Skydive Uluru, slides open the flimsy door of the plane to let in a savage gush of wind that almost knocks us out. Aloïs has recently relocated to Uluru, all the way from his native France. He claims to have successfully completed more than 3,000 tandem dives so far, most of them in France. I have my doubts, though, considering his youthful face and impish smile. This plane can seat exactly two people, stacked like two teaspoons, legs stretched flat in front. The roof is inches above the head with little room for manoeuvre.

Aloïs nudges me towards the open door where I am supposed to dangle my feet outside the plane. This is the moment of reckoning, the Rubicon I am about to cross. I mutter a silent prayer and fervently hope that Aloïs had not been doing drugs the previous night or nursing a hangover. I swing my legs out of the aircraft and feel giddy instantly. “Banana, banana!” Aloïs screams in my ear, hoping to be heard above the din of the vicious wind. I cross my arms over my chest, arch my back, tilt my head backwards, mimicking the shape of a bent banana. The decision to let go—of control over life and limb—is not a conscious one anymore. It just happens.

In the next few seconds, I am spinning in the air, hostage to the elements that whirl me around mercilessly. There is a rush of adrenaline and a sensory overload, a sensation like no other. The feeling is more freedom than fear. I catch a fleeting glimpse of the underside of the plane which seems to have shrunk in size. It is then that I realise that I have already fallen quite a distance. As I begin to make sense of my bearings, I find myself horizontal; presumably Aloïs is floating somewhere above me. Aloïs taps me on my shoulder asking me to stretch my arms, Kate Winslet-style in Titanic. Although the earth is speeding towards me at 140 km/hour, I feel I am floating in eternity; in fact, there is a sense of indescribable tranquillity. Yonder, Uluru beckons. After about 30 seconds of free fall, Aloïs yanks the parachute open and suddenly both of us turn vertical with a jerk. From now on, the descent is gradual, allowing me enough time to savour the delights of the outback from this vantage position.

Uluru is a unique rock formation, bang in the middle of the outback, almost at the centre of the Australian continent, in the desert province of Northern Territory. Along with Kata Tjuta, a similar rock formation some 30 kilometres away, Uluru is sacred to the Anangu people who are the original inhabitants of this vast territory. Once taller than the Andes, Uluru is now reduced to a smooth stub just 348 metres in height. It is nevertheless stunning, whichever angle I view it from. From the sky, it stands out from the rest of the landscape by its sheer ochre sheen and telltale shape. From the ground, the chiaroscuro of light and shade tantalises from afar. When I get up close, the mound changes hues dramatically from moment to moment. It can go all the way from orange to maroon with all the shades in between. The striations wrought by the elements over millennia on its otherwise smooth surface stand out in stark relief, scored and pitted by dark shadows.

Aboriginal art

These patterns, as well as the rest of the outback, have inspired thousands of generations of Aboriginal art. Complex whorls, stunning spirals and cosmic patterns inspired by the star-studded night sky are recurring themes in Aboriginal art, apart from native flora and fauna. Aboriginal art is created through millions of painstaking dots in bright colours ground from native rocks, which makes it unique and pleasing. Art works from Uluru have found pride of place in some of the best known galleries and museums around the world.

Since 1873, Uluru has also been known as Ayers Rock. The Australian surveyor who first chanced upon it had named it after Sir Henry Ayers, then the first secretary to the province of South Australia. Witness to 30,000 years of Aboriginal history in Australia, Uluru, the silent sentinel, has seen it all—the coming of early humans to this faraway land, the crossing of the open ocean in dugout canoes and clumsy catamarans, the trudging through a tenuous land bridge that might have existed aeons ago. Uluru has seen the original settlers’ indomitable spirit and persistence in scratching out a precarious existence on this seemingly barren terrain; it has watched over the evolution of a way of life in which they trod lightly on this rugged land, leaving virtually no footprint; it has also been a mute witness to the more recent tumultuous and transformative history of occupation after Captain Cook landed on the shores of this remote island continent 250 years ago.

There are many groups of Anangu Aboriginal people in this area, but all of them belong to the Pitjantjatjara and Yankunytjatjara families which share a common culture and language. Each of these groups is territorial, but had frequent interactions with each other, especially during ceremonial occasions. The Aboriginal people are not tribes as we call similar people elsewhere on the planet. They have no chiefs, only family elders in whom reside a treasure trove of secrets of their ancestry and culture. This precious knowledge is not shared lightly. The younger members of the family have to earn the right to imbibe it in bits and pieces.

Kata Tjuta

While Uluru is better known, Kata Tjuta, a multi-domed rock formation also known as Olgas, is the more sacred of the two sites. The Anangu believe that the spirits of their ancestors reside in these rocks. Kata Tjuta is where the initiation ceremonies of the male members of the family are held, while Uluru is exclusively for the female members. It is to Uluru that the women come to give birth. It is out of bounds to men, although nowadays tourists are allowed to climb Uluru if they so choose, much to the chagrin of the traditional owners of Uluru who consider the mound inviolable. There are signboards entreating tourists not to climb, although they are often ignored.

Despite living in this region for over 30,000 years, the Anangu left no footprint on the land. Among the Aboriginal people, there is no concept of ownership over the land; instead, they believe, they belong to the land. They wore no clothes, hunted and gathered food, but just enough for themselves for the day; there was no concept of squirrelling away anything for the morrow, nor the desire to pass on anything to the next generation, except knowledge and skills. They built no houses and had intimate knowledge of the various plants and animals that inhabited this seemingly inhospitable terrain. The bounty of the bush kept them nourished and thriving. Every adult male, even today, is adept at throwing spears, while every woman knows where the juiciest berries are to be found. Back at the resort, I sign up for a crash course in bush tucker, in which tourists are shown varieties of roots, berries and barks which go to make up the daily diet of the Aboriginal people. Their favourite game is the monitor lizard, which thrives in these harsh landscapes. It has striking patterns, like a tiger, on its bright yellow skin. Intimate knowledge of every plant and animal in this seemingly arid land has been the key to the Aboriginal people’s survival.

The Kata Tjuta National Park, which houses both Uluru and Kata Tjuta, was handed back to its original owners in 1985, but the Australian government, realising the tourism potential of the area, took back the park and the adjoining lands on lease for 99 years from the native owners. After all, 400,000 visitors come to Uluru every year. There do not seem to be too many Aboriginal people working in the tourism industry, though.

While virtually all Aboriginal groups have been mainstreamed to an extent, it is not clear how they feel about the changes that have overtaken them in the past 250 years. Of course, they no longer roam the outback naked and many of them have been converted to Christianity and are, in fact, devout churchgoers. How they preserve and practise their own culture and traditions in the face of tumultuous changes that have overtaken their community remains a deep mystery.

I join a tour of the Aboriginal lands, generally out of bounds for other visitors, to learn a little more about the life of the natives. We are joined by an Uluru family member—he calls himself Bance—who narrates some of the Uluru traditions and customs to a rapt audience. He tells us the story of Paddy Uluru whose valiant struggle was instrumental in claiming this land back from the colonisers. He is critical of the Australian government’s decision to allow climbing on the sacred mounds. According to Bance, all that his people want from the Australian government is to be left alone to lead their native way of life. I am disappointed that we are still not allowed access to any indigenous communities and have to be content with Bance’s narration.

The secret to surviving in the outback is to know the location of the waterholes. However, these had to be protected from wild animals which could foul up the elixir of life. It seems modest, but then the number of Aboriginal people using these waterholes is also small. Bance leads us to a waterhole right in the middle of the arid desert. We have lively avian company this afternoon. A huge flock of zebra finches is already perched on the shrubs surrounding the waterhole, chattering away noisily. A lone cockatoo waits patiently on an adjacent tree. This being the only waterhole for miles around, these birds have no option but to wait for us to leave.

Australia is home to some of the most venomous creatures on the earth, including the taipan snake, sharks and box jellyfish. The outback has its fair share of dangerous species, some exclusive to the region. However, after the advent of the Europeans, many introduced species such as rats, rabbits, camels and toads overran the landscape and destroyed the native mammals and other creatures. Attempts are afoot to reintroduce species of malleefowl, common brushtail possum, rufous hare-wallaby, bilby, burrowing bettong and black-flanked rock-wallaby. The woma python is the stuff of many native legends and can be spotted around the two sacred mounds. The thorny devil, another quintessential outback creature, is also endemic to Uluru.

During our drive through the scrubland, we came across several wild dromedaries, introduced from Afghanistan over 200 years ago. They have since gone feral and roam the outback, daring anyone to approach them. They are as curious as humans, never taking their eyes off our vehicle until we drive out of their sight. Lochie, our guide, tells us they are more dangerous than dingoes and can outrun the fastest among us. A lone emu darts across the mud track we are driving on, and we also sight three bush turkeys. A few wallabies hop about in search of insects. In the evening, the howl of dingoes could be heard in the resort although none was seen.

Uluru has been a tourist attraction since 1936. The 2,834-km-long Stuart Highway, connecting Uluru to Darwin in the north and Alice Springs and thence to Adelaide, originally a mud track, was sealed in the 1980s, bringing in hordes of Grey Nomads, Australia’s own version of baby boomers, now in their sixties and seventies, who throng the outback in their caravans, campervans, trailers, fifth wheelers, motorhomes, and so on. Grey Nomads spend most of the year, sometimes several years, on the road, moving from one campsite to another. Uluru, Alice Springs and Darwin can also be reached by air from Sydney and other Australian cities now.

Tourism has also brought modern trappings to Uluru. You can even ride around the rocks in a souped-up, fancy Harley Davidson or watch exhilarating sunsets while sipping champagne. Camel safaris are popular with the visitors. Yulara, the town where the resorts are located, is exclusively for tourist benefit. And despite its location thousands of miles from any major town or port, the Ayers Rock Resort, which runs all the lodgings in the region, offers every conceivable comfort to the visitor—from air-conditioned rooms to international cuisine, which includes, not surprisingly, several Indian dishes. After all, quite a few of the catering staff are of Indian origin.

Alice Springs

If you wish to experience the outback in all its rawness, Alice Springs is the place to head to. An isolated outpost in the centre of the map of Australia, Alice Springs is the quintessential frontier town. Its colonial structures wear a weathered look. The streets are wide, sprawling and free of traffic, but this being a desert town, there are few trees around. Located in extreme wilderness and surrounded by little more than spinifex, a form of desert grass, over a 1500-km radius, the town’s name, however, is a misnomer. There is no spring anywhere in the vicinity, just a dried-up creek bed vaingloriously referred to as Todd river. As for Alice, after whom the town is named, she seldom visited this remote settlement where her husband, Charles Todd, Postmaster-General of South Australia, braved the unforgiving outback to lay the first overland telegraph cable across Australia in 1871.

In the 19th century, communication between England and Australia used to take three months. Ships were the only lifeline between the Crown and its remote colony. There was an urgent need to speed up communications if the colony was to be governed effectively from London. The telegraph was already well established in other parts of the world and could provide the much-needed link to this remote colony down under. So, the British government sent Charles Todd, a well-regarded astronomer, meteorologist and electrical engineer, to set up an overland telegraph line from Port Augusta in South Australia to Darwin on the northern coast.

The 3,000-km-long telegraph supported by 36,000 timber poles was considered an engineering feat at the time. Messages would henceforth be relayed in Morse code, all the way from Adelaide to Darwin via Alice Springs and thence via undersea cable to Singapore from where it travelled to England through the already existing telegraph line. The original telegraph station in Alice Springs has been preserved intact to commemorate the pioneering spirit of a people who overcame heavy odds to build the cable across mostly barren territory. Timber poles had to be brought from the coastal areas since nothing but spinifex grows in the outback. The pioneers, however, came head to head with the resident Arrernte people, who probably came to Central Australia some 50,000 years ago. They once roamed these lands free and fearless but today work in cattle stations or as domestic help in the households of the new settlers.

The shed adjacent to the telegraph station is a museum. It is, in fact, located in “The Bungalow”, where Aboriginal and mixed-race children were housed as part of an unfortunate experiment to mainstream them. The museum has priceless photographs of Aboriginal children under the care of Topsy Smith, herself an Aboriginal woman. The Bungalow continued to exist until 1942.

Alice Springs used to be called Stuart, after John McDouall Stuart whose northward push from Adelaide in search of pastures for cattle opened up the outback to white settlers. Today, Alice Springs supports a stable population of around 27,000, not counting the Fifo (fly-in, fly-out) miners. Australia’s economy owes not a little to the minerals mined around this town—tin, gold, manganese, zinc, uranium, titanium, vanadium and bauxite—not to mention two gas fields, Dingo and Palm Valley, which fuel the gas turbines that electrify Alice Springs. The best way to access these mines is to keep Alice Springs as the base and fly into the mining areas on workdays and hence the term Fifo.

There are also camel stations in the outback. Originally, camels were brought to Australia by Afghans, Pashtuns, Sindhis, Punjabis and Pathans. Now camels are reared mainly for tourism. In fact, many have escaped into the wilderness where they have become feral.

In the evening, I head to Earth Sanctuary World Nature Centre where the Falzon family runs an eco-tour company to showcase the treasures of the desert. What better treasure than the brilliantly starlit night sky that only a place like the outback can serve up? There being no ambient light, the entire Milky Way stretches all the way to the horizon. It is an indescribably stunning sight which brings alive the cosmos which one had only visualised hitherto. Ben Falzon conducts a crash course in identifying the entire cast of the zodiac. Of course, this being the southern hemisphere, everything seems topsy-turvy. We sit around a campfire and hear stories of the outback told engagingly by the brothers Ben and Dan and even bake soda bread in the campfire! We round off the night with music from didgeridoos made of PVC pipes. It was truly a magical night, itself alone to make travelling to Alice Springs worthwhile.

Survival in the outback requires not only adaptation but also innovation. How do you reach education to a handful of settlements scattered over 1.3 million square kilometres (three and a half times the size of Germany or twice the size of France), most of it unconnected by road or rail? For over 65 years now, satellite broadband has enabled setting up the largest classroom in the world, so to speak, to reach children between the ages of four and 17 living as far away as a 1,000 km from Alice Springs. Classes can stretch up to an hour each, and each week the students get nine to 16 hours of lessons delivered remotely by trained teachers. Currently, there are about 135 students, mostly from remote cattle stations, but also include a sprinkling of indigenous children. From time to time, the students physically assemble at the school to get to know their classmates better. A teacher from the school visits every child at least once a year. The school is funded by the Northern Territory Department of Education.

Royal Flying Doctor Service

Another innovation is the Royal Flying Doctor Service (RFDS) which renders medical aid to far-flung communities using small airplanes, which also double as ambulances and ICUs. Started in May 1928, it was pioneered by Reverend John Flynn, a Presbyterian who wanted to provide a “Mantle of Safety” to the inland people who lived in far-flung areas bereft of any medical facilities. When John Flynn began his missionary work in 1912, there were only two doctors serving an area of 300,000 square kilometres in Western Australia and 15,00,000 square kilometres in Northern Territory. Today, the RFDS has 1,225 employees, including pilots and medical staff, and 67 aircraft, mostly Beechcraft and Pilatus PC-12, at its disposal, operating from 23 bases. Of these, 38 are fully equipped ICUs. At the visitors’ centre in Alice Springs, there is a real-time live map in which one can see the locations in which the RFDS is active at any given time. The RFDS has clocked more than 20,000 hours of flying and has provided emergency medical help to nearly 300,000 patients scattered all over the outback. Above all, the RFDS is funded by trusts and voluntary donations and is truly a testament to the determination of the medical profession to bring health care to far-flung communities.

I drive up the Anzac Hill to get a bird’s-eye view of the town. Despite its modest population, Alice Springs is spread out and is not exactly a walkable town. Todd Mall, the swanky shopping complex in the town centre, has many shops showcasing Aboriginal art. A few of them are run by the communities themselves.

Alice Springs was an important military station during the Second World War. Pine Gap, the joint military base of the United States and Australia, also known as “spy station”, collects data on ballistic missiles and develops early warning systems. It is a hush-hush place, around 20 km away from Alice Springs.

The town is a pit stop for the Ghan, a luxury train service that connects Adelaide to Darwin. From the top of Anzac Hill, we see the Ghan parked in its station. The Alice Springs Desert Park is a star attraction that houses the fauna typical of the outback. On my last day at Alice Springs, I climb into a hot-air balloon which floats over the magnificent Macdonnell ranges. The sun comes up from behind the range to illuminate the outback.

Excerpts from Com. P.V. Raju Memorial Lecture

Demonetisation, corruption and black money

ON the evening of November 8, 2016, Prime Minister Narendra Modi went on all media channels to announce that his government had decided to demonetise 500-rupee and 1,000-rupee currency notes “to break the grip of corruption and black money”, and announced that the “five-hundred and thousand-rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper”. It is not that demonetisation as a monetary measure is not resorted to by other countries. In fact, the Economic Survey 2015-16 does refer to over 20 countries resorting to demonetisation with different purposes and different rationales, with varying results. But the manner in which Prime Minister Modi made the announcement brought a certain sensationalism to this measure of the government. “Demonetisation” is a financial or monetary measure, and normally involves the central bank or the Finance Ministry. But in this case, neither the RBI Governor nor the Finance Minister came to announce it, raising serious doubts whether they were involved at all in the decision-making. The Prime Minister took it upon himself to personally announce the decision for almost 40 minutes in Hindi, and another 40 minutes in English. The speech did not stop with the policy decision and soliciting the people’s support for it but went on to list over 20 points of procedural detail which would normally be part of any government notification. But the choice of such a method of announcement was obviously a well-designed strategy to make people believe the priority that the Prime Minister was according to wiping out the past evils. As many behavioural psychologists or even behavioural economists would know, the less one knows about the reality behind the numbers or the procedures, the more awe and respect people would develop for them and for those using them. Such political strategies are increasingly in evidence across the world. There was no sign of any financial or economic crisis. On the contrary, the Prime Minister began his speech by describing how, when he took over, there was a feeling that “I” in the BRICS was shaky, and how, under the new government, India became strong and emerged as an economy with the highest GDP growth. True, the magnitude of the measure of withdrawing almost 86 per cent of currency in circulation was an extraordinary measure that needed convincing the people. But more than that, much of the speech was devoted to whipping up people’s anger against corruption and black money, and building on people’s imagined notion of black money stashed in cash that could be wiped out. There was an emphasis that whatever “pain” people were likely to face would be short-lived, and wiped out by the gains of unearthing black money and wiping out corruption.

Several questions

Demonetisation did more harm to the economy, and certainly did not make a big dent on corruption or black money. This leaves us with several questions: Why did Prime Minister Modi choose demonetisation as an instrument to demonstrate his commitment to flush out black money and control corruption? What made him decide on demonetisation as a measure that would shore up his image as a leader with a will to deliver his promises? Or was he totally oblivious of the ineffectiveness of demonetisation and the adverse consequences it was likely to bring about?

It is difficult to believe that Prime Minister Modi was not aware of the limitations of demonetisation in dealing with corruption and black money or its adverse effects on the economy and the people at large. The available evidence shows that he was aware of these consequences. For instance, the former RBI Governor has broken his silence, and informs us in his latest book I Do What I Do that in February 2016 he was orally consulted on the advisability of demonetisation to rein in black money. But his advice was that demonetisation was not an appropriate measure, and that whatever its long-term benefits, they would not outweigh short-term economic costs, and that there were potentially better alternatives to achieve these goals. A written note was asked by the government. The RBI put together these views and also outlined the preparations needed and the time it would take. Besides, the RBI note also flagged what would happen if the preparation was inadequate. He also writes that the government (possibly the PMO) subsequently set up a committee to consider the issue and a deputy governor of the RBI also attended the meetings of the committee. It is clear that the Prime Minister’s decision was taken with the full knowledge of the limited impact that demonetisation would have on black money and corruption and the adverse consequences it would have on the economy and people. Of course, there was also wide speculation in the media that the Prime Minister also lent his time to a Pune-based group of chartered accountants passing as economic advisors with special knowledge of the Indian economy in contrast to “Western” knowledge.

This raises a critical question: Why did the Prime Minister, with such an awareness, choose demonetisation to demonstrate his commitment to handle black money and corruption? To answer this question one may have to pay more attention to the nature of transformation in the public imagination about the notions of black money and corruption. Somehow, the enormous intellectual energies spent on critically debating demonetisation did not pay adequate attention to contextualising the images constructed around black money and corruption, and the effective way in which these images were put to political use by Prime Minister Modi.

One explanation is that the critics were overly obsessed with the financial and economic impact of demonetisation and neglected to pay adequate attention to the political design underlying it. And the other explanation is that just as the larger public was mesmerised to believe, the critics also were trapped in the belief that the Prime Minister was setting an agenda to unearth black money and check corruption through demonetisation.

The following sections attempt to contextualise corruption and black money and then understand how the changing images of these phenomena have been congenially turned to serve the political ambitions of the Prime Minister.

Neoliberal regimes and corruption

What follows is the proposition that the emergence of neoliberal regimes across the world is not only at the root of the widespread eruption of corruption and black money, but also instrumental in raising them to phenomenal magnitudes, so as to shift public attention and imagination of these transactions to “scam” scale that is associated with piles of cash stashed away. For the public, unearthing this cash also requires a strong and determined leadership of virtue against the forces that perpetuated the evil. Riding on this public imagination needs a strategy that appeals to their imagination and could rouse their emotions along with building up of a self-image of leadership of virtue and unwavering strength to cleanse [society of] the evil.

Let us first have a quick overview of the metamorphosis of the concept of corruption and the shifts in the imagery and in the popular imagination. Corruption has an antiquity dating back to ancient times, and Kautilya’s Arthasastra indeed discusses its pervasiveness extensively as a social aberration with a long history even by that time. Notwithstanding the history, for quite some time even after the Second World War, it was not politically correct or not fashionable in social science research to work on corruption. But all that has changed. By the mid 1980s there was a surge in “corruption studies” in social sciences. This surge is not accidental but rooted in the developments that followed the unfolding of the effects of the “Washington Consensus”.

It was not a mere coincidence that “liberalisation, privatisation and globalisation” and the global interest in corruption research emerge from the mid 1980s. In 1986, a separate international research journal called Corruption and Reforms was launched. By the mid 1990s three reputed social science journals, the International Social Science Journal (149, September 1996), the IDS Bulletin (Vol. 27, No. 2, 1996) and the Third World Quarterly (Vol. 20, No. 3) had brought out special issues on the subject of corruption.

Nearer home, “…research on corruption in the Asia-Pacific countries has mushroomed into a growth industry since the 1990s. Indeed, globalisation of corruption has generated tremendous interest among many international organisations on finding effective measures to curb corruption in Asia-Pacific region and other parts of the world.”

The World Bank established an Anti-Corruption Knowledge Centre. The UN Convention Against Corruption (UNCAC) was adopted in October 2003 and its provisions have legally binding international anti-corruption instruments for countries that ratify the convention. It was signed by 140 countries. India signed the convention in 2005 and ratified the same in 2011.

Broadly, corruption is understood and defined in two ways. One is in the narrow sense of the term, viz. corruption that is “petty”, “street-level”, “day-to-day”, or “retail”. It is widely associated with “bribes”. The other is “grand” corruption associated with large monetary sums or transfer of resources generally involving high-level political leaders, bureaucrats and big business. The widely used definition of corruption—“misuse of public office for private gain”—has been largely associated with a narrow sense of corruption that is familiar since the times of Arthasastra, which shows its pervasiveness even in those times: “Just as it is impossible not to taste the honey (or the poison) that finds itself at the tip of the tongue, so it is impossible for a government servant not to eat up, at least, a bit of the king’s revenue. Just as fish moving under water cannot possibly be found out either as drinking or not drinking water, so government servants employed in the government work cannot be found out (while) taking money (for themselves).”

It is in this “narrow” sense that corruption was understood for a long time, and most of the time, and when people talked about corruption, it related to the bribes associated with departments like police, revenue, commercial taxes and forest and public utilities like water, electricity, etc.

But during the past three decades there has been a gradual change in the corruption perception of the public from concerns of “petty” corruption to that of “grand” corruption. The push and spread of structural adjustment programmes rolled out across the countries at the behest of the “Washington Consensus” and the resulting restructuring of development strategies from state-led process to corporate-driven agenda that ripped open the natural resources and the key industrial and infrastructural sectors to privatisation is at the root of this “gestalt” in corruption from what people encountered as “petty”, “day-to-day”, “retail”, “street-level” notion to that of “grand” scams. In the name of “competition” and “efficiency”, liberalisation and privatisation were extensively pursued as the core of economic reforms. It is ironical that what emerged out of the economic reforms was neither competition nor efficiency but “crony capitalism”, which could acquire hugely valuable natural resources dirt cheap in the name of priority allotments and access to contracts for infrastructure projects like highways, airports, and ports, and privatisation of public utilities like power projects including hydroelectric projects and telecommunications. Socially critical public goods like education and health became the most sought after avenues for private profit. It may sound paradoxical that the entire theoretical foundation for liberalisation and privatisation was based on the proposition that the commanding heights of the state or public sector in the economy results in excessive regulation and controls like licensing that lead to “rent seeking”, i.e. corruption in the form of bribes to get licenses, permissions and clearances, resulting in “directly unproductive profit seeking”, and hence, it was argued, the state should withdraw from direct economic activities and create a regulatory system that would govern the private sector.

But in reality, neoliberal reforms gave birth to extensive “crony capitalism” with powerful self-interested actors gaining control over the state to their advantage, a process that has come to be known as “state capture” or “regulatory capture”. The capital can create policy strategies like “special economic zones”. “Crony capitalism” gains the ability to get the laws consciously “adjusted” to its advantage and to the detriment of the public good. When business interests succeed in shaping the legal, political or regulatory environment to suit their own interests and distort public policies, it would provide unlimited opportunities for corruption. Thus, economic reforms and the resulting “crony capitalism” are at the root of the eruption of corruption as “grand scams” that has come to occupy the public notion of corruption, and revulsion to those associated with it.

It is very difficult to objectively measure corruption. Most corrupt transactions transpire out of public view and the parties involved have incentives to keep it that way. But the “grand” scams are often hard to hide, and the media often, to sensationalise, focus on scams involving billions of rupees worth of sleaze. In the post-liberalisation era many such scams did come out in public in India. One inventory of the biggest public corruption scandals covered from the beginning of the 21st century includes 28 scams involving hundreds of thousands of crores of rupees. The average value of these scams was Rs.36,000 crore and the median value Rs.12,000 crore. Of course, these scams include the ones at both the State and the Union government levels, and also involve different political parties in power. But one regime that was in power at the centre for the longest time during this period was the United Progressive Alliance (UPA). Perhaps, never in the recent history of neoliberal regime, corruption scandals reached such a meteoric peak nor was there such an amount of media attention that provoked extensive public revulsion against the Congress party that headed the UPA regime.

Here are a few select scams under the UPA which could be seen as textbook cases of the unfolding of economic reforms that unveiled the emergence of “crony capitalism”. It was shocking to the conscience of the nation to be a witness to the blatant mortgage of the primordial natural resources like earth (land and coal), water (hydroelectric projects), air (2G) and sea (offshore oil) as the sources of amassing wealth by corporate and political interests. With the coal scam (2012), the government was estimated to have suffered a loss of Rs. 1.86 lakh crore. The CAG presented a report and stated the irregularities involved in the auctioning of 194 coal blocks. The government decided not to auction coal blocks between 2004 and 2011. The coal blocks were then sold to different firms. Many of these firms were owned by or closely linked with sitting politicians. This decision led to huge losses in terms of revenue.

In the name of development of hydroelectric power in Arunachal Pradesh, about 160 MoUs were undertaken in 2013-15 between the Union and State governments and big capital in the form of public-private partnerships (PPP). Clearances were obtained flouting all reports from feasibility, environmental impact and public hearing through the collusion between political leaders, big business and bureaucrats.

The 2G spectrum scam of 2008 was one of the biggest scams in India in which the Telecom Minister was charged for issuing 2G licences to private telecom players at very cheap rates. No rules and regulations were followed but only favouritism was preferred while issuing the licences. The Comptroller and Auditor General (CAG) estimated that the scam caused a loss of 1.76 lakh crore to the government.

The offshore allotment of oil blocks and the manipulation of payments due from Reliance Offshore has been a continuing saga of several hundred crores of rupees of loss to the government, often caught up in unending litigation. Even international sports events to boost the image of the regime were turned into a source of “grand” misappropriation. The Commonwealth Games Scam (2010) involved an estimated amount of several thousand crores of rupees, involving Congress politicians, bureaucrats and corporate bigwigs. The charges involved payments made to non-existent parties and inflated prices while purchasing equipment. By the end of the UPA regime in 2014, the “gestalt” or steep shift in the public perception of corruption being seen in narrow, day-to-day retail, local bribes to that of “grand” scams got crystallised. The shift from “retail” bribes-based corruption to “grand” kickbacks was not confined to the parties in power at the national level but spread to the States as well.

And in this spread, what is noteworthy is that the more reform-oriented the State, the more seems to be the progress in the direction of scams. The model is that parties in power would avoid extraction of rents from government programmes, especially welfare programmes. They would also go a step further and introduce more populist welfare programmes with better vigilance, but go all out for mega projects, land allotments and big contracts that would spin more money.

“For instance, one hypothesis about why retail corruption has declined in States such as Andhra Pradesh and Tamil Nadu compared to Bihar is that in the former States, the ‘bribes’ politicians (and bureaucrats) used to extract from service delivery or entitlement programmes have been replaced with kickbacks (often larger in magnitude and less cumbersome to collect) from infrastructure projects or contracts.” The authors of this observation were aware that such hypotheses were difficult to test, but confirm that this view of shift in corruption was backed up by multiple conversations the authors had with bureaucrats, politicians, and academics. (The reference to Andhra Pradesh here is to the “AP land scam” in which the CAG alleged that the allotment of almost 90,000 acres of land, valued at Rs.1,784 crore, by the A.P. government during 2006-11 was characterised by grave irregularities involving allotment in an ad hoc, arbitrary and discretionary manner to private persons and entities at very low rates in exchange for investments in companies owned by the son of the then Chief Minister. The T.N. case refers to the amassing of wealth by former Chief Minister Jayalalithaa.)

It is not that “retail” corruption had vanished from the daily experience of the larger public. On the contrary, there are estimates that suggest that the total extent of bribes forced from the public continues to be as large or even more than the total sum involved in “grand” corruption. But the public anger and revulsion has turned entirely against the latter with far-reaching political implications. The mobilisation against corruption was largely based on the reaction of the middle class and the poor against the scams. The India Against Corruption (IAC) movement, launched by Anna Hazare, Arvind Kejriwal and their colleagues and supporters, shot to prominence in 2010 following revelations of massive corruption scandals in the final years of the UPA-II government.

This extensive anti-corruption mood of the nation was an opportune moment for the prime parties like the Bharatiya Janata Party (BJP) to capitalise in the political arena. It needed a political leader who could capture this public imagination by creating a belief that he or she could clean the nation of the scourge of corruption. There is an element of remarkable political magic in this whole design of constructing the weapon of demonetisation to destroy corruption and black money. The magical deception is in keeping the public at large in the dark on the root cause, viz., economic reforms, since the launch of which corruption has exploded, and making them believe that all corruption was the deed of a political party and all proceeds of corruption were in black money stashed up in cash. And this in spite of all evidence to the contrary.

How are corruption spoils held? For example, let us look at a real life case of monumental amassing of wealth through corruption by a political leader and how the illegal wealth was held by him. The former Chief Minister of Jharkhand, Madhu Koda, was arrested in 2009 and successfully prosecuted. The case revealed that his ill-gotten wealth was invested in 700 shell companies, in mines, in an island offshore of India, in real estate, sponge iron plants, private colleges in his constituency, transport and trucking as far away as Punjab and Haryana, hotels in New Delhi and Puri, a theme park, distilleries, print media and TV channels. Much of the corrupt black money amassed thus flows out as white. And where is the cash for the demonetisation to unearth?

Myth of seeing flow as stock

Let us turn to the basic known facts about the nature of black money, the sources of its generation, the forms in which it is held and the means of mitigating it. In simple terms, “black money” is that which escapes taxation. An equally important simple fact is that black money is a flow, not a stock, meaning that it cannot be captured, accounted and eliminated in one stroke. The existence of “black money” in the Indian economy is not a new phenomenon, but the magnitude of it has reached phenomenal proportions with the unfolding of the economic reforms since the 1990s. There have been estimates of the black economy and the “black money” generated in the country from time to time. Like the national income, the estimates of “black money” refer to the sum generated in an accounting year. Since it is not a stock, black money generated in one year may find ways of investment or use as white money in the successive transactions. Since accounting of all the shadow activities is by certain attributed values, the estimates could vary widely.

According to the World Bank, India’s “black money” in 2007 was about 23 per cent of its gross domestic product (GDP). Since there were no “reliable” estimates of “black money” generated in India and held within and outside the country, the UPA government commissioned the National Institute of Public Finance and Policy (NIPFP) to estimate “black money”. Though its report was submitted to the Finance Ministry in December 2013, the then Finance Minister did not place it in Parliament. Nor has his successor, Arun Jaitley, done so. But unofficial sources reveal that the estimated “black money” in 2012 was of the magnitude of 75 per cent of the GDP. And much of it is held in the form of gold, real estate, land, shares and stocks and offshore accounts.

According to some estimates, only about 6 per cent of the “black money” is held in the form of cash. “Black money” is a continuous flow as a part of the illegal and legal activities that are part of the socio-economic system. Illegal sources of black money that escape the tax network include smuggling, bootlegging, trafficking in drugs and sex- and crime-related extortions. Estimates suggest that criminal and illegal sources account for only a fraction of the total black money flow in the economy, while almost three-fourths are generated from the legal production, service, financial and trade activities.

Cost manipulation, manipulation of wage data and under-reporting of production lead to unreported income or profits from privatised public goods like education and health services, which have emerged as a large source of “black money” flow through unreported capitation and other charges. Corruption in State services like revenue, police, forest, etc., are the familiar sources of the so-called bribes. Apart from these retail types of corruption, there has been, as observed earlier, a growing “grand” corruption through allotment of access to natural resources like land, mines and infrastructure contracts. But relatively less known in the popular perception is the “black money” generated through international trade and financial transactions. These transactions are not only the largest channel for capital flight of the “black money” generated in this sector but also the main conduit for outflow of “black money” abroad.

‘Misinvoicing’ and black money

Since in the debate following the demonetisation, the international trade as the major source of black money and also as the mechanism for siphoning of resources abroad, and often to offshore tax havens, did not receive as much attention as it deserved, I spend some time in placing before you some academically and administratively well-known facts. Besides “hawala” transactions and illicit “hot money” through balance of payments, deliberate trade “misinvoicing” (or transfer pricing) constitutes almost 80 per cent of the “illicit financial flows” from developing countries. For quite some time, because of the complexity in obtaining the data on the comparable actual and reported prices of thousands of goods traded, estimating the “black money” generated through mispricing (over-invoicing of imports and under-invoicing of exports) was rather difficult. But more detailed data flowing from the International Monetary Fund on trade transactions has enabled Global Financial Integrity (GFI) [a U.S.-based think tank] to come out with fairly reliable estimates of “illicit financial flows” from developing countries since 2003.

“Illicit financial flows” refers to the movement of money that is illegally earned, transferred or utilised. This encompasses a broad range of activities: official corruption, laundering of criminal proceeds, terrorist financing and tax evasion. “trade misinvoicing” or over-invoicing of imports and under-invoicing of exports, involves falsifying the values listed on commercial invoices. This is an extraordinarily common tool by which corporations and individuals in developing countries avoid import or export tariffs, alter their income tax positions, evade foreign exchange controls or simply move their wealth to developed countries or tax havens. “Trade misinvoicing” is also a common method of shifting the proceeds of crime or corruption and is typically referred to in these cases as trade-based money laundering.

Deliberate “mispricing” or “misinvoicing” takes two forms, viz., “under-invoicing of exports”, which hides part of the export earnings which are retained in undisclosed foreign accounts; in addition, under-reporting of export earnings shows lower profits, resulting in tax avoidance in the domestic country. Similarly, “over-invoicing of imports” would show an inflated domestic cost of production and reduced profits in the balance sheet, evading domestic taxes to that extent. In addition, inflated payments shown for imports are retained in undisclosed foreign accounts. According to one report, in 2014 India accounted for half of global “mispricing” disputes.

The available estimates by GFI show that between 2003 and 2012, in a matter of 10 years, developing countries lost $6.6 lakh crore in illicit outflows. The top five exporters of illicit capital over this period were China, Russia, Mexico, India and Malaysia. There was a surge from India in 2009 and the country moved from fifth to fourth rank in this activity. India, during this period, accounted for a cumulative illicit outflow of about $440 billion or about Rs.30 lakh crore, which works out to an average annual outflow of about $44 billion or Rs.3 lakh crore. All this is what is described as “black money” and none of it is in Indian currency or in Indian accounts.

To understand the transactions in trade “mispricing”, even at the risk of sounding as an academic exercise, it may be useful to exemplify the process by an actual case under investigation. A typical case of “mispricing”, in this instance over-invoicing of imports, as a means of generating abnormal margin of profits that escape the tax network and end up as black money in offshore accounts of the corporate entities, could be illustrated by a live case of the Adani group of companies. This is about the contract to develop two electricity transmission networks in Maharashtra. This could also be used as a textbook case to illustrate as to how as a part of a structural adjustment programme in the name of reforms in the public utilities, the power sector faced liberalisation in the form of unbundling into segments of generation, transmission and distribution, and privatisation of these segments ending up as fertile sources of black money.

But, for the present, let us confine to this story of the contract for development of transmission network to illustrate “transfer pricing” or over-invoicing of imports. Based on a 97-page file of the Directorate of Revenue Intelligence’s (DRI) investigation, which it could access, The Guardian (August 15, 2017) reported in all forensic detail the process of generating profits through over-invoicing that escape taxation and end up as “black money”.

Here is the simplified version of the case. In 2010, an Adani company (AC) was awarded a contract to develop two electricity transmission networks in the northeastern parts of Maharashtra. This company (AC) used another Adani subsidiary (PMC projects) to source equipment it needed to build the network. PMC, in turn, sub-contracted the work to a company in Dubai (EIF). EIF procured equipment from South Korea and China and sold it to PMC in India. EIF placed about 26 orders from Hyundai Heavy Industries and procured equipment paying $65 million and sold the same to PMC for $260 million, with a clear mark-up of more than 400 per cent. EIF also purchased equipment from three Chinese companies and sold them to PMC with a mark-up of 860 per cent. The total assessable value of the marked-up invoices at which EIF sold to PMC was estimated at Rs.1,500 crore.

All this was paid by the Indian company through huge borrowings from Indian banks. Possibly this forms part of the stressed accounts of banks in India. While this will end up as a clear profit for the company in Dubai, where profits are nominally taxed, the cost of the transmission project in Maharashtra gets inflated and to that extent people end up paying inflated charges for electricity. Well, what does AC in India get? EIF was directly controlled by the Adani Group since it was owned by EIH, another group company, which, in turn, was owned by Asankya Resources Family Trust based in Mauritius and headed by one of the Adani brothers.

What is important to note here is that those involved in illicit financial outflows that get parked abroad are not content with the “black money” that hardly earns any returns in the tax havens. They would like to “round route” it as white money for making profits in the domestic financial markets or stock exchanges. In 1983, the Government of India entered into a double taxation avoidance agreement (DTAA) with Mauritius, by which if a registered company in Mauritius pays taxes in that country on profit or capital gains from investments in India, it need not pay taxes in India.

In the early 1980s, the financial markets or stock exchanges in India were hardly open for foreign investments, and the profits earned on these transactions were insignificant. But with the launch of liberalisation and economic reforms, the Government of India opened up the financial markets (stock exchanges) for foreign institutional investors (FIIs) and the economy for foreign direct investment (FDI) on liberal terms.

As part of promoting the FIIs in the stock market, the government in the 1990s extended the Mauritius-type DTAA to Singapore and Cyprus. With the opening up of financial markets, opening of offshore accounts and shell companies of those trading in the Indian stock markets boomed. Round routing of the spoils of illicit financial earnings made by “misinvoicing”, hawala or other routes of money laundering found the Indian financial markets as “white money” through shell companies in several tax havens including Mauritius, Singapore and Cyprus.

The 1990s also saw the invention of the Participatory Note (PN). PNs were not registered to trade in Indian domestic capital markets, and the nature of beneficial ownership or identity of the investor remains unknown. The result is no one can identify the ultimate holder of the PN. Unlike the stringent know your customer (KYC) norms that applied to domestic investors, the KYC norms for PNs were criminally lax. Those pushing their illegal wealth back into India took huge advantage of the PN tool. Most of the money was funnelled through the PN route by opening sub-accounts with FIIs.

Much of the black money held abroad was round routed into the Indian stock exchanges through PNs bought in Mauritius through front shell companies. According to certain estimates, a substantial proportion of FII investments were made through the PN route. And that almost all FIIs were running sub-accounts for dubious clients was well known, but repeated RBI warnings against it were ignored. In all this, there is hardly any hard cash involved, nor is the accumulation in the Indian banks but in offshore. Well, what does demonetisation do to curb this?

Since trade “misinvoicing” accounts for a substantial part of illicit financial flows, curbing it should be the major focus of measures of controlling black money. It requires cooperation between trading countries in sharing information on country-specific information on goods trades and their prices. Much more important is to boost customs enforcement by equipping and training officers to better detect the international “misinvoicing” of trade transactions. Trade transactions involving tax havens should receive highest scrutiny by customs, income tax and law enforcement departments.

Politics of the era of post-truth

As shown earlier, it is difficult to believe that the Prime Minister was not fully aware of the limited effect of demonetisation on corruption and black money and about the adverse effects on the people and the economy. The criticism against demonetisation is not based on any special knowledge but that which could have been available as advice to the Prime Minister, and there is evidence that he did get such advice. Possibly there might have been some overestimation of the extent of demonetised currency not reaching the banks and certain underestimation of the adverse impact. But it is certain that the Prime Minister had adequate information on the possible impact to a substantial extent. But then, why did he venture into this demonetisation measure that, as some people feel, has taken some shine out of his image? For an answer to this question we may have to go beyond conventional economic explanations to the nature of politics in this era of post-truth.

The Oxford English Dictionary comes out every year with its ‘International Word of the Year’, and its choice for 2016 was “post-truth”. “Post-truth” is defined as “…relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief”. In this context, truth, meaning a description of the world as it really is, has ceased to be important. Once corruption has evolved in the imagination of the people as big scams, and once people are made to believe corrupt accumulations of black money are hidden in piles of currency, the truth of describing that spurt in corruption scams were sparked by the neoliberal reforms and that much of what is accumulated as black money is hardly kept in cash does not seem to matter much to the people at large. It is on this post-truth “reality” that Prime Minister Modi has built up his political strategy of the grand narrative of destroying corruption and black money with demonetisation.

Ever since the big corruption scams occupied the political space and mobilisation of public opinion against the corrupt regime by movements like IAC offered ideal conditions for exploiting people’s images by whipping up their emotions, Modi saw a great political opportunity in building up a grand narrative against corruption and black money from the early days of the campaign for the 2014 Lok Sabha election.

The BJP Election Manifesto 2014 made corruption and black money the prime part of the “imminent” agenda. It began with the accusation: “All pervasive corruption under the Congress-led UPA has become a ‘National Crisis’.” It went on to add that by “minimising the scope for corruption, we will ensure minimisation of the generation of black money”. It also stated that the BJP was “committed to tracking down and bringing back black money stashed in foreign banks and offshore accounts. We will set up a task force for the purpose and recommend amendments to existing laws or enact new laws”.

The space and priority accorded to corruption and black money in the manifesto was to match the anger of the people against these issues. Narendra Modi launched a nationwide campaign trail on the plank of fighting corruption. It was a different matter that his whirlwind campaign by chartered planes and helicopters across the country was supposed to have been funded by the likes of Adani; his major theme of campaign was telling people that the Congress stood for the “ABCD of corruption”—A for Adarsh, B for Bofors, C for Commonwealth Games, and D for “demand ka karobar”. He wanted to demonstrate that the fight against corruption was on top of his government’s agenda, and on the very first day of his office, May 28, 2014, he announced the constitution of a Special Investigation Team (SIT) headed by a retired judge of the Supreme Court to probe “black money” abroad.

It was rather pathetic and also the reality of the post-truth era that the Congress’ manifesto 2014, which carried a long list of “landmark legislations” of the UPA-II (2009-2014) that included issues ranging from food security, land acquisition, sexual harassment, Lok Pal and Lok Ayukta, RTE, NGT, street vendors and abolition of manual scavenging, was overwhelmed by the deadweight of the corruption image. The corruption narrative was designed to keep alive people’s anger against the previous regime, as much as their hopes on salvation in the present regime.

As the months passed, the party agenda gradually took the shape of a one man-agenda: that of Prime Minister Modi. On August 15, 2015, from the ramparts of the Red Fort, the Prime Minister announced: “I want to reaffirm that this nation will get rid of corruption.…we have to start from the top.…corruption is like termite, it spreads slowly, reaches everywhere but it can be beaten with timely injection. …there is work to be done. …with your support, I pledge a corruption-free India.” There were also measures like a new black money Act with provisions for strict penalties and a new income disclosure scheme for domestic black money. As part of the 2015 Budget, the Prevention of Money Laundering Act was amended with provisions for confiscation of domestic assets if illegal assets are located abroad, and renegotiation and revision of DTAAs with Mauritius, Singapore, Cyprus and Switzerland were initiated. Even the notorious PNs through FIIs were regulated through SEBI intervention.

Although these measures in themselves were important steps, none of them got as much public attention as to raise the intensity of the feeling among the public that the government was doing something that would effectively bring the corrupt to book and “black money” to confiscation. Added to this was the growing public feeling that the government drew a near-blank in bringing back “black money” hoarded abroad. If these feelings were allowed to pass, all the political gains that were designed on the wave of anti-corruption were in danger of vanishing. It was to stem this danger of popularity downswing that the demonetisation measure came, with all the mythological refurbishments to bolster the grand narrative of fighting corruption and “black money”.

When the Prime Minister went on to personally announce the demonetisation decision on November 8, 2016, he was trying to build moral binaries by painting the previous regime as all evil, and that the task of the present regime was to cleanse [society of] it. In the process, what unfolds is not as much as the regime or the government, but Modi himself with a sacred mission. In this, full advantage was taken not only of the corruption syndrome associated with the UPA but also its images of indecision, weak leadership and “policy paralysis”. Modi began by saying that “there comes a time in the history of a country’s development when a need is felt for a strong and decisive step”, and that step was demonetisation, to break the grip of corruption and “black money”.

He went on to say that “time and again, I have seen that when the average citizen has to choose between accepting dishonesty and bearing inconvenience, they always choose to put up with inconvenience. They will not support dishonesty”. Even as he appealed to their image of “black money” as cash, he turned rhetorical: “Which honest citizen would not be pained by reports of crores worth of currency notes stashed under the beds of government officers? Or by reports of cash found in gunny bags? … So, in this fight against corruption, black money, fake notes and terrorism, in this movement for purifying our country, will our people not put up with difficulties for some days? I have full confidence that every citizen will stand up and participate in this ‘mahayagna’.”

He went on to appeal: “…after the festivity of Diwali, now join the nation and extend your hand in this imandari ka utsav, this pramanikata ka parv, the celebration of integrity, this festival of credibility.” The entire speech was also replete with morality binaries, with him as honest, clean, credible and of unimpeachable integrity, while the previous regime was all indecisive, immoral and dishonest. Within weeks, as the adverse effects of demonetisation unfolded and even as people were complaining about the inconveniences suffered, instead of addressing them, he tried to show that the criticism was by evil forces against him. “I know what kind of forces and what kind of people are against me now ...They will not leave me alive. They will destroy me.”

He was alluding to his earlier narrative “…those who looted the country for 70 years” and to contrast, he claimed: “I am a fakir they are out to destroy.” And went on to add: “They thought if they pull my hair, I will stop and do nothing. I will not stop doing these things, even if you burn me alive.”

The rhetoric seemed to have worked, emotions roused, beliefs both in the leader and his determination to do “shuddhi”, or cleansing, of the nation strengthened. What puzzled many was that even as they suffered, people chose to be carried away by his rhetoric rather than look at the factual analysis of the critics.

A group of cultural anthropologists raised the question: “Why did the experience of suffering across the nation not manifest in mass protests or mobilisation but in fact brought BJP back to power in 2017 in Uttar Pradesh?” The suggested answer is that in the wake of economic liberalisation since 1991, there has been “erosion and slow death of civil society” and the resulting “passive conditions of citizenship”. Perhaps not. The truth may be close to the “post-truth” era in politics which is also a product of neoliberalism which brought a great divide among the people—with the vast majority being “left behinds” of the economic liberalisation, while a few including those in scams and those outside in the corporate world, had most of the share of growing wealth.

For the people at large, what counted was their own perception and imagined “reality” that was perpetuated by the popular media and exploited by opportunist politics, rather than laboured intellectual analysis. It was, to repeat post-truth, objective facts which were less influential in shaping their opinion than appeals to emotion and personal belief. It has been happening to the imagination of “left behind people” elsewhere—in the United States and in the United Kingdom during Brexit. And it happened for Modi. Even if a superior narrative called him a failure, in popular perception he was acceptable because he tried. Even if he failed he won the hearts of the “left behind people” (who were often the butt of ridicule as people waiting for Jan Dhan accounts to be filled by the “black money” unearthed) because of the sick venality all around.

As a perceptive political commentator pointed out, there are three significant aspects one can observe in the Modi political narrative. The first is moralisation of politics, the second is the infusion of emotion into policy debates, and the third is the reduction of all debate to a single question: whether one is in support of him or not?

Any policy criticism is likely to be brushed aside as criticism of the leader, the emerging strong, determined leader. Ironically, it is this success by perpetuating false belief and rousing that is a great threat to the democratic fabric of the country exposing it to the dangers of a tendency towards fascism. The vulnerability lies in the possible parallel that the “demonetisation story” holds to the ongoing “nationality story” of the present regime. It may be instructive to recall what the incisive political commentator, G. Sampath, had drawn attention to. To see whether the nationalist ideology espoused by the present regime has anything in common with the ideology of fascism, he suggested going back to Benito Mussolini and his seminal work, The Doctrine of Fascism, published in 1935, which identifies five central principles of fascist ideology.

The first and most fundamental is the primacy of the state’s interest over an individual’s interest. (In the present context, let us read state and leader interchangeably.) “The fascist conception of life stresses the importance of the state and accepts the individual only in so far as his interests coincide with those of the state.” To understand what it means under the present regime, we cannot have a better authority than Amit Shah, who recently stated that “… NDA regime believed in taking decisions that were good for people, not those that people would like”. Those who know better, like Arun Shourie, call it a “pyramidical mafia state”.

The second principle of fascism is the primacy of state over nation: “It is not the nation which generates the state …rather it is the state which creates the nation.” Since we are reading state and leader interchangeably, this does not require any authority to explain.

The third is the rejection of democracy. “In rejecting democracy, fascism rejects the absurd conventional lie of political equalitarianism.” Although it is heard that some of the supporters of the present regime think that the Indian Constitution is based on Western ideas, the discourse has not yet reached the heights of denying democracy, certainly, but systematically denigrating it to clientilism. After all, our democracy is already as hollow as the proverbial “carrot plant” that Arundhati Roy talks about. It appears when going to school, she along with friends would steal carrots from an old lady’s garden, eat the carrots and plant the leaves back in their place so that the old lady by seeing the leaves would feel the carrots were safe. Already there are several descriptions of the Indian democracy as “authoritarian populism”, “oligarchical democracy”, etc.

The fourth principle of fascism is the state’s non-secular character: “The fascist state sees in religion one of the deepest of spiritual manifestations and for this reason it not only respects religion but defends and protects it.” And which religion, by what means and with what effect the present regime promotes, needs no explanation. The fifth principle is a combination of all the four: that the state as the repository of all virtue, and the state (here the leader) is “the conscience of the nation”.

There is no greater political danger than constructing an image, making the people believe in it and ride on those beliefs—nothing short of reducing citizens to subjects. One is reminded of the proverbial Telangana leader Kaloji’s apt description of make-believe politics. He used to say that it was like the sheep’s belief that the wool on their skin was from the shepherd’s woollen rug due to his generosity. So much for citizenship.

The looming danger is more imminent, particularly with the opposition parties almost without any promise of a leadership that could challenge the present regime nor with strategies to capture the imagination and confidence of the people.

The moral bankruptcy of the main opposition party was exposed when it failed to link corruption and “black money” to economic reforms, since it was its own sin. The opposition parties together have failed to provide any comprehensive agenda for the eradication of corruption and “black money”. Nor are they ready for electoral reforms, one of the main causes perpetuating corruption and “black money”.

I would like to close by recalling one of the perceptive observations on what the “demonetisation” episode has thrown as a challenge before us. “History will tell if demonetisation proves to be the thin edge of the wedge that sets back India’s institutions, creates a brotherhood of elite ‘experts’, who feel compelled to validate post-truth policies, and which bypass the citizen while pretending to minister to his or her true needs.”

(The announcement of the action of demonetisation by the Prime Minister of India on November 8, 2016, brought extensive response or reaction in both popular press and academic writings from all over the country, and even from abroad. Also, there has been extensive literature on corruption and black money over the last several decades. I have benefited from these writings and also made use of many of them. I am grateful to all of them, and also sorry for not referencing them here.)

(Excerpts from the Com. P.V. Raju Memorial Lecture titled "Demonetisation, Corruption and Black Money: The Unfolding Dangers of Opportunistic Politics in the Era of Post-Truth" delivered by Prof. D. Narasimha Reddy, Professor of Economics (retd), University of Hyderabad, in Vijayawada on September 22, 2017.)

Vegetable farmers

Withered hopes

TWO SUCCESSIVE bad years in terms of earnings on account of demonetisation and its persisting ripple effects, compounded by widespread apprehensions on how the Goods and Services Tax (GST) regime will play out on the ground, have left farmers of Uttar Pradesh with an overwhelming sense of despair on the eve of the anniversary of demonetisation and amid the spluttering start of the GST regime.

As was the case during the period immediately following demonetisation in November 2016, vegetable farmers, particularly potato farmers, have been the worst hit by the ripple effects this year.

“In the period after the announcement of demonetisation, market agents and middlemen in the mandis refused to pick up our produce because of cash flow constraints. This year there is no evident cash flow problem but the government’s much-touted support systems to get over last year’s losses have been absolutely ineffective,” said Anil Kumar Awasthi, a potato farmer of Singauli village in the Makhanpur-Bilhaur region of Kanpur district.

“The net result is the same: the produce rotting in and outside cold storage. Once again, there is distress selling and throwing away,” he added.

Awasthi and four of his brothers, who collectively farm on some 17 acres (one acre is 0.4 hectare) partly owned and partly on lease, are feeding their potatoes to stray cows that have multiplied manifold in the village in recent months.

“What else can we do? At least they would get something to eat and this perhaps may deter them from barging into fields and houses,” he said.

When the Bharatiya Janata Party (BJP) came to power in 2017 in the State, it admitted that demonetisation had caused severe losses to farmers and promised measures to help them. This was followed by announcements that there would be a steady and massive potato purchase scheme, but in actual implementation this too has turned into usual political bombast.

Empty promises

The scheme was launched with much fanfare, with pictures splashed all over the media, and initially purchases did take place in a few instances. But soon the programme lost steam and is now being pursued in a totally haphazard manner, Awasthi said. The net result was escalation of farmers’ woes, he added.

“One could say that post-demonetisation, almost every harvest has marked the doubling of losses. Between last November and January 2017, our loss of produce was to the tune of Rs.8 lakh. This year, we have already lost around Rs.13 lakh of produce. Initially, we put potatoes worth a few lakh rupees in cold storage but have been forced to pull them out since the cold storage fee adds to our debt burden on a daily basis. With no buyers around, keeping the produce in cold storage is like slow bleeding that will ultimately take your life,” Awasthi told Frontline.

Across Uttar Pradesh, especially in the Doab region consisting of the central Doab districts of Etah, Kasganj, Firozabad, Kannauj, Mainpuri and Etawah, the lower Doab districts of Kanpur and Fatehpur, and the the upper Doab districts such as Saharanpur, Shamli, Muzaffarnagar, Baghpat, Meerut and Ghaziabad, thousands of farmers are facing a situation similar to the one faced by Awasthi’s family .

From across these regions, there are murmurs about taking out a march to Lucknow with truckloads of potatoes and dumping them in front of the Chief Minister’s residence. If such agitations happen, the agrarian situation could develop into a major law and order problem. Fateh Singh Bhatti, a medium farmer of Sikandrabad in Bulandshahar district of western Uttar Pradesh, who suffered massive recurring losses in 2016-17, told Frontline that the mayhem in the fields of the State simultaneously exposed the callous attitude that the ruling dispensation had towards farmers and the ineptness of and lack of creativity in the administrative setup. He is of the view that the manner in which the GST regime has been rolled out is another stark example of the lack of imagination and inefficiency.

“The impact of GST on agriculture is yet to manifest itself in concrete terms. But if demonetisation and related measures later are any indication, GST too will only aggravate the problems of the farmers. Already, it is clear that the price of fertilizers and pesticides will go up with GST. This is bound to increase the cost of cultivation. This, in turn, will impact supply and demand and ultimately reflect in the markets,” he said.

A consistent build-up throughout the government’s movement towards the GST regime was that it would benefit the agricultural sector substantially. The reasons cited included the potential that GST offered to improve the supply chain as it would subsume many indirect taxes that were prevalent in the earlier tax structure. It was also argued that GST would facilitate easier transportation of agricultural products across States and ultimately lead to the creation of a national agricultural market.

However, the increase in the prices of fertilizers and pesticides has led farmers to look at these claims with suspicion. Speaking to Frontline on condition of anonymity, a wholesaler of fertilizers and pesticides said that several important products used by farmers were bound to become more expensive in the days to come.

In the earlier VAT [value added tax] regime, nitrogen was taxed at 6 per cent (5 per cent VAT and 1 per cent excise) while potash and phosphorus had 0 per cent VAT. Under GST, all three would be taxed at 5 per cent. Pesticide-grade sulphur would be taxed at 12 per cent under GST as compared to 5 per cent earlier. Taxation for fertilizer sulphur, however, will remain unchanged at 5 per cent.

Organic farmers, too, are not happy about GST. An organic farmer from Saharanpur told Frontline that under GST bio-fertilizers are to be taxed at a flat rate of 18 per cent. Previously, taxes for different bio-fertilizers varied from 0 per cent to 5 per cent. “This big hike will certainly reflect in prices and virtually push Indian organic produce out of the international market.”

Beyond all this, said the fertilizer trader, the manner in which the GST regime was being rolled out, with multiple revisions, was bringing back memories of the tumultuous implementation of demonetisation, which was marked by constantly changing rules and directives. “This reminder is certainly not one that Uttar Pradesh’s farmers cherish. It has also added a mental burden to their mounting financial burden,” he said.

Interview: Thomas Franco, AIBOC

A fatigued system

V. SRIDHAR cover-story

ONE of the big ironies of demonetisation has been that the banking industry, which caught the first blast of the shock waves of demonetisation, has spoken so little about the unprecedented crisis it has undergone. Instead, the chiefs of the banks, public as well as private, have sung paeans to demonetisation even though it wrecked their business, exposed their staff to unprecedented stress and reduced the entire banking machinery in the country to nothing but glorified cash dispensers. Through all this, it was only the unions in banks that stood up to speak about how for several months banks had to virtually suspend their normal business activity in order to collect and dispense cash. And the burden of asking searching questions—from the Prime Minister, the Finance Ministry and the Reserve Bank of India (RBI)—on behalf of a hapless industry, too, fell on the unions. Thomas Franco, general secretary, All India Bank Officers Confederation, who has been an outspoken critic of demonetisation, spoke to Frontline about how Indian banking would take a very long time to recover from the battering it has suffered in the wake of demonetisation. Excerpts from the interview:

One of the lesser-known aspects of demonetisation is about the kind of pressure and stress bank employees faced, because they were the ones facing the public’s wrath after demonetisation, especially in the first three or four months.

Initially, especially on the first day, people were tolerant. They were only worried about getting some money. Although the RBI had announced that currency would be available with banks, cash had not reached most bank branches across the country. It had sent some currency to the currency chests of the specialised Currency Administration Branches of banks, in some cases about two weeks before the demonetisation announcement. Staff at the currency chests had been told not to open the boxes containing currency. I had seen that most branches had not received adequate supply of currency on the first day banks were open to the public after the announcement. The huge queues at banks meant that bank staff had to be deployed in tasks completely beyond their normal line of work—arranging shamianas for the huge crowds that had gathered at banks and generally counselling distressed people who desperately wanted some money. Chaos reigned. After about a week, people started getting angry with the bank staff.

The irresponsible manner in which the RBI kept issuing statements that adequate currency was available with banks only infuriated people even more because they started assuming that bank staff were not giving them their money. Moreover, although RBI set a limit of Rs.24,000 a week to every customer, faced with the severe shortage we had to dispense scarce currency by rationing it to much lower limits. Things got even more complicated because the RBI was making changes and amendments to its initial notification almost on a daily basis. For instance, it said higher limits were permissible for marriages. But when the actual circular reached the banks they found the complicated conditions attached to such withdrawals made it practically impossible to administer. How was a hapless customer to understand that bank staff were not responsible for not allowing them to withdraw their own money? All this meant bank staff had to face the wrath of the people for no fault of theirs. Neither the RBI nor the Finance Ministry did anything to own up responsibility for the mess they had created.

The load on banks was aggravated by the fact that ATMs had not been recalibrated to handle the new notes. I have seen senior bank employees reduced to tears by abusive customers who were desperate. There were even a few deaths of bank employees—in Bhopal, Hyderabad and other places—while on duty because of the severe stress they had to undergo. In none of these cases has the government given any extra compensation. Soon after the announcement of demonetisation, seven State Bank of India employees and their van driver died in Uttar Pradesh in an accident, but even in this case the bank management has refused to give employment to their nearest kin on compassionate grounds.

Apparently, even overtime that was to be paid to employees during the initial period has not been paid…

Yes, it has not been paid in most banks. Different banks have followed different methods for calculating the extra wages due to employees for having worked far beyond regular working hours and for having worked on holidays. The SBI paid Rs.6,000 for the first two days and Rs.5,000 for the two days following that, but nothing more after that. We are still fighting with the management for compensating us for the work we had done during the initial months after demonetisation. Some banks have paid no extra allowances at all. In several others only a token amount of about Rs.500 has been paid to employees. We raised this issue recently with the Indian Banks Association—the association representing bank managements—when we went for wage negotiations.

But banks’ expenses must have also shot up during this period, especially because they were forced to handle tasks that were peripheral to their main task as a banking institution.

Banks were saddled with huge expenses that arose as a direct result of demonetisation. Some of the senior officers at banks have also raised this with the Finance Ministry, that they need to be compensated for this. But the Ministry has simply refused to address this issue. According to one estimate, banks incurred costs to the tune of about Rs.8,000 crore. First, banks had to incur the cost of recalibration of ATMs for which they were not paid anything. Second, they had to incur higher staff and logistical costs. Third, there were costs on security and logistics that were incurred in order to manage the crowds at branches across the country. Fourth, even storing the demonetised currency meant additional storage costs and the security costs associated with it; the RBI’s failure to quickly evacuate such currency posed an additional burden.

Above all, bank staff could not do any of their normal banking work, which meant huge losses in terms of business revenue. Nobody in the government, the RBI or even bank managements would even dare to compute such losses. Banks had to abandon the follow-up on recovery of NPA accounts, nor could they pursue new business for lending. The irony is that we had huge amounts of money (because of the increase in deposits, on which banks had to pay interest), but we could not lend!

But things have not got better for banks even after the cash shortage has eased since last November.

The entire economy was hit by demonetisation. For customers, repayment of loans became difficult. Credit offtake also slowed down. Many companies are functioning at reduced capacities—at just 30-50 per cent capacity in many cases. The level of NPAs is still rising. Many of our customers—farmers, small industrialists and others—are saying that demand has not picked up even now. Obviously, these conditions are affecting the banking sector.

Looking back, what do you think was the motive for undertaking demonetisation?

In my opinion, the government was desperate to show that it was doing something. It also wanted to demonstrate that people would stand by it even if it took “tough” decisions. I do not think the government was foolish to think that black money would be wiped out by demonetisation, but it wanted to show that it was doing something to attack the menace. It is also true that, at least initially, many people believed this.

Textile trade in Varanasi

Changing mood

Sarkar ne toh vyapaariyon ko munshi bana diya hai” (the government has turned traders into accountants), quips Jagdish Shah, sitting in his multi-storey office in Chowk, Varanasi’s busiest market.

It is an early November evening, and the first anniversary of demonetisation is only a few days away. Shah, who is among a handful of Varanasi’s big textile traders, speaks of the impact of the Union government’s two major economic decisions of the past one year—demonetisation and Goods and Services Tax (GST)—on the business community in Prime Minister Narendra Modi’s parliamentary constituency. His comment, made partly in a tone of resignation, is a specific reference to the impact of GST on textile traders in Varanasi, which is a large group comprising, by some accounts, nearly half a million people involved directly and indirectly. He explains how textile traders, who were so far outside the purview of Central taxes and not very conversant with the requirements of keeping detailed formal accounts with the government because of the informal nature of their business, are now caught up in the elaborate web of filing GST returns.

Like a significant number of businesspersons across the country, Shah sees both demonetisation and GST as having adversely impacted trade and business sentiment. He describes the aftermath and still persisting consequences of demonetisation: “In the initial two-three months [after demonetisation], we were facing a lot of difficulties. But its lasting impact, to which GST added further push, has been seen in the decline in working capital and business activity in the market. This has caused a decline in turnovers and general incomes [of traders].” That is a significantly candid observation because Shah is also the president of the Banarsi Vastra Udyog Sangh, an influential association of textile traders who openly back Modi and the Bharatiya Janata Party. Its former president, Ashok Dhawan, was Modi’s election manager in 2014.

Post-demonetisation, however, the mood of this influential group and, indeed, the wider trading community of Varanasi, which also backs Modi, began changing steadily. By June this year, this community began expressing its grievances openly. In July, when GST was introduced, textile traders protested through a nationwide strike. “The strike was in support of our fellow traders in Surat, who were also protesting against the imposition of GST,” said Rajan Behal, general secretary of the Banarsi Vastra Udyog Sangh. He added that a significant number of those protesting were the makers of the famed Banarsi sari, a measure of how serious the problem was.

These protests have also attracted support in significant numbers within the community because the adverse economic impact of the slowdown in trade increases as one looks further down the hierarchy, as first-hand accounts from traders across the spectrum bear out.

According to Behal, only about 10 per cent of the city’s textile traders are estimated to have annual turnovers of above Rs.5 crore. A relatively larger number, which includes weavers, register an annual turnover between Rs.1.5 crore and Rs.5 crore, while most others fall way short of the Rs.1 crore mark. For perspective, profits from the turnovers in this trade are estimated to be in the range of only 10-15 per cent. With the introduction of GST, profits have dipped.

While most of these numbers are back-of-the-envelope calculations, Behal said that the overwhelming majority of traders were adversely affected by GST notwithstanding some changes made by the Centre in the rates and the frequency of filing returns, after protests. “At present, about 60 per cent of business is affected by GST. This is an ancestral trade which still operates on credit, trust, informal bookkeeping and such traditional practices. The majority of the small traders are unlettered, so they are unaware of the complex returns-filing processes. When you introduce a new tax on this trading community, it is obvious that the impact is going to be adverse. We have had to invest money in setting up infrastructure for GST. The government should provide soft loans at zero interest or a maximum of 4 per cent interest for this purpose,” he said.

In mentioning small and micro traders, Behal is talking in particular about weavers. Chand Mohammad Aazam, a weaver and resident of Varanasi’s Jaitpura locality, which is abuzz round the clock with the sound of power looms and handlooms in homes, agrees with him: “Nobody is able to understand what this [GST] is. They should have imposed GST on the cloth, not on the yarn because everyone in the entire chain of manufacturing cloth has become adversely affected now. There is less work in the market, and so money changing hands is also less,” he said. He explained that in the textile trade, transactions were done over three to six months’ credit, whereas GST filings had to be done each month, except by those with an annual turnover below Rs.1.5 crore. So traders and weavers find themselves in a situation where they have to pay taxes on goods which they have sold on credit and payments are not yet realised. “I have paid Rs.3 lakh GST so far, but my payments are yet to be received,” he rued.

This will subsequently put smaller and micro weavers out of business. Steadily, this appears to be already happening. According to Mukhtar Ahmed Mahato, a resident of Madanpura locality, in the past six months alone around 35,000 small and micro weavers had left Varanasi for other cities. He said small Muslim weavers had found some work in Gurpalli area of Bengaluru and Mithikhadi area of Surat city. Official numbers are hard to come by, but such anecdotal references abound in the city which has historically been known for its rich textile tradition.

Behal recalled how previous attempts at taxing the trade were successfully resisted. “There have been multiple attempts in the past in Uttar Pradesh to impose tax on our trade, but all governments in the State had to withdraw those decisions. In fact, even during Atalji’s [Atal Bihari Vajpayee] time, they decided to impose tax on us, but when we met and explained to him why it should be withdrawn, Atalji’s government took back the decision. But this government is just so stubborn that it doesn’t want to withdraw Modi tax,” lamented Behal.

Leather industry

Reverse growth

“THE DISINTEGRATION and decadence of Kanpur’s industrial and commercial status has been unravelling for many decades. The city, called the ‘Manchester of the East’ during the British Raj since it was the second biggest manufacturing centre in the country after Calcutta, does not have a single megacorp industrial or commercial enterprise now. In fact, the last of the big ticket companies exited from the town nearly three decades ago. Since then the city and the district have been surviving mainly on industries such as leather, garments and hosiery, fertilizers and chemicals, soaps and detergents, and edible oils. The turnover from these was not comparable to the impressive record of the past. Still, it helped the region provide some employment and earnings to the State and its people. But even that has crumpled by the double whammy of GST and demonetisation,” said Prem Manohar Gupta, chairman of the Trade Committee of the Merchants Chamber of Uttar Pradesh, while discussing the impact that GST and demonetisation has had on the country’s most-populous State’s main industrial centre.

Gupta said the depletion of revenue from these measures was yet to be quantified comprehensively. Informal estimates are that the cumulative overall loss of employment would be 10 to 15 per cent from what existed before demonetisation. In terms of actual numbers, this would run into loss of employment to lakhs of people.

One of the sectors that held on relatively better was the leather industry. A wide range of leather products, consisting not only routine products like sandals, shoes and chappals but also harness and saddlery, were produced here for both national and international consumption. This sector formed an important component of the exports from Kanpur, bringing in considerable foreign exchange to the country.

Talking to Frontline without wanting to be named, a major leather goods manufacturer and exporter said that over the past one year this sector had been impacted negatively not only by GST and demonetisation but also by other governmental and political moves. “These political and governmental moves are not directly related to trade but to cow politics. This was initiated by the Yogi Adityanath-led Uttar Pradesh government through its notifications in March-April 2017 and then made harsher by the Union government’s directives in May. This has now been followed by the GST mess.” The leading manufacturer-exporter’s views are echoed by other persons affiliated to the industry, including government officers who are deputed to facilitate the sector’s export-related growth.

Explaining the series of blows suffered by the sector, another leather manufacturer-exporter told Frontline: “First, demonetisation dealt a body blow to the cash flow and liquidity in this sector. Every process, from procuring raw hide to employing workers to treatment of the hide, became a challenging task in the absence of cash flow. Hundreds of thousands of workers, both in the formal sector and in the informal sector, were retrenched during the months immediately following demonetisation. Almost 80 per cent of the workforce in this sector is associated with the industry without formal agreements or contracts. Naturally, they were the ones who took the brunt of retrenchment. This was followed up by the serial restrictions on cattle slaughter and on abattoirs and trade, leading to yet another round of travails.”

An official associate of the leather export body said that the cumulative impact of all this was either complete closure or partial shutting down of nearly half of the 400-odd leather tanning units in the city. Informal estimates are that the retrenchments that happened from November 2016 to August 2017 would be around 80,000 to a lakh. In this context, the official added, it was unlikely that the sector would ever be able to recapture its record of the 1990s when the turnover from Kanpur was Rs.5,000-6,000 crore.

According to Ali and Vikas Pal, two labourers in the Kanpur leather sector, a telling picture of the collapse of the industry is Pech Bagh Street in the heart of the city. The street once teemed with activity, with over 500 godowns piled up with raw animal skin and approximately 1,500 labourers working in these godowns almost round the clock. “Now, Pech Bagh is a pale shadow of what it was, with 50 per cent of the godowns shut down owing to the multiple restrictions that have come up through demonetisation, cattle laws and GST issues. And a lot of our former colleagues have become street-side vendors of tea, vegetables and cigarettes, earning just one-tenth of or even less than what they got from the leather industry.”

A senior official associated with the leather export body told Frontline that, ironically, in the climate created by demonetisation and GST, it was those industries that had a significant “below the tax radar” operations that were thriving. “If Kanpur is taken as a case study, you can see that the readymade garments industry and the production of detergents are thriving, essentially because both streams contain a sizeable quantum of informal production work, which is carried out from the houses of poor people, including in slums and villages. These operations are under the tax radar, and the owners of such enterprises make huge money. But the leather industry cannot go under the radar since it has a significant export element. It is widely accepted that new GST processes are confusing, but the provisions that apply to the leather industry and export, especially in terms of drawback rates and State GST and Central GST rates for procurement of raw materials, are, put simply, confounding. We are supposed to advise the exporters on how to tackle this, but the unending revisions have made life difficult for us too.”

Prem Manohar Gupta and a number of associates in different merchant bodies have little doubt that the Union government implemented both demonetisation and GST without sufficient application of mind and detailed planning. “This reflects in almost all aspects of GST processes, starting from the filing of online returns. The file size of these documents are such that they can be uploaded only if you have high-end 4G connectivity. In places like Kanpur, you don’t even get 24x7 electricity, not to speak of high-speed connectivity. We are forced to spend hours on end to upload documents. On one occasion my team and I managed to upload a file at 3 in the morning after struggling for nearly 10 hours. If this is the case in Uttar Pradesh’s second largest city, what would be the case in smaller towns? So much for the claims of ease of doing business,” Gupta said.

Amidst such perceptions, members of the industrial and merchant communities of Kanpur say with one voice that demonetisation and GST have pushed back the city and its enterprises by at least 10 years.

Meat traders

The meat of the matter

cover-story

THE demonetisation decision in November 2016 dampened the vigour of festival sales for traders and small industries in Ghaziabad, the town in Uttar Pradesh which is part of the National Capital Region. Delhi had a quiet Deepavali this year largely owing to the Supreme Court ban on the sale and bursting of firecrackers. No such ban was in place in other parts of the country. Even so, the Goods and Services Tax (GST) of 28 per cent on firecrackers seemed too steep a price to pay for something that would eventually go up in smoke. Rohini, a schoolteacher in Ghaziabad, and several others like her decided to spend less on firecrackers.

While markets were slowly limping back to normal, the impact of demonetisation lingered even after almost one year. Garish Oberoi, president of the Federation of Hotel & Restaurant Associations of India, said the wedding business and use of banquet halls for holding conferences and functions were particularly affected. A number of conferences and seminars were suspended for a long time after demonetisation was announced. The holding of conferences was gradually coming back into vogue but the organisers were careful with their spending, said Oberoi.

By the time Deepavali ended, the business of organising weddings and conferences had limped back to about 70 per cent of earlier levels. Oberoi was hopeful that the situation would improve once more money came back into circulation. While restaurants were coping with demonetisation, GST dealt a blow to their recovery. GST was not what it was expected to be, Oberoi said. But it might help reduce costs for customers eating out in air-conditioned restaurants as and when input credits get passed on to them, he said.

Traders protest

Small traders were affected in a big way by demonetisation and GST. Migrant workers from Uttar Pradesh, who used to travel to Delhi during the festival season to make some money by selling earthen lamps and small idols, were disappointed this year. The traders association of Ghaziabad was one of the few associations in the country to take to the streets to oppose the implementation of GST. It protested against various aspects of GST and demanded that it be made quarterly and not entirely online as traders in remote areas were not tech savvy.

Meat traders and slaughterhouses in Ghaziabad were the worst affected. They had to deal with not only demonetisation and GST but also the Yogi Adityanath government’s decision to close down slaughterhouses in the State indiscriminately. The stringent licence regime put in place by the Bharatiya Janata Party (BJP) government in the State caused a severe setback to the meat industry. “The condition is extremely bad. There is large-scale unemployment and meat shops remain closed even today. There is no meat available for wedding parties and they are not giving licences without huge bribes. In some cases, they have asked for bribes as high as Rs.50,000. How can a poor man bear that cost?” Aquil Qureishi, president of the Buffalo Traders Association (BTA), said.

Moderate GST impact

According to Aquil Qureishi, GST did not have a big impact on the meat industry in the area as most of the people are poor. But demonetisation crippled the flourishing meat trade, Mohd Imran Qureishi, general secretary of the BTA, said. “When the move towards a digitised economy has not worked well in urban areas, how will it work in rural areas? If you visit some of the remote areas, you will come across horror stories, similar to those from Jharkhand. The poor trader is hit not only by demonetisation and GST but also by the making of Aadhaar mandatory and the increasing communalisation of politics of the region,” he said.

Even as the State government clamped down on the meat trade, right-wing elements harassed meat sellers who were operating well within the law. Earlier this year, meat shops were torched in Hathras. On the eve of every Hindu festival, the Bajrang Dal and other right-wing groups would order the shops to down shutters. “The meat trade is operating at 50 per cent capacity,” said Aquil Qureishi.

The digitisation of transactions beyond a certain limit had hurt the industry, Imran Qureishi said. “Farmers are illiterate. Many of them do not even have bank accounts. Those with bank accounts do not know how to operate them.”

There have been several instances of fraud as farmers have had to rely on other people to operate their accounts. For instance, when a person relied on somebody else to make a transaction of Rs.5,000 in a cyber cafe, it was found later that a transaction of Rs.6,000 had been accomplished. “I was asked by a trader to transfer money to his acquaintance’s account. It has been a year and the person is refusing to return the money. I have also sent him a legal notice. He is sitting in Ferozepur in Punjab. Either I must go there and file a police complaint or forget my money, Imran Qureishi said.

Moreover, agriculture is the primary occupation of cattle traders. A cooperative bank will lend them money only for agricultural purposes and not for buying cattle. “How are we supposed to conduct any business properly?” wondered Imran Qureishi.

Divya Trivedi

Power looms

Silence of the looms

LYLA BAVADAM cover-story

IF India Inc has been reporting losses and its head honchos have been speaking out against Goods and Services Tax (GST) and the after-effects of demonetisation, it does not take much to imagine the situation of small businesses. Backed by financial and technical resources, big businesses have managed to roll with the punches and are likely to land on their feet, but small businesses have had to deal first with the sudden shock of demonetisation and then the red tape of the world of GST. In Maharashtra, the plight of Bhiwandi encapsulates what demonetisation and GST have done to small businesses.

At the best of times, Bhiwandi, the power loom capital of Maharashtra, is quite a depressing town, with the incessant clang and shriek of machinery and the pall of dust that covers everything. But, in a twisted sort of way, these were signs that all was well in Bhiwandi.

The town has about nine lakh of India’s 21 lakh power looms crammed into airless galas (workshops), all built cheek by jowl on 38 square kilometres. The town provides various forms of employment to most of the taluk and to thousands of migrant workers, mainly from Uttar Pradesh and Bihar.

“Silence is not a good sign here,” says Mohsin Mohammed Tarir, who owns about 100 power looms. Reminiscing about November 8, 2016, Tarir says his first reaction was that it was a joke his friend was playing on him. “Something like this has never happened before, so it’s easy to dismiss it. How can anyone even think of doing something like this—one day the Rs.1,000 note is legal tender and within four hours it is not accepted anywhere. Many of my boys [weavers] were saving up to go home [to Uttar Pradesh] and they prefer to travel with big notes. They came to me in the morning confused and holding their Rs.1,000 notes. That’s when it hit me.”

The nightmare of demonetisation as experienced in the rest of the country kept snowballing until finally in December 2016, Bhiwandi’s looms were switched off: there was a paucity of workers, and a cash crunch ensued because of no-sale, no-purchase. The situation was bad enough for Union Textile Minister Smriti Irani to visit Bhiwandi and assess the situation, after which work resumed.

The power loom industry had been on a downward spiral for some years. About 30 per cent of the looms had shut down over a two-year period because of unstable yarn prices, high export duties and competition from China. But “never once did we think Bhiwandi’s future was dark,” says Tarir, “but this time we have doubts about the survival of the entire industry.”

Ahmed Ansari, who worked as a grey (unbleached) cloth agent, echoes this: “There are three things people invest in Bhiwandi and it depends on who you are. If you’re a local man, you will invest in a small shop or a rickshaw. If you’re a south Indian, you will try and open a small eatery. But we people from U.P. put our money in the power looms. If the looms are silent, what do we do?”

Ansari cut his losses by leaving Bhiwandi almost immediately after demonetisation. He says living in his U.P. village was cheaper because he saved on house rent and food. He says Bhiwandi was like a ghost town for a while following demonetisation as workers left for their home States of Bihar and Uttar Pradesh.

The second shock

Eight months after demonetisation a second jhatka (shock) hit businesses in the form of GST. “ Yeh jhatke se ham nahi bach sake” (We could not escape this shock) says 65-year-old Gul Mohammed. He says he closed down his single gala of about 40 looms because he just could not understand what was required and why he had to infuse even more money into a business that was already showing slim profits. The biggest blow was the disparity in the GST on yarn. Many looms spin man-made fibre (MMF) cloth because there is a greater demand for it since it is cheaper at about Rs.30 a metre. Cotton costs about Rs.75 a metre.

The GST that was applied to MMF yarn was 18 per cent while that for cotton was 5 per cent. Additionally, there is a minimum of 5 per cent tax for every stage of business, from bleaching the grey cloth, to sizing, warping, weaving, mending, folding, packaging and transporting it. Many of these stages are handled by independent agents or job workers, but GST has hit them quite hard. Loom owners, especially the big ones, have cut out agents and moved all the production stages in-house to try and save on tax.

In July, loom owners and other manufacturers in Bhiwandi submitted a memorandum to Union Finance Minister Arun Jaitley and Maharashtra’s Minister for Finance Sudhir Mungantiwar detailing the difficulties in doing business because of GST. They got the standard assurance that the matter was being looked into. It was only in October that the GST Council reduced the MMF rate to 12 per cent.

Digitally ill-equipped

Digital India is yet to enter Bhiwandi where all transactions are in cash. Understanding the multiple layers of taxation has been baffling for many. Tarir says he spent “more time trying to understand the paperwork than working at the business”. After all the entries are made online, it is frustrating when they get lost because of poor connectivity and the fact that there is no option to save the entered data.

The problems of capital flow and unsold stock continue to haunt the industry. Helplessness with regard to technical aspects of GST means that some loom owners are yet to get GST numbers. Because of this, buyers are unwilling to buy their goods. Even four months after GST was implemented, Bhiwandi is still reeling from it.

Construction activity

Real estate woes

THE REAL ESTATE sector was hit hard by the sudden withdrawal of high-currency notes in November last year. As building activity came to a halt, thousands lost their jobs.

According to a study done by Project Guru, a market research and business analytics firm, the months immediately after demonetisation saw a 53 per cent drop in the sale of housing units in metropolitan cities. The quantum of job loss was huge: over 35 per cent of the available workforce, which travels to metros for jobs and gets absorbed in the building activity, was hit hard, the report said. According to independent estimates, Delhi sees over six lakh people coming every year in search of jobs, and demonetisation meant this workforce was suddenly left without work.

“Job losses were huge. The mid-level and small players were the ones who were hit the most. The big players still had the margin to absorb the shock, but the small players were wiped out,” said Priya Chetty, managing partner of Project Guru. Priya Chetty, who studied the real estate sector closely in the wake of demonetisation, said the sector was especially hit hard because it was heavily cash dependent and it was common knowledge that a lot of black money was used in the sale and purchase of flats. “Companies shut down as people stopped investing money. This left in the lurch many of those who had already invested their money in these companies. A chain reaction of sorts started, and the industry is still reeling in its aftermath,” she said.

Even as the aftershocks of demonetisation were still being felt, the Real Estate (Regulation and Development) Act (RERA), 2016, and Goods and Services Tax (GST) arrived, which further strained the struggling construction companies. Although RERA was a welcome move, as it sought to give buyers protection against wilfully defaulting companies, the companies came under further strain as they became liable for criminal prosecution if they failed to deliver units on time.

“GST and RERA together had a spiralling impact on the sector. Implementation of GST meant that the cost of construction went up. Besides high prices for materials, now the companies were taxed at 12 per cent for under-construction projects. This put a severe strain on already stressed resources, and builders struggled to meet deadlines because lack of resources had become a real concern. RERA meant a builder could even be put behind bars if he failed to meet deadlines,” Priya Chetty said. The heavy penalties with interest for delays complicated matters further, and the sector is still struggling to find a way out. Implementation of RERA is a work in progress, so its full impact cannot be gauged completely at the moment. “As far as GST is concerned, the problem is not the quantum of tax but lack of clarity and lack of the right systems in place,” Priya Chetty said.

Officials in real estate companies such as Raheja Developers Ltd, Omaxe and DLF admitted that the past one year had been problematic for the sector because of demonetisation, RERA and GST, as all three were interlinked. “It has been a triple whammy for the construction industry as a whole. Existing projects are on hold; no new projects are being announced; there are no investors,” a senior official in DLF said. The silver lining in all this, however, could be that houses could become affordable because of the huge unsold inventory. According to a report brought out by ASSOCHAM (Associated Chambers of Commerce and Industry of India), in the National Capital Region there are 2,50,000 unsold units, with Noida alone accounting for 1,20,000. “Over 35-40 per cent of transactions happened in black money in this sector and this transaction totally came to a halt,” the Project Guru report estimated. The government quoted this statistic to make the argument that prices would come down and housing would become affordable for all. “But where has that happened? Has the government started any projects? Has the government announced incentives for the sector to achieve this goal?” asked a senior DLF executive, adding that when demonetisation was announced the Prime Minister said the real estate sector comprised thieves and thugs. “But the government does not seem to realise that this sector contributes hugely to employment generation, and big industries like cement, steel, bricks, other ancillary stuff, all are dependent on the real estate sector for their survival. If you treat us with disdain and call us thieves, then how can you expect the sector to cooperate, whether it is housing for all or affordable housing schemes?” he said.

A few positives

Industry experts, however, pointed out one positive outcome of the entire mess: the interest rates on home loans have come down slightly. But it is not enough yet. “Things are as dismal as they can get, and we have to wait two to three years for any positive outcome,” an executive from Omaxe said. Another healthy trend that is now being witnessed is the increase in demand for ready-to-move homes. The speculative buyer who only put money in the sector for investment purposes has now gone missing, and end users are showing an interest in the sector. But it is still a rough ride for the real estate sector, which is simply waiting for good times to come again.

Those in real estate companies found it amusing that the World Bank had improved India’s “ease of doing business” rating because there was simply no business happening.

Vegetable farmers

Withered hopes

TWO SUCCESSIVE bad years in terms of earnings on account of demonetisation and its persisting ripple effects, compounded by widespread apprehensions on how the Goods and Services Tax (GST) regime will play out on the ground, have left farmers of Uttar Pradesh with an overwhelming sense of despair on the eve of the anniversary of demonetisation and amid the spluttering start of the GST regime.

As was the case during the period immediately following demonetisation in November 2016, vegetable farmers, particularly potato farmers, have been the worst hit by the ripple effects this year.

“In the period after the announcement of demonetisation, market agents and middlemen in the mandis refused to pick up our produce because of cash flow constraints. This year there is no evident cash flow problem but the government’s much-touted support systems to get over last year’s losses have been absolutely ineffective,” said Anil Kumar Awasthi, a potato farmer of Singauli village in the Makhanpur-Bilhaur region of Kanpur district.

“The net result is the same: the produce rotting in and outside cold storage. Once again, there is distress selling and throwing away,” he added.

Awasthi and four of his brothers, who collectively farm on some 17 acres (one acre is 0.4 hectare) partly owned and partly on lease, are feeding their potatoes to stray cows that have multiplied manifold in the village in recent months.

“What else can we do? At least they would get something to eat and this perhaps may deter them from barging into fields and houses,” he said.

When the Bharatiya Janata Party (BJP) came to power in 2017 in the State, it admitted that demonetisation had caused severe losses to farmers and promised measures to help them. This was followed by announcements that there would be a steady and massive potato purchase scheme, but in actual implementation this too has turned into usual political bombast.

Empty promises

The scheme was launched with much fanfare, with pictures splashed all over the media, and initially purchases did take place in a few instances. But soon the programme lost steam and is now being pursued in a totally haphazard manner, Awasthi said. The net result was escalation of farmers’ woes, he added.

“One could say that post-demonetisation, almost every harvest has marked the doubling of losses. Between last November and January 2017, our loss of produce was to the tune of Rs.8 lakh. This year, we have already lost around Rs.13 lakh of produce. Initially, we put potatoes worth a few lakh rupees in cold storage but have been forced to pull them out since the cold storage fee adds to our debt burden on a daily basis. With no buyers around, keeping the produce in cold storage is like slow bleeding that will ultimately take your life,” Awasthi told Frontline.

Across Uttar Pradesh, especially in the Doab region consisting of the central Doab districts of Etah, Kasganj, Firozabad, Kannauj, Mainpuri and Etawah, the lower Doab districts of Kanpur and Fatehpur, and the the upper Doab districts such as Saharanpur, Shamli, Muzaffarnagar, Baghpat, Meerut and Ghaziabad, thousands of farmers are facing a situation similar to the one faced by Awasthi’s family .

From across these regions, there are murmurs about taking out a march to Lucknow with truckloads of potatoes and dumping them in front of the Chief Minister’s residence. If such agitations happen, the agrarian situation could develop into a major law and order problem. Fateh Singh Bhatti, a medium farmer of Sikandrabad in Bulandshahar district of western Uttar Pradesh, who suffered massive recurring losses in 2016-17, told Frontline that the mayhem in the fields of the State simultaneously exposed the callous attitude that the ruling dispensation had towards farmers and the ineptness of and lack of creativity in the administrative setup. He is of the view that the manner in which the GST regime has been rolled out is another stark example of the lack of imagination and inefficiency.

“The impact of GST on agriculture is yet to manifest itself in concrete terms. But if demonetisation and related measures later are any indication, GST too will only aggravate the problems of the farmers. Already, it is clear that the price of fertilizers and pesticides will go up with GST. This is bound to increase the cost of cultivation. This, in turn, will impact supply and demand and ultimately reflect in the markets,” he said.

A consistent build-up throughout the government’s movement towards the GST regime was that it would benefit the agricultural sector substantially. The reasons cited included the potential that GST offered to improve the supply chain as it would subsume many indirect taxes that were prevalent in the earlier tax structure. It was also argued that GST would facilitate easier transportation of agricultural products across States and ultimately lead to the creation of a national agricultural market.

However, the increase in the prices of fertilizers and pesticides has led farmers to look at these claims with suspicion. Speaking to Frontline on condition of anonymity, a wholesaler of fertilizers and pesticides said that several important products used by farmers were bound to become more expensive in the days to come.

In the earlier VAT [value added tax] regime, nitrogen was taxed at 6 per cent (5 per cent VAT and 1 per cent excise) while potash and phosphorus had 0 per cent VAT. Under GST, all three would be taxed at 5 per cent. Pesticide-grade sulphur would be taxed at 12 per cent under GST as compared to 5 per cent earlier. Taxation for fertilizer sulphur, however, will remain unchanged at 5 per cent.

Organic farmers, too, are not happy about GST. An organic farmer from Saharanpur told Frontline that under GST bio-fertilizers are to be taxed at a flat rate of 18 per cent. Previously, taxes for different bio-fertilizers varied from 0 per cent to 5 per cent. “This big hike will certainly reflect in prices and virtually push Indian organic produce out of the international market.”

Beyond all this, said the fertilizer trader, the manner in which the GST regime was being rolled out, with multiple revisions, was bringing back memories of the tumultuous implementation of demonetisation, which was marked by constantly changing rules and directives. “This reminder is certainly not one that Uttar Pradesh’s farmers cherish. It has also added a mental burden to their mounting financial burden,” he said.

Interview: Thomas Franco, AIBOC

A fatigued system

V. SRIDHAR cover-story

ONE of the big ironies of demonetisation has been that the banking industry, which caught the first blast of the shock waves of demonetisation, has spoken so little about the unprecedented crisis it has undergone. Instead, the chiefs of the banks, public as well as private, have sung paeans to demonetisation even though it wrecked their business, exposed their staff to unprecedented stress and reduced the entire banking machinery in the country to nothing but glorified cash dispensers. Through all this, it was only the unions in banks that stood up to speak about how for several months banks had to virtually suspend their normal business activity in order to collect and dispense cash. And the burden of asking searching questions—from the Prime Minister, the Finance Ministry and the Reserve Bank of India (RBI)—on behalf of a hapless industry, too, fell on the unions. Thomas Franco, general secretary, All India Bank Officers Confederation, who has been an outspoken critic of demonetisation, spoke to Frontline about how Indian banking would take a very long time to recover from the battering it has suffered in the wake of demonetisation. Excerpts from the interview:

One of the lesser-known aspects of demonetisation is about the kind of pressure and stress bank employees faced, because they were the ones facing the public’s wrath after demonetisation, especially in the first three or four months.

Initially, especially on the first day, people were tolerant. They were only worried about getting some money. Although the RBI had announced that currency would be available with banks, cash had not reached most bank branches across the country. It had sent some currency to the currency chests of the specialised Currency Administration Branches of banks, in some cases about two weeks before the demonetisation announcement. Staff at the currency chests had been told not to open the boxes containing currency. I had seen that most branches had not received adequate supply of currency on the first day banks were open to the public after the announcement. The huge queues at banks meant that bank staff had to be deployed in tasks completely beyond their normal line of work—arranging shamianas for the huge crowds that had gathered at banks and generally counselling distressed people who desperately wanted some money. Chaos reigned. After about a week, people started getting angry with the bank staff.

The irresponsible manner in which the RBI kept issuing statements that adequate currency was available with banks only infuriated people even more because they started assuming that bank staff were not giving them their money. Moreover, although RBI set a limit of Rs.24,000 a week to every customer, faced with the severe shortage we had to dispense scarce currency by rationing it to much lower limits. Things got even more complicated because the RBI was making changes and amendments to its initial notification almost on a daily basis. For instance, it said higher limits were permissible for marriages. But when the actual circular reached the banks they found the complicated conditions attached to such withdrawals made it practically impossible to administer. How was a hapless customer to understand that bank staff were not responsible for not allowing them to withdraw their own money? All this meant bank staff had to face the wrath of the people for no fault of theirs. Neither the RBI nor the Finance Ministry did anything to own up responsibility for the mess they had created.

The load on banks was aggravated by the fact that ATMs had not been recalibrated to handle the new notes. I have seen senior bank employees reduced to tears by abusive customers who were desperate. There were even a few deaths of bank employees—in Bhopal, Hyderabad and other places—while on duty because of the severe stress they had to undergo. In none of these cases has the government given any extra compensation. Soon after the announcement of demonetisation, seven State Bank of India employees and their van driver died in Uttar Pradesh in an accident, but even in this case the bank management has refused to give employment to their nearest kin on compassionate grounds.

Apparently, even overtime that was to be paid to employees during the initial period has not been paid…

Yes, it has not been paid in most banks. Different banks have followed different methods for calculating the extra wages due to employees for having worked far beyond regular working hours and for having worked on holidays. The SBI paid Rs.6,000 for the first two days and Rs.5,000 for the two days following that, but nothing more after that. We are still fighting with the management for compensating us for the work we had done during the initial months after demonetisation. Some banks have paid no extra allowances at all. In several others only a token amount of about Rs.500 has been paid to employees. We raised this issue recently with the Indian Banks Association—the association representing bank managements—when we went for wage negotiations.

But banks’ expenses must have also shot up during this period, especially because they were forced to handle tasks that were peripheral to their main task as a banking institution.

Banks were saddled with huge expenses that arose as a direct result of demonetisation. Some of the senior officers at banks have also raised this with the Finance Ministry, that they need to be compensated for this. But the Ministry has simply refused to address this issue. According to one estimate, banks incurred costs to the tune of about Rs.8,000 crore. First, banks had to incur the cost of recalibration of ATMs for which they were not paid anything. Second, they had to incur higher staff and logistical costs. Third, there were costs on security and logistics that were incurred in order to manage the crowds at branches across the country. Fourth, even storing the demonetised currency meant additional storage costs and the security costs associated with it; the RBI’s failure to quickly evacuate such currency posed an additional burden.

Above all, bank staff could not do any of their normal banking work, which meant huge losses in terms of business revenue. Nobody in the government, the RBI or even bank managements would even dare to compute such losses. Banks had to abandon the follow-up on recovery of NPA accounts, nor could they pursue new business for lending. The irony is that we had huge amounts of money (because of the increase in deposits, on which banks had to pay interest), but we could not lend!

But things have not got better for banks even after the cash shortage has eased since last November.

The entire economy was hit by demonetisation. For customers, repayment of loans became difficult. Credit offtake also slowed down. Many companies are functioning at reduced capacities—at just 30-50 per cent capacity in many cases. The level of NPAs is still rising. Many of our customers—farmers, small industrialists and others—are saying that demand has not picked up even now. Obviously, these conditions are affecting the banking sector.

Looking back, what do you think was the motive for undertaking demonetisation?

In my opinion, the government was desperate to show that it was doing something. It also wanted to demonstrate that people would stand by it even if it took “tough” decisions. I do not think the government was foolish to think that black money would be wiped out by demonetisation, but it wanted to show that it was doing something to attack the menace. It is also true that, at least initially, many people believed this.

Textile trade in Varanasi

Changing mood

Sarkar ne toh vyapaariyon ko munshi bana diya hai” (the government has turned traders into accountants), quips Jagdish Shah, sitting in his multi-storey office in Chowk, Varanasi’s busiest market.

It is an early November evening, and the first anniversary of demonetisation is only a few days away. Shah, who is among a handful of Varanasi’s big textile traders, speaks of the impact of the Union government’s two major economic decisions of the past one year—demonetisation and Goods and Services Tax (GST)—on the business community in Prime Minister Narendra Modi’s parliamentary constituency. His comment, made partly in a tone of resignation, is a specific reference to the impact of GST on textile traders in Varanasi, which is a large group comprising, by some accounts, nearly half a million people involved directly and indirectly. He explains how textile traders, who were so far outside the purview of Central taxes and not very conversant with the requirements of keeping detailed formal accounts with the government because of the informal nature of their business, are now caught up in the elaborate web of filing GST returns.

Like a significant number of businesspersons across the country, Shah sees both demonetisation and GST as having adversely impacted trade and business sentiment. He describes the aftermath and still persisting consequences of demonetisation: “In the initial two-three months [after demonetisation], we were facing a lot of difficulties. But its lasting impact, to which GST added further push, has been seen in the decline in working capital and business activity in the market. This has caused a decline in turnovers and general incomes [of traders].” That is a significantly candid observation because Shah is also the president of the Banarsi Vastra Udyog Sangh, an influential association of textile traders who openly back Modi and the Bharatiya Janata Party. Its former president, Ashok Dhawan, was Modi’s election manager in 2014.

Post-demonetisation, however, the mood of this influential group and, indeed, the wider trading community of Varanasi, which also backs Modi, began changing steadily. By June this year, this community began expressing its grievances openly. In July, when GST was introduced, textile traders protested through a nationwide strike. “The strike was in support of our fellow traders in Surat, who were also protesting against the imposition of GST,” said Rajan Behal, general secretary of the Banarsi Vastra Udyog Sangh. He added that a significant number of those protesting were the makers of the famed Banarsi sari, a measure of how serious the problem was.

These protests have also attracted support in significant numbers within the community because the adverse economic impact of the slowdown in trade increases as one looks further down the hierarchy, as first-hand accounts from traders across the spectrum bear out.

According to Behal, only about 10 per cent of the city’s textile traders are estimated to have annual turnovers of above Rs.5 crore. A relatively larger number, which includes weavers, register an annual turnover between Rs.1.5 crore and Rs.5 crore, while most others fall way short of the Rs.1 crore mark. For perspective, profits from the turnovers in this trade are estimated to be in the range of only 10-15 per cent. With the introduction of GST, profits have dipped.

While most of these numbers are back-of-the-envelope calculations, Behal said that the overwhelming majority of traders were adversely affected by GST notwithstanding some changes made by the Centre in the rates and the frequency of filing returns, after protests. “At present, about 60 per cent of business is affected by GST. This is an ancestral trade which still operates on credit, trust, informal bookkeeping and such traditional practices. The majority of the small traders are unlettered, so they are unaware of the complex returns-filing processes. When you introduce a new tax on this trading community, it is obvious that the impact is going to be adverse. We have had to invest money in setting up infrastructure for GST. The government should provide soft loans at zero interest or a maximum of 4 per cent interest for this purpose,” he said.

In mentioning small and micro traders, Behal is talking in particular about weavers. Chand Mohammad Aazam, a weaver and resident of Varanasi’s Jaitpura locality, which is abuzz round the clock with the sound of power looms and handlooms in homes, agrees with him: “Nobody is able to understand what this [GST] is. They should have imposed GST on the cloth, not on the yarn because everyone in the entire chain of manufacturing cloth has become adversely affected now. There is less work in the market, and so money changing hands is also less,” he said. He explained that in the textile trade, transactions were done over three to six months’ credit, whereas GST filings had to be done each month, except by those with an annual turnover below Rs.1.5 crore. So traders and weavers find themselves in a situation where they have to pay taxes on goods which they have sold on credit and payments are not yet realised. “I have paid Rs.3 lakh GST so far, but my payments are yet to be received,” he rued.

This will subsequently put smaller and micro weavers out of business. Steadily, this appears to be already happening. According to Mukhtar Ahmed Mahato, a resident of Madanpura locality, in the past six months alone around 35,000 small and micro weavers had left Varanasi for other cities. He said small Muslim weavers had found some work in Gurpalli area of Bengaluru and Mithikhadi area of Surat city. Official numbers are hard to come by, but such anecdotal references abound in the city which has historically been known for its rich textile tradition.

Behal recalled how previous attempts at taxing the trade were successfully resisted. “There have been multiple attempts in the past in Uttar Pradesh to impose tax on our trade, but all governments in the State had to withdraw those decisions. In fact, even during Atalji’s [Atal Bihari Vajpayee] time, they decided to impose tax on us, but when we met and explained to him why it should be withdrawn, Atalji’s government took back the decision. But this government is just so stubborn that it doesn’t want to withdraw Modi tax,” lamented Behal.

Leather industry

Reverse growth

“THE DISINTEGRATION and decadence of Kanpur’s industrial and commercial status has been unravelling for many decades. The city, called the ‘Manchester of the East’ during the British Raj since it was the second biggest manufacturing centre in the country after Calcutta, does not have a single megacorp industrial or commercial enterprise now. In fact, the last of the big ticket companies exited from the town nearly three decades ago. Since then the city and the district have been surviving mainly on industries such as leather, garments and hosiery, fertilizers and chemicals, soaps and detergents, and edible oils. The turnover from these was not comparable to the impressive record of the past. Still, it helped the region provide some employment and earnings to the State and its people. But even that has crumpled by the double whammy of GST and demonetisation,” said Prem Manohar Gupta, chairman of the Trade Committee of the Merchants Chamber of Uttar Pradesh, while discussing the impact that GST and demonetisation has had on the country’s most-populous State’s main industrial centre.

Gupta said the depletion of revenue from these measures was yet to be quantified comprehensively. Informal estimates are that the cumulative overall loss of employment would be 10 to 15 per cent from what existed before demonetisation. In terms of actual numbers, this would run into loss of employment to lakhs of people.

One of the sectors that held on relatively better was the leather industry. A wide range of leather products, consisting not only routine products like sandals, shoes and chappals but also harness and saddlery, were produced here for both national and international consumption. This sector formed an important component of the exports from Kanpur, bringing in considerable foreign exchange to the country.

Talking to Frontline without wanting to be named, a major leather goods manufacturer and exporter said that over the past one year this sector had been impacted negatively not only by GST and demonetisation but also by other governmental and political moves. “These political and governmental moves are not directly related to trade but to cow politics. This was initiated by the Yogi Adityanath-led Uttar Pradesh government through its notifications in March-April 2017 and then made harsher by the Union government’s directives in May. This has now been followed by the GST mess.” The leading manufacturer-exporter’s views are echoed by other persons affiliated to the industry, including government officers who are deputed to facilitate the sector’s export-related growth.

Explaining the series of blows suffered by the sector, another leather manufacturer-exporter told Frontline: “First, demonetisation dealt a body blow to the cash flow and liquidity in this sector. Every process, from procuring raw hide to employing workers to treatment of the hide, became a challenging task in the absence of cash flow. Hundreds of thousands of workers, both in the formal sector and in the informal sector, were retrenched during the months immediately following demonetisation. Almost 80 per cent of the workforce in this sector is associated with the industry without formal agreements or contracts. Naturally, they were the ones who took the brunt of retrenchment. This was followed up by the serial restrictions on cattle slaughter and on abattoirs and trade, leading to yet another round of travails.”

An official associate of the leather export body said that the cumulative impact of all this was either complete closure or partial shutting down of nearly half of the 400-odd leather tanning units in the city. Informal estimates are that the retrenchments that happened from November 2016 to August 2017 would be around 80,000 to a lakh. In this context, the official added, it was unlikely that the sector would ever be able to recapture its record of the 1990s when the turnover from Kanpur was Rs.5,000-6,000 crore.

According to Ali and Vikas Pal, two labourers in the Kanpur leather sector, a telling picture of the collapse of the industry is Pech Bagh Street in the heart of the city. The street once teemed with activity, with over 500 godowns piled up with raw animal skin and approximately 1,500 labourers working in these godowns almost round the clock. “Now, Pech Bagh is a pale shadow of what it was, with 50 per cent of the godowns shut down owing to the multiple restrictions that have come up through demonetisation, cattle laws and GST issues. And a lot of our former colleagues have become street-side vendors of tea, vegetables and cigarettes, earning just one-tenth of or even less than what they got from the leather industry.”

A senior official associated with the leather export body told Frontline that, ironically, in the climate created by demonetisation and GST, it was those industries that had a significant “below the tax radar” operations that were thriving. “If Kanpur is taken as a case study, you can see that the readymade garments industry and the production of detergents are thriving, essentially because both streams contain a sizeable quantum of informal production work, which is carried out from the houses of poor people, including in slums and villages. These operations are under the tax radar, and the owners of such enterprises make huge money. But the leather industry cannot go under the radar since it has a significant export element. It is widely accepted that new GST processes are confusing, but the provisions that apply to the leather industry and export, especially in terms of drawback rates and State GST and Central GST rates for procurement of raw materials, are, put simply, confounding. We are supposed to advise the exporters on how to tackle this, but the unending revisions have made life difficult for us too.”

Prem Manohar Gupta and a number of associates in different merchant bodies have little doubt that the Union government implemented both demonetisation and GST without sufficient application of mind and detailed planning. “This reflects in almost all aspects of GST processes, starting from the filing of online returns. The file size of these documents are such that they can be uploaded only if you have high-end 4G connectivity. In places like Kanpur, you don’t even get 24x7 electricity, not to speak of high-speed connectivity. We are forced to spend hours on end to upload documents. On one occasion my team and I managed to upload a file at 3 in the morning after struggling for nearly 10 hours. If this is the case in Uttar Pradesh’s second largest city, what would be the case in smaller towns? So much for the claims of ease of doing business,” Gupta said.

Amidst such perceptions, members of the industrial and merchant communities of Kanpur say with one voice that demonetisation and GST have pushed back the city and its enterprises by at least 10 years.

Meat traders

The meat of the matter

cover-story

THE demonetisation decision in November 2016 dampened the vigour of festival sales for traders and small industries in Ghaziabad, the town in Uttar Pradesh which is part of the National Capital Region. Delhi had a quiet Deepavali this year largely owing to the Supreme Court ban on the sale and bursting of firecrackers. No such ban was in place in other parts of the country. Even so, the Goods and Services Tax (GST) of 28 per cent on firecrackers seemed too steep a price to pay for something that would eventually go up in smoke. Rohini, a schoolteacher in Ghaziabad, and several others like her decided to spend less on firecrackers.

While markets were slowly limping back to normal, the impact of demonetisation lingered even after almost one year. Garish Oberoi, president of the Federation of Hotel & Restaurant Associations of India, said the wedding business and use of banquet halls for holding conferences and functions were particularly affected. A number of conferences and seminars were suspended for a long time after demonetisation was announced. The holding of conferences was gradually coming back into vogue but the organisers were careful with their spending, said Oberoi.

By the time Deepavali ended, the business of organising weddings and conferences had limped back to about 70 per cent of earlier levels. Oberoi was hopeful that the situation would improve once more money came back into circulation. While restaurants were coping with demonetisation, GST dealt a blow to their recovery. GST was not what it was expected to be, Oberoi said. But it might help reduce costs for customers eating out in air-conditioned restaurants as and when input credits get passed on to them, he said.

Traders protest

Small traders were affected in a big way by demonetisation and GST. Migrant workers from Uttar Pradesh, who used to travel to Delhi during the festival season to make some money by selling earthen lamps and small idols, were disappointed this year. The traders association of Ghaziabad was one of the few associations in the country to take to the streets to oppose the implementation of GST. It protested against various aspects of GST and demanded that it be made quarterly and not entirely online as traders in remote areas were not tech savvy.

Meat traders and slaughterhouses in Ghaziabad were the worst affected. They had to deal with not only demonetisation and GST but also the Yogi Adityanath government’s decision to close down slaughterhouses in the State indiscriminately. The stringent licence regime put in place by the Bharatiya Janata Party (BJP) government in the State caused a severe setback to the meat industry. “The condition is extremely bad. There is large-scale unemployment and meat shops remain closed even today. There is no meat available for wedding parties and they are not giving licences without huge bribes. In some cases, they have asked for bribes as high as Rs.50,000. How can a poor man bear that cost?” Aquil Qureishi, president of the Buffalo Traders Association (BTA), said.

Moderate GST impact

According to Aquil Qureishi, GST did not have a big impact on the meat industry in the area as most of the people are poor. But demonetisation crippled the flourishing meat trade, Mohd Imran Qureishi, general secretary of the BTA, said. “When the move towards a digitised economy has not worked well in urban areas, how will it work in rural areas? If you visit some of the remote areas, you will come across horror stories, similar to those from Jharkhand. The poor trader is hit not only by demonetisation and GST but also by the making of Aadhaar mandatory and the increasing communalisation of politics of the region,” he said.

Even as the State government clamped down on the meat trade, right-wing elements harassed meat sellers who were operating well within the law. Earlier this year, meat shops were torched in Hathras. On the eve of every Hindu festival, the Bajrang Dal and other right-wing groups would order the shops to down shutters. “The meat trade is operating at 50 per cent capacity,” said Aquil Qureishi.

The digitisation of transactions beyond a certain limit had hurt the industry, Imran Qureishi said. “Farmers are illiterate. Many of them do not even have bank accounts. Those with bank accounts do not know how to operate them.”

There have been several instances of fraud as farmers have had to rely on other people to operate their accounts. For instance, when a person relied on somebody else to make a transaction of Rs.5,000 in a cyber cafe, it was found later that a transaction of Rs.6,000 had been accomplished. “I was asked by a trader to transfer money to his acquaintance’s account. It has been a year and the person is refusing to return the money. I have also sent him a legal notice. He is sitting in Ferozepur in Punjab. Either I must go there and file a police complaint or forget my money, Imran Qureishi said.

Moreover, agriculture is the primary occupation of cattle traders. A cooperative bank will lend them money only for agricultural purposes and not for buying cattle. “How are we supposed to conduct any business properly?” wondered Imran Qureishi.

Divya Trivedi

Power looms

Silence of the looms

LYLA BAVADAM cover-story

IF India Inc has been reporting losses and its head honchos have been speaking out against Goods and Services Tax (GST) and the after-effects of demonetisation, it does not take much to imagine the situation of small businesses. Backed by financial and technical resources, big businesses have managed to roll with the punches and are likely to land on their feet, but small businesses have had to deal first with the sudden shock of demonetisation and then the red tape of the world of GST. In Maharashtra, the plight of Bhiwandi encapsulates what demonetisation and GST have done to small businesses.

At the best of times, Bhiwandi, the power loom capital of Maharashtra, is quite a depressing town, with the incessant clang and shriek of machinery and the pall of dust that covers everything. But, in a twisted sort of way, these were signs that all was well in Bhiwandi.

The town has about nine lakh of India’s 21 lakh power looms crammed into airless galas (workshops), all built cheek by jowl on 38 square kilometres. The town provides various forms of employment to most of the taluk and to thousands of migrant workers, mainly from Uttar Pradesh and Bihar.

“Silence is not a good sign here,” says Mohsin Mohammed Tarir, who owns about 100 power looms. Reminiscing about November 8, 2016, Tarir says his first reaction was that it was a joke his friend was playing on him. “Something like this has never happened before, so it’s easy to dismiss it. How can anyone even think of doing something like this—one day the Rs.1,000 note is legal tender and within four hours it is not accepted anywhere. Many of my boys [weavers] were saving up to go home [to Uttar Pradesh] and they prefer to travel with big notes. They came to me in the morning confused and holding their Rs.1,000 notes. That’s when it hit me.”

The nightmare of demonetisation as experienced in the rest of the country kept snowballing until finally in December 2016, Bhiwandi’s looms were switched off: there was a paucity of workers, and a cash crunch ensued because of no-sale, no-purchase. The situation was bad enough for Union Textile Minister Smriti Irani to visit Bhiwandi and assess the situation, after which work resumed.

The power loom industry had been on a downward spiral for some years. About 30 per cent of the looms had shut down over a two-year period because of unstable yarn prices, high export duties and competition from China. But “never once did we think Bhiwandi’s future was dark,” says Tarir, “but this time we have doubts about the survival of the entire industry.”

Ahmed Ansari, who worked as a grey (unbleached) cloth agent, echoes this: “There are three things people invest in Bhiwandi and it depends on who you are. If you’re a local man, you will invest in a small shop or a rickshaw. If you’re a south Indian, you will try and open a small eatery. But we people from U.P. put our money in the power looms. If the looms are silent, what do we do?”

Ansari cut his losses by leaving Bhiwandi almost immediately after demonetisation. He says living in his U.P. village was cheaper because he saved on house rent and food. He says Bhiwandi was like a ghost town for a while following demonetisation as workers left for their home States of Bihar and Uttar Pradesh.

The second shock

Eight months after demonetisation a second jhatka (shock) hit businesses in the form of GST. “ Yeh jhatke se ham nahi bach sake” (We could not escape this shock) says 65-year-old Gul Mohammed. He says he closed down his single gala of about 40 looms because he just could not understand what was required and why he had to infuse even more money into a business that was already showing slim profits. The biggest blow was the disparity in the GST on yarn. Many looms spin man-made fibre (MMF) cloth because there is a greater demand for it since it is cheaper at about Rs.30 a metre. Cotton costs about Rs.75 a metre.

The GST that was applied to MMF yarn was 18 per cent while that for cotton was 5 per cent. Additionally, there is a minimum of 5 per cent tax for every stage of business, from bleaching the grey cloth, to sizing, warping, weaving, mending, folding, packaging and transporting it. Many of these stages are handled by independent agents or job workers, but GST has hit them quite hard. Loom owners, especially the big ones, have cut out agents and moved all the production stages in-house to try and save on tax.

In July, loom owners and other manufacturers in Bhiwandi submitted a memorandum to Union Finance Minister Arun Jaitley and Maharashtra’s Minister for Finance Sudhir Mungantiwar detailing the difficulties in doing business because of GST. They got the standard assurance that the matter was being looked into. It was only in October that the GST Council reduced the MMF rate to 12 per cent.

Digitally ill-equipped

Digital India is yet to enter Bhiwandi where all transactions are in cash. Understanding the multiple layers of taxation has been baffling for many. Tarir says he spent “more time trying to understand the paperwork than working at the business”. After all the entries are made online, it is frustrating when they get lost because of poor connectivity and the fact that there is no option to save the entered data.

The problems of capital flow and unsold stock continue to haunt the industry. Helplessness with regard to technical aspects of GST means that some loom owners are yet to get GST numbers. Because of this, buyers are unwilling to buy their goods. Even four months after GST was implemented, Bhiwandi is still reeling from it.

Construction activity

Real estate woes

THE REAL ESTATE sector was hit hard by the sudden withdrawal of high-currency notes in November last year. As building activity came to a halt, thousands lost their jobs.

According to a study done by Project Guru, a market research and business analytics firm, the months immediately after demonetisation saw a 53 per cent drop in the sale of housing units in metropolitan cities. The quantum of job loss was huge: over 35 per cent of the available workforce, which travels to metros for jobs and gets absorbed in the building activity, was hit hard, the report said. According to independent estimates, Delhi sees over six lakh people coming every year in search of jobs, and demonetisation meant this workforce was suddenly left without work.

“Job losses were huge. The mid-level and small players were the ones who were hit the most. The big players still had the margin to absorb the shock, but the small players were wiped out,” said Priya Chetty, managing partner of Project Guru. Priya Chetty, who studied the real estate sector closely in the wake of demonetisation, said the sector was especially hit hard because it was heavily cash dependent and it was common knowledge that a lot of black money was used in the sale and purchase of flats. “Companies shut down as people stopped investing money. This left in the lurch many of those who had already invested their money in these companies. A chain reaction of sorts started, and the industry is still reeling in its aftermath,” she said.

Even as the aftershocks of demonetisation were still being felt, the Real Estate (Regulation and Development) Act (RERA), 2016, and Goods and Services Tax (GST) arrived, which further strained the struggling construction companies. Although RERA was a welcome move, as it sought to give buyers protection against wilfully defaulting companies, the companies came under further strain as they became liable for criminal prosecution if they failed to deliver units on time.

“GST and RERA together had a spiralling impact on the sector. Implementation of GST meant that the cost of construction went up. Besides high prices for materials, now the companies were taxed at 12 per cent for under-construction projects. This put a severe strain on already stressed resources, and builders struggled to meet deadlines because lack of resources had become a real concern. RERA meant a builder could even be put behind bars if he failed to meet deadlines,” Priya Chetty said. The heavy penalties with interest for delays complicated matters further, and the sector is still struggling to find a way out. Implementation of RERA is a work in progress, so its full impact cannot be gauged completely at the moment. “As far as GST is concerned, the problem is not the quantum of tax but lack of clarity and lack of the right systems in place,” Priya Chetty said.

Officials in real estate companies such as Raheja Developers Ltd, Omaxe and DLF admitted that the past one year had been problematic for the sector because of demonetisation, RERA and GST, as all three were interlinked. “It has been a triple whammy for the construction industry as a whole. Existing projects are on hold; no new projects are being announced; there are no investors,” a senior official in DLF said. The silver lining in all this, however, could be that houses could become affordable because of the huge unsold inventory. According to a report brought out by ASSOCHAM (Associated Chambers of Commerce and Industry of India), in the National Capital Region there are 2,50,000 unsold units, with Noida alone accounting for 1,20,000. “Over 35-40 per cent of transactions happened in black money in this sector and this transaction totally came to a halt,” the Project Guru report estimated. The government quoted this statistic to make the argument that prices would come down and housing would become affordable for all. “But where has that happened? Has the government started any projects? Has the government announced incentives for the sector to achieve this goal?” asked a senior DLF executive, adding that when demonetisation was announced the Prime Minister said the real estate sector comprised thieves and thugs. “But the government does not seem to realise that this sector contributes hugely to employment generation, and big industries like cement, steel, bricks, other ancillary stuff, all are dependent on the real estate sector for their survival. If you treat us with disdain and call us thieves, then how can you expect the sector to cooperate, whether it is housing for all or affordable housing schemes?” he said.

A few positives

Industry experts, however, pointed out one positive outcome of the entire mess: the interest rates on home loans have come down slightly. But it is not enough yet. “Things are as dismal as they can get, and we have to wait two to three years for any positive outcome,” an executive from Omaxe said. Another healthy trend that is now being witnessed is the increase in demand for ready-to-move homes. The speculative buyer who only put money in the sector for investment purposes has now gone missing, and end users are showing an interest in the sector. But it is still a rough ride for the real estate sector, which is simply waiting for good times to come again.

Those in real estate companies found it amusing that the World Bank had improved India’s “ease of doing business” rating because there was simply no business happening.

Knitwear industry

Torn to shreds

THE TIRUPUR knitwear apparel industry in Tamil Nadu, one of the country’s leading textile clusters, is still smarting under the impact of demonetisation.

The industry records an annual turnover of Rs.35,000 crore and accounts for 90 per cent of the country’s knitted garment exports. Its estimated domestic annual turnover is Rs.12,000 crore, industry sources said.

“All looked rosy until the night demonetisation was announced. This midnight blow was hard,” said a domestic apparel manufacturer. For a year now, the cash-dependent industry has been facing a liquidity crunch following demonetisation, which has forced many medium and small units to down their shutters and left a few lakh labourers in the lurch.

After a brief assessment of the various factors that impact the industry, it is not far-fetched to claim that the industry in Tirupur is facing an uncertain future. The industry reportedly employs about three lakh people in about 6,000 units in the manufacturing cluster of big and small units spread across Tirupur, Avinashi and Palladam.

“Demonetisation has triggered a liquidity crunch in this labour-intensive industry. We need not wait for the financial year ending to analyse our performance. The prediction studies point to a disappointing performance by the industry in the days to come,” said an exporter.

Of the estimated three lakh workers, 30 to 40 per cent are migrant labourers from the north and north-eastern parts of the country. As the industry is not able to disburse wages, the usual practice being weekly payments, and routine daily incentives in cash, many have abandoned their jobs and gone back home. “Many units are suffering from a labour shortage since those who have gone to their native places for Deepavali holidays have not returned so far. Usually, they would return within a fortnight after the festival,” said a trade union activist.

Besides, despite government directives, most workers are yet to open bank accounts.

“They could not do so since the banks insist on both PAN [permanent account number] and Aadhaar cards, which many of them do not possess,” said G. Sampath, general secretary of the Baniyan General Workers’ Union, affiliated to the Centre of Indian Trade Unions. Labour unions affiliated to the Communist Party of India (CPI) and the CPI (Marxist) held various protests against demonetisation. Trade unions and exporters’ associations have been urging the banks in Tirupur to open more automated teller machines to help in dispensing cash. “Banks are yet to fully comply with [the request],” said Sampath. Many manufacturers accept what the trade union leader said. They expected the industry to bounce back in a month or so. “But it is not so. It has been tougher than what we imagined,” said a domestic manufacturer. “Barring a few big units, most are either small or medium. The industry, with exhaustive processes in its manufacturing chain from sourcing yarn from farmers to fabrics (looms), dyeing, stitching, embroidering, cutting, and printing before completing the finished apparel product, is highly labour-intensive and cash-dependent. The labourers have to be paid their wages in cash to keep the industry running.”

Industry insiders said that the export-oriented units had not faced a serious crisis since all accounting work related to the business was organised and cash transactions were streamlined through banks as per government guidelines. A mere 2 to 3 per cent of the total business transactions would be in cash, they added. The wages have been disbursed through banks for some time now and other transactions such as purchase of raw materials are done through cheques and credit.

Thus, the units focussed on exports have survived, unaffected by the cash crunch. “But the domestic knitwear sector involving small and medium units, which carry out ‘unaccounted operations’ to circumvent regulations, has been hit badly as it is mainly a cash-and-carry business. The ban on 500- and 1,000-rupee notes turned into a bane for domestic production, triggering a fall of nearly 40 per cent,” said a garment unit owner who caters to the domestic sector.

Ever since last Deepavali, the industry has been apprehensive of taking fresh orders, export or domestic. The industry players are wary of the government, which they fear might resort to fresh policy announcements such as demonetisation and Goods and Services Tax (GST).

Informed sources said it took a year or so for the industry to clear the inventories that piled up after the demonetisation move. The export rejects, most of which end up in the domestic market, have also found fewer takers. “And now we are grappling with the after-effects of GST. We are also confused about what the government will do in future,” said T.R. Vijayakumar, general secretary of the Tirupur Exporters Association.

M.P. Muthurathinam, president of the Tirupur Exporters and Manufacturers Association, said that despite a year having passed after demonetisation, Tirupur was yet to recover from its adverse effects. “The hard fact today is that hundreds of units, small and medium, are closing down owing to the cascading effect of the note ban. The domestic sector is totally affected. As the cash flow remains restricted, nearly 90 per cent of the domestic market has also shrunk, leaving lakhs of labourers facing a bleak future.”

He added: “The industry’s manufacturing chain has many major components and labourers are its mainstay. Production for export orders is to be undertaken against credit from banks and other lending sources. The money is to be disbursed to the labourers on a weekly basis. But when we are not able to distribute cash to them, they leave us. The industry would be busy during festival seasons such as Deepavali. But this year, a mere 30 per cent of production could be realised.”

Raja M. Shanmugam, president of the Tirupur Exporters Association, in his letter in December to the Union Minister of Corporate Affairs and Finance, Arun Jaitley, underscored the industrialists’ problems and appealed to him to relax the condition of insisting on both Aadhaar and PAN cards for opening bank accounts. He said that nearly three lakh accounts had to be opened for the employees, mostly migrant labourers, to disburse wages.

To mitigate the fallout of demonetisation and to meet the GST implications, the association, in a memorandum to the Ministry of Textiles in October this year, urged it to reduce the duty drawback rates from 7.7 per cent to 2 per cent and enhance the interest equalisation scheme for export credit to 5 per cent from 3 per cent in order to save the industry.

Also, the Southern India Mills’ Association (SIMA), in a statement in November, drew attention to the stockpiling across the value chain of textile industry units owing to cash flow restrictions. It noted with concern that the cash shortage had led to a severe shortage of funds for regular operations of the textile industry. “The situation is no different today. The industry is yet to overcome it,” said another exporter.

Many of the power looms in this belt and in Namakkal district have not been fully operational. “Demonetisation set us back by a decade,” said a weaver in Komarapalayam near Namakkal. The orders were not adequate and it was hard to find labourers. “We are slowly coming around, and it will take yet another year or so for this sector to become normalised,” he said.

Exporters and those directly and indirectly connected to the industry in Tirupur are keeping their fingers crossed on whether it will be able to achieve the export target of Rs.1 lakh crore in the immediate future since the industry’s recovery is painfully slow. “It is now in the hands of the government,” said a leading garment manufacturer and exporter.

Cover Story

Bungling along

V. SRIDHAR cover-story

NOVEMBER 8, 2017, marks the first anniversary of demonetisation, an exercise that shocked, numbed and grievously wounded livelihoods on a scale unprecedented since Independence. A year later, the effects of the monumental blunder, undertaken in the name of fighting the “black money” menace, still linger. Livelihoods in huge swathes of the economy that were uprooted in the wake of demonetisation have still not recovered. To make matters worse, the imposition of an ill-designed Goods and Services Tax (GST), whose impact fell disproportionately on small manufacturing units and traders, has compounded the crisis.

As the Bharatiya Janata Party (BJP) geared to celebrate the day as “Anti-Black Money Day” ( kala dhan virodh diwas), the opposition parties observed it as “black” day ( kala diwas). But one thing is clear: a deeply scarred nation and its economy, still stumbling under the impact of demonetisation, may never fully recover from the severe trauma. Institutions whose reputations were battered by the manner in which the entire exercise unfolded—chiefly, the Reserve Bank of India (RBI)—may have compromised their integrity, possibly fatally. Clearly, Prime Minister Narendra Modi personally staked much on demonetisation. The fact that he, and not the RBI Governor or the Finance Minister, announced on national television the decision to demonetise 86.4 per cent of the entire value of the currency in circulation made that very clear. In the immediate aftermath of the announcement, nobody had an inkling of the scale of the tragedy that was in store for Indians. It was assumed that adequate preparation, especially regarding the logistics of the distribution of currency notes across the country, would have been taken. In fact, initial discussions within the Frontline team veered around to taking stock of the situation after a few days, in the expectation that some semblance of normalcy would return. But within a week, it became clear that what Modi had initiated was nothing short of a monumental blunder, which is how Frontline’s cover story in the issue dated December 9, 2016 described it.

Bungling troika

It quickly became evident that unprecedented bungling at the very highest levels was responsible for the crisis. It was clear that the troika of Modi, the Finance Ministry and the RBI was responsible for the crisis. Modi himself chose to stay away from the country as people, especially those in informal occupations and in agriculture, bore the immediate and savage brunt of the sudden evisceration of the overwhelming proportion of the currency in circulation.

Huge queues at banks, compounded by the fact that automated teller machines (ATMs) had not been “recalibrated” to handle the new currency notes, reflected the grim reality of a massive shortage of adequate currency available at banks. While this was on, both the RBI and Modi acted irresponsibly. The RBI maintained that “adequate” currency had been made available to commercial banks, which only resulted in people abusing or even acting violently against hapless bank employees. Modi, who had returned home, was on the verge of tears and sought 50 days’ time for things to settle down.

Clearly, he was misleading millions who had lost their livelihoods, lost access to whatever little savings they had in banks, and stared at a hopeless future. The simple fact of the matter, which was highlighted by Frontline in its first cover story on demonetisation, was that the RBI’s capacity to replace the value of the withdrawn currency did not make this a realistic probability.

In hindsight, two aspects of the government’s response to the unfolding crisis are particularly noteworthy. The first pertains to the manner in which the government shifted goalposts as it realised the enormity of its folly. The second was the utterly opaque nature of the entire operation.

As the tragedy unfolded, the reasons for undertaking demonetisation shifted. It moved from fighting “black money”, which objective was already being discredited by the growing realisation that cash hoards are only a fraction of ill-gotten wealth, to fighting terrorism and counterfeiting and finally to reducing the proportion of cash relative to the national income. But, by early 2017, as the crisis gathered momentum and it became clear that cash-starved Indians were in for the long haul, the justification for demonetisation was placed on the need to evolve into a cashless economy.

Meanwhile, the central bank, which has always enjoyed a formidable reputation in the world of global finance, turned into a laughing stock. The newly appointed RBI Governor, Urjit Patel, was missing in action despite the fact that demonetisation was unleashed in his institution’s name. It soon became evident at press conferences and elsewhere that the Finance Ministry was calling the shots even as the central bank appeared to act as a bystander. But things were made far worse by the utterly opaque functioning of the RBI.

Anecdotal evidence soon after demonetisation—anecdotal because of the simple fact that neither the government nor the RBI has provided any information—clearly indicated a widespread shortage of currency. More significantly, the evidence also pointed to severe imbalances in spatial terms as well as in terms of how currency was more easily available to the rich compared with the poor. The thriving market for fresh currency, available to those who could afford a commission for exchanging old notes for new, reflected this shortage.

As the former Deputy Governor of the RBI, K.C. Chakraborty, had pointed out then, the RBI’s failure to ensure transparency in its currency distribution operations significantly aggravated the situation. Bank customers had no way of knowing where they could access their money. Indeed, as representatives of bank unions have claimed, the information asymmetry that followed meant that some banks, mostly private ones, were favoured over public sector banks in the matter of supply of adequate currency. The severe shortage of fresh currency was aggravated by the fact that the RBI failed to ensure a more equitable and fair distribution of notes.

Faced with this unprecedented crisis, the RBI, upon the obvious prodding of the Finance Ministry, issued modifications and clarifications almost on a daily basis on the terms on which Indians could access their own money. Indeed, it was only in August 2017, when the RBI published its annual report, that Indians learnt that more than 99 per cent of the old 500- and 1,000-rupee notes had been surrendered to banks ( Frontline, September 29, 2017). Meanwhile, a year after the gigantic fiasco, the RBI claims it is still “scrutinising” the old notes.

Shifting goalposts

As the official discourse shifted to moving India towards a cashless nirvana, institutions such as the NITI Aayog were pressed into service. The NITI Aayog, a pale shadow of its predecessor, the Planning Commission, was reduced to functioning as a training institute for advocating and promoting digital payment systems. At the height of the crisis, it was reduced to running a lottery for those using digital payment systems. Indeed, speaking at Moradabad during the worst phase of the crisis, Modi made the preposterous claim, based on a staged WhatsApp video, that even beggars were using swipe machines these days. As the accompanying piece by James Wilson demonstrates, the value of digital payments, although growing, still accounts for only a minuscule proportion of the value of all electronic transactions (inclusive of electronic clearing, which has significantly replaced physical cheques).

The simple point was that the gradual evolution of digital payment systems was happening anyway and that any further push towards digital payments would have required two specific interventions of the government. The first would have been a government-driven subsidy system to promote digital payments, especially because digital payment systems are not scale-neutral: the smaller value transactions are actually, on a proportionate basis, costlier in terms of the charges paid on transactions. If the intention was to replace cash by digital modes of payment, the latter would have to assure the same level of certainty, predictability and acceptance.

The second intervention would have entailed the most basic of requirements for such a system to work effectively: accessibility of a countrywide always-available mobile network, followed by fail-proof assurances by fintech companies as well as financial institutions. In fact, belatedly, almost as an afterthought, the Modi government instituted a committee (the Watal Committee) to suggest a regulatory framework for digital transactions (see Frontline, March 3, 2017).

Clearly, the most significant section of the population hit by demonetisation was the peasantry. The dramatic collapse of agricultural commodity prices since demonetisation was truly breathtaking. Although it is not uncommon for agricultural product prices to fall during a year, what happened after demonetisation was stunning both in its geographical spread and in terms of the kind of produce. There is not a single agricultural commodity whose price did not collapse immediately after demonetisation. Indeed, prices have still not recovered, as an accompanying story documents.

It does not take a genius to understand why the Indian peasant is as restive as he has been this year. Farmers across the country have been protesting against the all-round collapse in prices. The Modi government’s utter failure to actually procure agricultural commodities at their minimum support prices (MSP) has been callous, especially because it offered an opportunity to make amends for the folly of unleashing demonetisation on a hapless peasantry.

Demonetisation was much more than a folly as far as the peasantry was concerned. The all-round collapse in prices offered an opportunity for the elite, rural and urban, to convert their hoards of old cash into commodities bought at throwaway prices ( Frontline, December 23, 2016). Indeed, there is evidence to show that Modi’s claim—made in the initial days after demonetisation—that the rich and poor suffered equally as a result of demonetisation is false, misleading and mischievous.

The collapse not just of agricultural commodity prices but also of products manufactured by small producers paved the way for a massive transfer of wealth from the poor to the rich. As reports from across the country have shown, from Tirupur to Kanpur to Murshidabad to Mumbai, livelihoods remain in peril a year after demonetisation. These people have been hit by two body blows, demonetisation and GST, and this makes for a tragedy that is still unfolding.

Demonetisation-GST continuum

The key prerequisite for comprehending why the effects of demonetisation continue to linger is to understand that they are, in effect, a continuum. In order to appreciate this, one has to understand the nature of livelihoods of people working in marginal and small occupations. While the immediate effects of demonetisation on consumption, via access to savings, have been better appreciated, the savage impact the move had on access to working capital has been ignored by most observers. In an economy where cash served as the basis for a small business, its sudden evaporation immediately led to the collapse of these businesses. Add to this the costs associated with digital modes, plus the steep learning curve to deal with these modes, and we begin to appreciate why and how these businesses just folded up.

It is interesting to note the uncanny parallels between demonetisation and the manner in which GST was implemented. Note the current discussion within the government: that GST is a great idea and only its implementation has been flawed, which, with some fine-tuning, can be set right. This was exactly the same refrain once it became clear that the effects of demonetisation were going to last long: that it was a great idea which was implemented badly.

However, GST is hitting exactly those who were hammered by demonetisation and is having exactly the same impact. While most critics have focussed attention on the tax rate—for instance, weavers and makers of handmade textiles face a 5 per cent tax rate compared with zero earlier—less attention has been paid to the crushing burden that GST imposes by squeezing the working capital of these small producers.

In effect, what this implies is that unlike in the earlier tax regime, such producers have to make arrangements for higher levels of working capital to tide over deferred payments due to them from their customers; meanwhile, they have to pay the GST that is levied on them. The fact that GST was unleashed barely six months after they were hit by the cash shortage caused by demonetisation explains why the crisis was aggravated for this section of producers.

But this sorry state of affairs of the suffering small producer or farmer tells only half the story. Just as demonetisation unleashed a massive and unprecedented transfer of wealth from the poor to the rich, GST offers more of the same but in a different name. The squeeze on the working capital of the smaller units is also accompanied by higher costs that arise from complying with the new tax regime. This is apart from the higher costs of working capital that they need to pay when compared with big corporates that manage to access institutional credit.

In short, while demonetisation simply removed their very modus operandi (cash), GST makes them uncompetitive and unviable. This is illustrated by reports by Frontline correspondents from several States that accompany this story.

Logic of demonetisation

All this brings us to the fundamental question of why demonetisation was undertaken at all, a subject that Prof. D. Narasimha Reddy dwells at length in an accompanying piece. What were the motives for undertaking such a risky adventure? The most charitable one would describe it as being undertaken by a government that had to do “something big” (Modi is fond of saying bada socho, as for instance, in justifying the Bullet Train project) to counter mounting criticism that it had failed in its promise to deliver acche din.

However, as events since demonetisation have shown, especially the manner in which the government aggressively pursued GST despite the devastation caused by demonetisation, the motives were elsewhere. Both demonetisation and GST (the first clearly demonstrating and the second tending in that direction) provide a pathway towards consolidation and concentration of economic power in the hands of larger businesses. Seen from this standpoint, nothing about demonetisation was unforeseen: the great hardships, the 100-plus deaths at ATMs across the country, the collapse of businesses and livelihoods and the loss of employment.

What appeared as bungling, in this version of why demonetisation was undertaken, was expected but considered a desirable objective clothed in the garb of “formalising” business processes or of taking India on a digital highway. The fact that GST was undertaken regardless of the mindless assault on livelihoods that demonetisation has already wreaked renders this a plausible explanation, but one which places the Modi regime in a much poorer light: as a callous regime recklessly pursuing a path that is deeply divisive in terms of its social and economic impact.

The lack of sustained public anger against demonetisation was not an indication that the people were completely sold on Modi’s commitment to fight “black money”. “Spontaneous” bursts of protest have only so much energy in them: they require political vehicles to carry them forward, and this did not happen after last November.

Whatever may have been the motives for demonetisation, one thing is certain: demonetisation, and now GST, has badly scratched the sheen of invincibility that Modi acquired after his historic victory in the 2014 elections.

Perspective

Bluster as policy

cover-story

“THE ROAD to hell is paved with good intentions” is an aphorism that has been variously attributed to Geoffrey Chaucer, the Cistercian abbot Saint Bernard of Clairvaux, Samuel Johnson et al. but was perhaps said first by an English theologian, John Ray.

If one feels compelled to give the benefit of the doubt to the star protagonist of demonetisation, which began at around 8 p.m. on November 8 last year, one may take refuge in this good old aphorism. On the other hand, if one is less charitable, is a stickler for facts, is not sold on fairy tales and flights of fancy, and would rather follow empirical evidence, there is clinching and sobering evidence that Indians were led up the garden path by the Narendra Modi government.

This effort is merely aimed at inquiring into the various supplementary claims that were trotted out by the government and how prepared the kitchen cabinet (assuming there was one) of the Prime Minister was to decree invalidation of 86 per cent of the cash in the economy at a stroke and then control the fallout.

There is no need to belabour the point that even after the passage of a whole year the Indian economy is yet to recover from the shock of demonetisation. Demonetisation, which its progenitor claimed was the first shot fired from his armoury against the triple evils of black money, counterfeit currency and terrorism, underwent a swift metamorphosis into an initiative towards making India a digital economy and promoting a cashless way of life.

Meticulous planning or a grandiose gesture?

While there were unsubstantiated claims that demonetisation had been undertaken after many months of minute planning, the figures available from the government’s own published sources prove that whoever initiated it, whether singly or jointly, had miserably failed to consider the capabilities of the remonetisation system and, more importantly, its limitations. Especially, when they decided to withdraw the legal tender status of the Rs.500 and Rs.1,000 currency notes amounting to Rs.15.44 lakh crore, which comprised 86 per cent of the total Rs.17.977 lakh crore currency in circulation (CIC) on that day.

How much of actual planning went into taking this momentous and fateful decision is moot. It looks like an impulsive, if not ill-considered, decision based on back-of-the-envelope calculations, if that, and as a we-will-make-the-rules-as-we-go-along game.

Let us sift through the evidence. The CIC increased from Rs.13.715 lakh crore on May 23, 2014, to Rs.17.977 lakh crore on November 4, 2016 (an increase of 31 per cent), during the tenure of the present government, that is, a few days before demonetisation. The Reserve Bank of India (RBI), in a response to an application made under the Right to Information (RTI) Act, has revealed that as on November 8, 2016, it was in possession of Rs.20.512 lakh crore worth of Rs.500 and Rs.1,000 notes. If demonetisation was a considered decision, it is baffling why the RBI took on an additional inventory of Rs.5.072 lakh crore worth of Rs.500 and Rs.1,000 notes over and above the Rs.15.44 lakh crore of the same in circulation if they were to be rendered invalid soon. Instead, the RBI should have increased the inventory of lower denomination notes, which would have ameliorated the pain caused by paucity of change for the new Rs.2,000 note. This points to a mindless, wanton waste of public money.

The same RTI response further shows that the RBI held 2,473.20 million Rs.2,000 notes worth Rs.4.946 lakh crore as on November 8, 2016, to replace the demonetised currency or Specified Bank Notes (SBNs) worth Rs.15.44 lakh crore, leaving a huge gap of around Rs.10.5 lakh crore. Although the Prime Minister had pleaded for a mere 50 days to complete the remonetisation, as on January 6, that is, after 57 days, the replacement currency printed and circulated was a meagre Rs.1.497 lakh crore, apart from the Rs.2,000 notes already freshly in circulation. The RBI, thus, was able to remonetise only 41.7 per cent of the SBNs within the promised time. To further prove the lack of forethought, the printing of the new Rs.500 note commenced only on November 23, a few weeks after demonetisation.

It is not as if the capacity of Indian mints was unknown to those who went on this adventure. The Nashik press’ capacity is 5,800 million notes a year and that of Dewas in Madhya Pradesh is 2,620 million a year while the Mysore and Salboni presses of the Bharatiya Reserve Bank Note Mudran Private Limited together can print 16,000 million a year if run on double shifts. In short, all the four presses put together have a capacity of 66.90 million notes a day. One must believe that despite having all this information and rudimentary arithmetical knowledge that would have given the Prime Minister the actual number of days required for remonetisation, his declaration that everything would be back to normal in 50 days was nothing but wilful prevarication.

Limitations of financial system in rural India

Cash is the only medium available for transactions for the majority of Indians, and India’s is an incredibly cash-based economy; other alternatives are virtually non-existent for the vast majority. When the government extinguished 86 per cent of the CIC at a stroke, it was aware of the poor penetration of banks in rural India and the lack of digital payment options. It knew that 69 per cent of the Indian population was from the country’s six lakh villages; only 48,768 bank branches (i.e., 35 per cent, or one bank per 12 villages) out of a total of 1,39,240 bank branches serviced this 69 per cent, which meant an average of fewer than six bank branches per one lakh rural population, and only 40,480 ATMs (18 per cent) of the country’s 2,19,637 ATMs were in rural areas. It also knew these limitations would militate against quick remonetisation in rural areas and that the distress there would be worse than in the urban centres. Yet, the public was misled and callously given false assurances.

Lack of infrastructure to support digital economy

When the government had to put up with currency-printing blues coupled with logistics bottlenecks that hampered effective remonetisation, the rhetoric about the fight against tax evasion and black money suddenly shifted to transforming India into a cashless economy. A study by the Boston Consulting Group and Google (July 2016) clearly indicated that in 2015, 78 per cent of all consumer payments were in cash and only 22 per cent were non-cash transactions, showing the preponderance of cash in the Indian economy. A shift of this magnitude from cash to digital money should have been preceded by imparting digital and financial literacy to the millions of technologically challenged people in the country, setting up effective and robust cyber-defence capabilities and creating seamless, always-available infrastructure.

Yet, when the government decided to transform an unsuspecting and unprepared India into a cashless economy, the situation on the ground was like this: Only 34.8 per cent of Indians, mostly urban, have access to the Internet; only 68.27 per cent of rural households have a mobile phone connection and, even there, some States lag behind. For instance, it is as low as 28.58 per cent in Chhattisgarh, 33.58 per cent in Odisha and 44.18 per cent in Arunachal Pradesh.

But the government forged ahead with spending millions of rupees on pushing Digital India when it knew that little of the prerequisites for a digital economy existed. In hindsight, it would seem this sudden epiphany to make India cashless was out of compulsion to divert attention as the days required for remonetisation had been grossly underestimated.

That the RBI came out with more than 66 notifications and announcements in the first 50 days after demonetisation, including several revisions and rollbacks, was evidence enough that there was simply no plan. It took a week for the RBI to wake up to the reality that the new notes required both software tweaks and hardware recalibrations at ATMs; a task force to address this issue was formed only on November 14, 2016.

After a press release on December 13 confirmed that the total SBNs received as on December 10 was Rs.12.44 lakh crore, the RBI clammed up and refused to divulge the amount of SBNs received thereafter, citing risible excuses such as that the SBN counting and recounting was going on. In fact, it still seems to be going on! Finally, the RBI’s annual report published on August 30, 2017, revealed that 99 per cent of the SBNs had indeed been received. But by then, the RBI’s reputation had been tarnished, possibly beyond repair. As Rs.15.28 lakh crore out of Rs.15.44 lakh crore of the SBNs had been returned as on June 30, 2017, dreams of windfall gains evaporated. The expenditure on note-printing in 2016-17 was Rs.7,965 crore, more than double the 2015-16 figure of Rs.3,421 crore. The surplus transferred to the government by the RBI nosedived from Rs.65,876 crore in 2015-16 to Rs.30,659 crore in 2016-17.

Scorecard

When the dramatic announcement was made on the night of November 8 in a nationwide televised address, the stated objectives were snuffing out 1) unaccounted money held in cash; 2) counterfeit currency, which was purportedly the source of financing for terrorists; and 3) therefore, terrorism itself.

We shall first examine how far these objectives were met before moving on to the objectives that came as an afterthought as the original objectives retreated in the face of massive outrage.

Black money

The government is in possession of enough reports addressing the prevalence, menace and forms of black money. One such report, titled “Measures to Tackle Black Money in India and Abroad” (2012) by the Chairman of the Central Board of Direct Taxes (CBDT), unequivocally states that demonetisation will not be able to contain the black money menace:

“One common demand from the public is that high denomination currency notes, particularly Rs.1,000 and Rs.500, should be demonetised. In this connection, it is observed that demonetisation may not be a solution for tackling black money or economy, which is largely held in the form of benami properties, bullion and jewellery, etc. Further, demonetisation will only increase the cost, as more currency notes may have to be printed for disbursing the same amount. It may also have an adverse impact on the banking system, mainly logistic issues, i.e. handling and cash transportation may become difficult and may also cause inconvenience to the general public as the disbursal or payments of wages/salaries to the workers will become difficult.”

The government authorities are also aware that most of the black money generated is invested in businesses, stocks, real estate, benami accounts, etc., and only a small fraction is kept as cash. According to data from income tax raids, this is limited to less than 6 per cent of the total black money in the economy.

For instance, it was stated in Parliament on August 1 that between November 2016 and March 2017, a total of Rs.18,529 crore of unaccounted wealth was detected through search and seizure (Rs.11,634) and surveys (Rs.6,895). In this, the seized cash component was only Rs.1,003 crore (5.4 per cent of the total Rs.18,529 crore). The CBDT classifies seizure accounts for currency and ornaments as one unit. Hence, the actual proportion of cash in these seizures will be lower than even Rs.1,003 crore, which is a tiny fraction compared with the demonetised currency of Rs.15.44 lakh crore. The undisclosed income from search and seizure in previous years clearly proves that demonetisation failed to unearth any remarkable amounts of black money.

Fake currency

In a study in partnership with the National Investigation Agency, the Indian Statistical Institute estimated that around Rs.400 crore of fake Indian currency notes (FICN) is in circulation. But this report does not call for radical steps such as demonetisation to flush out FICN. The data (2011-15) show that law enforcement agencies have been seizing Rs.25-Rs.45 crore of FICN annually. Another Rs.30 crore of FICN gets detected in the banking system on an average annually, according to recent records of the RBI. It is another fact that India has substantially low FICN per CIC compared with the United States, the United Kingdom and Europe. The RBI’s annual report of 2016-17 shows that the total FICN detected is Rs.43.5 crore. Although this is higher than the Rs.29.6 crore detected in the previous year, the amount is insignificant in relation with the CIC of around Rs.17.977 lakh crore.

Despite the claims of the government that the post-demonetisation notes have added security features, banks detected hundreds of FICN of the new Rs.2,000 and Rs.500 notes within a couple of weeks of their introduction. Law enforcement agencies also seized a substantial amount of counterfeit notes of these denominations. Demonetisation, therefore, did not contain, let alone stop, counterfeiting of Indian currency.

Terrorism

How effective could demonetisation have been as a one-time initiative to choke terror funding? If the government had thought things through, it would have known that demonetisation would have been, at best, a temporary blip, and once remonetisation happened, cash would become available to terrorists too. It would not be difficult for terrorist outfits, which have channels to move money digitally and which use front companies, to procure new or counterfeit currency. Although demonetisation apparently did crimp terrorist activities for a few months, cross-border terrorism and Maoist insurgencies resurfaced again after the hiatus.

It is also a myth that removing cash and moving to a “cashless society” creates a “terrorism-free society”. Belgium and France, which are in the first and second places on the list of cashless societies in the world, were also victims of indigenous and trans-border terrorism. The Charlie Hebdo attack in Paris in January 2015 is an unfortunate example. France did not detect that the terrorists involved in the attack had bought their weapons from Brussels. Nor did Belgian agencies know that Molenbeek, a small 5.8-square kilometre area in their country, was the Islamic State’s busiest terror incubation centre in the world.

All the evidence points to the conclusion that none of the originally stated objectives were met by demonetisation. No black money worth all the misery the Indian public was put to was found. On the contrary, as most critics of demonetisation suspect, large caches of black money and counterfeit money got laundered since possibly more than 99 per cent of the SBNs have reached the RBI. The government’s claims that the money is now in the system, is traceable, and its holders can be prosecuted sounds logical, but the large number of cases (some nearly two lakh suspect accounts according to figures given by the government), the lack of matching manpower, and the poor record so far in prosecuting such cases all suggest that identification of black money and the final tax collection from such accounts will never reach the fancy figures floated by even the so-called economists rooting for demonetisation.

Growth of Digital Transactions

If we examine the growth in digital transactions in recent months, the Unified Payments Interface (UPI) recorded a growth of 74 per cent, that is, from a Rs.2,391 crore monthly transaction amount in March 2017 to Rs.4,157 crore in August 2017. But if we consider the total retail electronic clearing, we can see there was no dramatic jump in digital volumes; instead, it almost follows the same growth trajectory of previous years. If we consider the total retail electronic payments of Rs.13,98,809 crore in August 2017, the share of the UPI is less than 0.3 per cent. Here is another interesting data set: while Indians withdrew Rs.2,19,165 crore of cash using debit cards from ATMs in August 2016, it touched Rs.2,35,196 crore in August 2017. As cash returned to the system, the apparent surge in digital transactions after demonetisation appears to have evaporated.

Cash-GDP ratio

Another narrative was that the objective of demonetisation was to bring down the high currency-to-GDP (gross domestic product) ratio. The government claimed that the cash-GDP ratio of 12.2 per cent in March 2016 witnessed a drastic reduction to 8.8 per cent in March 2017. But the CIC increased from Rs.13.353 lakh crore on March 31, 2017, to Rs.16.465 lakh crore on October 20, a jump of 23.3 per cent within the past seven months. When computing the CIC-GDP ratio, it is always the nominal GDP that is considered. If we account for the fact that the GDP at current prices (nominal GDP) is growing at 9.3 per cent, the present currency-GDP ratio has already crossed the 10 per cent mark. When the GDP is slipping, this will reflect in a higher CIC-GDP ratio further down the line.

Increase in tax base

The government claimed that demonetisation resulted in widening the tax base and bringing a record number of taxpayers into the tax net. To substantiate its claims, at various times the government released contradictory figures of 56 lakh, 5.4 lakh, 91 lakh and 33 lakh as the number of new taxpayers since demonetisation, without revealing the base figures over which these accretions are claimed. None of this stands up to scrutiny.

The annual report 2016-17 of the Ministry of Finance sets the actual number of new taxpayers for FY 2014-15 at 78.38 lakh and for FY 2015-16 at 99.98 lakh. That means there was a year-on-year growth of 27.6 per cent in new taxpayers between 2014-15 and 2015-16. The government disclosed in Parliament on August 4, 2017, that 1.26 crore new taxpayers were added to the tax base in FY 2016-17. So, the year-on-year growth for 2016-17 is only 26 per cent compared with a 27.6 per cent jump in 2015-16. Thus, despite the alleged impetus of demonetisation, the tax base grew at a lower rate than in the previous year.

One year after the then awestruck Indian public was hit by demonetisation, it is clear that the decision was taken without any forethought, let alone detailed, step-by-step planning. It all seems to have stemmed from megalomania, a need to make grand gestures, to play to the gallery, to show intrepidity, or even to test the limit of one’s powers to make decisions on a whim unchallenged. The government did not take institutions into its confidence. It was not that the government was not forewarned. Among other people, Raghuram Rajan, before his exit, would have resisted, which perhaps hastened his exit from the RBI.

Now, when the inventory is taken, what we have are economic growth that has been stymied and pushed into decline; distress among the rural population, which is yet to recover from the blow; devastation in cash-dependent sectors of the economy; blots on the independence and integrity of institutions such as the RBI; unchallenged opacity in decision-making that bodes ill for the nation’s future; no dramatic growth in the tax base or tax collections; no tangible gains of any sort; and possibly long-term and as yet unplumbed damage to the economy.

Was it only good intentions that paved the road to this hell? Or was it a mixture of chutzpah and hubris?

James Wilson, a civil engineer and avid blogger, works for the Inter State Water Advisory Committee of the Government of Kerala.

Political impact

Straws in the wind

MORE than anything else, it is Prime Minister Narendra Modi’s repeated and uncharacteristic observations on Goods and Services Tax (GST) since the middle of October that reveals the political impact of the “historic economic reform” initiated by the National Democratic Alliance (NDA) government on the stroke of midnight on July 1, 2017.

This series of statements began at the Gujarat Gaurav Mahasammelan (Gujarat Pride Conclave) in Gandhinagar on October 16 and continued through several other public appearances in the following days. The central argument in the Prime Minister’s repeated assertions was that the introduction of the GST regime was a collective decision of all political parties and State governments and that the Centre only played a small part in the decision-making process.

Elaborating on the argument, he said: “All political parties, including the Congress, took the decision to bring in GST. You are all partners in this decision. The Central government is only a 30th part in the entire GST Council. I had said it is a new tax regime and I will review it after three months. And we not only reviewed it, but are trying to resolve all ticklish issues and all gaps relating to it. I assure our huge trading community that the government is committed to ensuring they have no problems because of the new reformist tax regime. Thousands of new traders have come up to join the GST regime but are seeking simplicity in its implementation. I have given my word to the traders that I will not allow them to suffer. Nobody is against GST, they all want that there should be no hurdles in its implementation. We are seized of it and I am continuously making suggestions to address all concerns.”

Several aspects of these pronouncements stood out in contrast to Modi’s normal style of speechifying, which is usually marked by self-aggrandisement and claims of great achievements and triumphs in various fields. The Prime Minister is also known for running down political adversaries in his speeches. But the tone and tenor of the GST-related references were conspicuously defensive, and while adopting this posture Modi also sought, rather bluntly, to apportion credit or blame, whichever way one wanted to see it, to his political associates and adversaries. What he wanted to convey through all this was evident. It was just that the responsibility for the mess in trade, industry and agrarian sectors caused by the new tax regime and its implementation cannot be placed solely on him or his government and the Bharatiya Janata Party (BJP). The fact that he had used all sorts of venues to advance these points also flagged a sort of desperation that Modi supposedly does not display under normal circumstances. While the first of the defensive expositions was obvious at the Gujarat Gaurav Mahasammelan, a massive gathering of BJP workers organised as part of the campaign for the Gujarat Assembly elections scheduled for December, many later presentations were at government functions, with no overt dimension of party politics.

This atypical urge to present himself and his government as the second fiddle as well as the unusual apportionment of equal responsibility to his political adversaries did not go unnoticed by political observers and opposition leaders. Shivanand Tiwari, the Rashtriya Janata Dal (RJD) leader and former Rajya Sabha member from Bihar, describes this new role-play by Modi as a political act, devious and amusing at the same time. “Here is a man who, in the run-up to Lok Sabha elections in 2013-14, unabashedly took the credit even for Amul Dairy [or Kaira District Cooperative Milk Producers’ Union Limited in Anand, Gujarat], the dairy cooperative that was set up in 1946 and nurtured as a successful model since the 1970s under several regimes, including the Congress. Modi was Chief Minister of Gujarat only from 2001 to 2014, but he had no qualms about claiming credit for the dairy cooperative movement. So, now, when he says that you are all partners in this decision and that his government is only one-30th of the decision-making system on GST, there is little doubt that it is driven by a realisation that the political challenges thrown up by the new tax regime and its implementation are indeed grave.”

Tiwari’s observation had a resonance across the opposition political spectrum and among a large number of political observers.

Samajwadi Party (S.P.) president and former Uttar Pradesh Chief Minister Akhilesh Yadav told Frontline that “the realisation about the grave political dangers unleashed by GST and its implementation must have become stark on account of the forthcoming Assembly elections in Gujarat, a State with a significant trading community. Traders of the State are already up in arms, rather militantly, against GST and its proponents and implementers, the BJP and its government.”

Widespread anger

Travelling across several districts of Uttar Pradesh, the country’s most populous State, Frontline could deduce that the antagonistic responses are not confined to election-bound Gujarat. All sections of the population, including traders, industrialists, salaried employees, daily-wage earners and farmers, minced no words in expressing the hardships they had suffered over the past one year, not only on account of GST, but because of the cumulative problems that followed the “historic economic initiative of Modi”, demonetisation. The condemnation of the demonetisation-GST continuum cut across social and political barriers, with people belonging to all communities and political affiliations squarely terming both moves as disastrous. Significantly, even supporters of the BJP and other outfits of the Rashtriya Swayamsewak Sangh (RSS)-led Sangh Parivar, in trade, industrial and agricultural bodies, were critical of the demonetisation-GST continuum.

While most of the BJP-Sangh Parivar supporters who expressed anger and exasperation at the two economic initiatives wished to remain anonymous, Pandit Shyam Bihari Baijnath Mishra, a four-time BJP Member of Parliament from Bilhaur constituency in Uttar Pradesh, came on record making a forceful case against GST and demonetisation. Mishra, who is also the national president of the Bharatiya Udyog Vyapar Mandal, the apex body of traders and small industries, told Frontline that promises made before and during the advancement of both the “revolutionary” economic initiatives had been completely belied. “When GST was launched Modi ji had promised four things. First, there would be a uniform tax structure across the country. Second, it would remove corruption and prevent generation and circulation of black money. Third, the harassment of traders by high-handed officials would come to an end. Fourth, all trade in the country would be documented and receipted. Now, as we see the implementation of GST, not one of these promises is being fulfilled,” he said.

Explaining each of his points, Mishra added: “The promise of uniform tax structure has become a joke with the Centre and different States pulling in different directions with umpteen interpretations. If anything, the rate of corruption has doubled and, with rampant attempts by a large number of people to get below the radar of this confusing and oppressive tax regime, black money is in circulation with a kind of renewed vigour. When demonetisation was rolled out, there were claims that it would help digitise the economy and thus curb black money. Every day, we are hearing stories of old and banned currency being transported from one part of the country to another. Where is all this black money going? Who is helping its circulation and legitimisation? And given our striking infrastructural deficiencies, is it possible to fulfil the digital requirements demanded by the GST regime? As president of the Bharatiya Udyog Vyapar Mandal, I have been trying to flag many specific issues relating to this rollout, but unfortunately, the listening quotient of the government, especially Finance Minister Arun Jaitley, is very low. I, and my associates in the Mandal, had pointed out 62 specific anomalies in the GST structure and demanded rectification. Just 12 of them have been accepted. I am certain that the government will have to come around and accept the other 50, too, because they are legitimate demands, strong on facts and reasoning. But every genuine demand is addressed with extreme laxity while arbitrary and ill-thought-out directives emerge out of the big officers of the government. Modi ji will have to address all this at the earliest and put the government back on track.”

Asked how he was openly criticising the government while most of his colleagues in the BJP as well as a large section of traders were wary of saying anything critical of Modi and his team, Mishra said as a loyal praja (citizen), it was his duty to inform the raja (king) of the atmosphere as it existed on the ground. “Lord Rama had the dhobi [washerman] who informed him about what people were talking about Sita maa. I am like that dhobi. I am telling Modi ji what is happening on the ground. I think that like Lord Rama, Modi ji will listen to the good counsel of the people and adopt course correction measures.”

Mishra said he hoped Modi and his team would get back to positive leadership, keeping the interest of the people paramount.

Some of his associates in the BJP and the Bharatiya Udyog Vyapar Mandal pointed out that the messy implementation of GST and demonetisation had pushed back the new political thrust advanced by the Modi-Amit Shah duo since 2014-15.

Old support base sidelined

A perceptive associate of Mishra in the Bharatiya Udyog Vyapar Mandal said: “The political moves that followed the announcement of demonetisation, including the manner in which the Uttar Pradesh elections were fought, had clearly underscored a political-organisational line that sought to sideline the old support base of the BJP consisting of upper-caste Brahmins and Banias [trading community] and promote a combination of non-Yadav Other Backward Classes [OBCs], Most Backward Class [MBC] communities and the non-Jatav Dalit communities. It was a different kind of social engineering, which attempted to project the party as something closer to the poor and the marginalised as opposed to the middle class and the middle trader. The communities that rallied around the party as part of this project included OBCs such as Kurmis, Shakyas, Lodhs and Pals, and MBCs such as Mauryas, Nishads and Rajbhars, and Dalit communities such as Pasis and Valmikis. Informal estimates are that these communities together account for nearly 25 per cent of the population of Uttar Pradesh across 38 caste blocs, with over 200 sub-castes and groups. This worked very well in the Uttar Pradesh elections of March 2017. However, the mess and the unending economic hardships inflicted by the two economic drives are now increasingly alienating these poorer classes from the BJP. Evidently, this situation presents an opportunity for the now-disparate mainstream and regional opposition parties, including the Congress, the Left parties led by the Communist Party of India (Marxist), the S.P., the Bahujan Samaj Party (BSP), the RJD, the Dravida Munnetra Kazhakam (DMK) and the Nationalist Congress Party (NCP), to build a campaign on core economic issues and make it an effective anti-government political weapon.”

He added that the lack of leadership within the opposition ranks need not become a hindrance to the success of this campaign. “The most important thing is how effectively they marshal their arguments and master the situation,” he said.

Mishra’s associate added that if the opposition was able to put up a strong and effective campaign on these lines, the Modi-Amit Shah duo, along with other leaders of the BJP and the Sangh Parivar, may only have the option of propping up an aggressive Hindutva rhetoric to create a communal divide in the name of the Ayodhya Ram temple or some other polarising issue. Clearly, there are some new political straws in the wind and a realisation about this is spreading among the grass-root workers, beyond conventional, social and political divides.

Agriculture sector

Bitter harvest

VIJOO KRISHNAN cover-story

Never before has a Prime Minister’s address to the nation had such a catastrophic impact on the lives of the masses as Narendra Modi’s November 8, 2016 speech. At the stroke of the midnight hour, as the world slept, currency notes of the denominations Rs.500 and Rs.1,000 ceased to be legal tender.

On the fateful day, the Kisan Sangharsh Jatha had reached the drought-prone Anantapur district in Andhra Pradesh, the hotbed of suicide by farmers. The next morning at the local market we found farmers had come from nearby regions with vegetables and flowers but they had no buyers. People were queueing up in front of banks and ATMs, totally unprepared for how the quixotic decision would unfold. Elsewhere, farmers from Kolar in Karnataka reported that marigold flowers were not fetching even Rs.100 for a 50 kg bag. Farmers were forced to dump their produce as the amounts quoted would not even meet their transport expenses. This was the scenario all through the route of the jatha from then on until November 24, when it reached Delhi.

Money woes

As we entered Telangana on November 11, 2016, just two days after the Prime Minister’s address, the first death by demonetisation was reported. A woman in Mahbubabad district, Kandukuri Vinoda (55), who had sold her agricultural land to meet the medical expenses of her paralysed husband and the marriage expenses of her daughter, had committed suicide a day before. She had got Rs.56.40 lakh after selling the 12 acres (one acre is 0.4 hectare) of land they owned. The desperate act was apparently prompted by the fear that the money would now be rendered as good as paper since depositing anything above Rs.2.5 lakh would invite action for possession of black money. On November 13, 2016, we got the information of the next suicide, from Gudibande taluk in Chikkaballapur district of Karnataka. Eshwaramma (40), an agricultural worker, had lost Rs.15,000 while trying to deposit it in the bank. Distraught at losing her hard-earned savings, she committed suicide. The scenes in the markets in Nalgonda, Suryapet, Khammam and Jagtial were heart-rending, with farmers being forced to dump perishable crops like vegetables and flowers.

On November 14, 2016, as the jatha traversed through Telangana and reached Nirmal, the new district carved out of Adilabad district, it found a long queue before a Andhra Bank branch. The majority of those standing in it were women. Bhoomamma and Lakshmi had been coming daily for a week, they said, to convert the money they had received in payment for their paddy crop. They mentioned that they had sold crops worth Rs.28,000 and Rs.42,000, respectively, and had got paid in notes of Rs.500 and Rs.1,000. They had not been able to convert the amount into legal tender despite waiting from dawn to dusk for several days. The story was no different that day as they left dejected after bank officials said they had no more cash. Ashanna, a farmer, found the courage to speak on camera about his plight at a time when any voice against Modi’s “surgical strike” on black money was blasphemy. He narrated how his efforts to convert the Rs.50,000 he had got from selling paddy had been futile for yet another day. They all said that the “note ban” had disrupted their daily life and stalled agricultural activities. It had led to the destruction of the vegetables they had grown as there were no buyers, and they were unable to buy essential commodities and agricultural inputs. In the rare instances where there were buyers, farmers reported that the traders were paying far less for the crops than they were worth. Undoubtedly, Modi had gifted a bitter harvest for these and countless other hapless peasants.

No work, no wage

Agricultural workers had not got work or wages since the Prime Minister’s address. People were unable to purchase essential commodities, vegetables and medicines; small shopkeepers found no buyers; and the poor were unable to even travel because of the non-availability of cash. Institutional credit was not accessible to the vast majority of poor peasants, tenant farmers and agricultural workers, most of whom were from socially oppressed sections. They depend on cash borrowings, the possibilities for which were now frozen. The peasantry, which was reeling under an acute crisis, was further pushed into distress by the demonetisation decision. They have suffered severe income losses and yield losses as a consequence. Sowing was delayed, and there was a decline in the area sown with wheat and other crops.

Agriculture remains the main source of livelihood for people in the countryside. After demonetisation, the ready availability of cash for investment in agricultural activity and to meet household expenses was disrupted abruptly. It came in the harvest season, which led to further distress for farmers who were already in a deep crisis.

In addition, the massive retrenchment in the unorganised sector, coupled with the lack of employment opportunities, forced a reverse migration from cities to villages. Thousands of cash-strapped people, who until then made regular remittances to their families, now returned to their villages as it was impossible to survive in cities. Naturally, this added to the rural distress, while the large reserve army of unemployed people looked for employment under the Mahatma Gandhi National Rural Employment Guarantee Act. Cuts in allocations to the MGNREGA ensured that it was a futile search.

Mere opening of Jan Dhan accounts clearly has not made access to credit easier, and the rural populace still carries out transactions mostly in hard cash. We found farmers who wanted to sell their produce but traders were not prepared to buy because they did not have cash. Farmers seeking to sell their produce in “rythu bazaars” were unable to find buyers. The problem was particularly acute for farmers seeking to sell perishable goods like vegetables, fruits and flowers and for the fishing community seeking to sell its catch. The inability to exchange notes for food and other daily expenses also led to problems.

Cooperatives under attack

One of the most debilitating impacts was the systematic attack on the rural cooperative banking sector. The Reserve Bank of India (RBI) said through a notification that district central cooperative banks could not allow their customers to exchange demonetised notes or even to deposit such notes. The pretext for the move was that cooperative banks did not follow KYC norms for their customers. According to a report, 33 state cooperative banks and 367 district cooperative banks catered to the needs of over 12 crore customers. A large number of them were farmers who had received loans against their Kisan Credit Cards and were now unable to pay back their loans. Notably, only in Kerala, which is known for an effective cooperative banking sector catering largely to the needs of farmers and the rural poor, cooperative banks were left with over Rs.1.25 lakh crore frozen. Farmers’ cooperatives also suffered irreparable damage because of demonetisation.

Long, winding queues were witnessed outside banks and ATMs in Andhra Pradesh, Telangana, Maharashtra, Madhya Pradesh, Uttar Pradesh and Haryana. The jatha started witnessing more people at the meetings even in places like Nagpur, known to be a Sangh Parivar stronghold. In Bhind we had the first protest march to a State Bank of India (SBI) branch, on November 17, with people harassed by the decision and exhausted by the long queues participating far beyond our mobilisation capacity. This clearly indicated that something had gone seriously wrong for the rural masses. Spontaneous protests broke out as the jatha reached Morena, with news also coming in of yet another woman committing suicide in the district as she could not buy medicines with the banned notes. The number of deaths caused by demonetisation only increased even as the state showed total apathy and was in denial mode.

The insensitivity to the plight of the peasantry and the poor can be understood when one notes the fact that the Prime Minister’s Budget-like speech was high on theatrics and rhetoric but had nothing tangible for them. He claimed that there was a 6 per cent increase in rabi sowing and a 9 per cent increase in fertilizer usage on the basis of questionable data. Delayed wheat sowing and reduction in the acreage of wheat were a direct result of demonetisation. He deliberately concealed the fact that the previous two years were drought-hit. Better monsoons and increased sowing of pulses were the reasons for the increase in acreage and fertilizer use and these were no indicator of support for demonetisation. He merely announced 60 days’ interest waiver for farm loans taken from district cooperative banks and societies for rabi farming. Notably, this was a period when the government decision had irreparably damaged cooperatives and their disbursal of farm loans was minimal. The announcement that three crore Kisan Credit Cards would be converted to RuPay debit cards was a scheme that was in existence after 2012 and millions of cards had already been issued by 2013-14. Yet another announcement about NABARD being given Rs.41,000 crore for provision of low-interest credit to cooperative banks also had been routinely happening from much earlier. In 2015-16, NABARD sanctioned credit limits aggregating Rs.71,497 crore under a short-term refinance portfolio and Rs.48,064 crore in long-term refinancing.

Collapse of prices and livelihoods

The All Indian Kisan Sabha (AIKS) team that visited Mandsaur in Madhya Pradesh after the killing of six people in police firing earlier this year found a situation of acute distress in the region as prices of most crops had crashed to about 60 per cent below last year’s prices. Demonetisation had led to this crash, aggravated by faulty policies such as the import of wheat and pulses in a year of good harvest. Soyabean, which fetched Rs.5,000-6,000 a quintal last year is getting only Rs.2,200-2,400. Chana, which fetched up to Rs.9,000-10,000 a quintal, is getting only Rs.4,000 a quintal. Both these crops reported a 60 per cent fall in prices since last year. Similarly, the best quality wheat was fetching only Rs.1,200 a quintal, way below the MSP (minimum support price) of Rs.1,625. Last year it ranged between Rs.1,900 a quintal to Rs.2,000 a quintal; so there was a decline of over 40 per cent. Moreover, the government purchased at the MSP for only three months and not throughout the year. The import of wheat at zero import duty added to the farmers’woes. Garlic prices fell from Rs.13,000 a quintal to Rs.1,000 a quintal, a drastic 92 per cent fall; methi (fenugreek) prices fell from Rs.9,000-Rs.10,000 a quintal to between Rs.2,200 a quintal and Rs.3,000 a quintal, a drop of about 70 per cent. After demonetisation, traders are paying 2 per cent less for cash transactions. In this period, input costs increased manifold. Undoubtedly, the crash in prices has had a cascading effect on indebtedness, which is the main cause of farm suicides.

The charade of MSP

The incessant fall in prices and the lack of government procurement or purchasing centres renders the MSPs as notional figures unable to boost the confidence of the peasantry. This was one of the main reasons for the protest in Maharashtra, Madhya Pradesh and Rajasthan, which snowballed into a massive movement with farmers’ organisations exhibiting unprecedented unity. In all the three States, the Bharatiya Janata Party (BJP) governments were forced to agree to intervene in procurement, open purchasing centres, and buy at MSP. However, in Rajasthan, while purchasing centres were opened in all districts for moong (green gram) and groundnut, a restriction that only 25 quintals of groundnut would be procured at MSP from a farmer led to further protests and the limit was raised to 50 quintals. The struggle is on.

After the death of six farmers in Madhya Pradesh, Shivraj Singh Chouhan’s BJP government was forced to address the issue of falling prices. However, instead of promising public procurement at MSP, it offered the Bhavantar Bhugtan Yojana (Price Deficit Finance Scheme) which literally meant that the government would pay the difference in price if a crop was sold below the MSP. It claimed that more than a quarter of the total 64 lakh farmers in the State had registered themselves under the scheme and the expenditure likely to be incurred by the government was over Rs.4,000 crore for the ongoing kharif crop. Other than soyabean, kharif crops like pulses, groundnut and maize were also eligible under the scheme. After the Price Deficit Finance Scheme, big traders are reportedly bidding as low as Rs.1,500-Rs.2000 a quintal, which was below the earlier bidding price of Rs.2,800-Rs.2,900 a quintal. Before demonetisation, farmers got between Rs.5,000- Rs.6,000 a quintal. The MSP announced for 2017-18 was only Rs.2,850 a quintal plus a bonus of Rs.200 a quintal. This resulted in protests at the Agar Malwa Mandi in the State and a police lathi-charge on October 30, 2017.

Potato farmers

In Bihar, Jharkhand, Uttar Pradesh and West Bengal, potato farmers have been witnessing historically low prices. The price potatoes fetched in Bihar last season was only Rs.300 a quintal, which does not meet even the rent for cold storage, ranging from Rs.400 to Rs.450 a quintal. Before demonetisation, potatoes fetched Rs.500 a quintal, according to farmers in the State. They pointed out that the owners of cold storages deliberately hiked storage prices so that farmers would be forced to sell at low prices. Notably, a retailer sells potatoes grown in Bihar at Rs.10 a kg, while the Uttar Pradesh variety is priced at Rs.30 a kg.

In West Bengal, a 60-kg bag of potatoes fetched Rs.400, that is, Rs.666 a quintal. Post-demonetisation, the prices fell to Rs.200-Rs.250 a bag, or merely Rs.416 a quintal at the most. In the fertile basin of the Damodar river, a farmer can produce about 60 quintals on a bigha (about one-third of an acre) of land. The loss in prices will be in the range of Rs.15,000 a bigha. Over 50 per cent of potatoes are still in cold storage, and if the situation continues, at least 20 per cent will still remain in cold storage in December. Farmers will be left with no option but to abandon the crop as they will not be able to recover even the carrying cost. In Uttar Pradesh, too, reports suggest that 30 per cent of the old crop is still unsold, although planting for the next season is nearing completion. Farmers claim that before demonetisation potatoes were selling in the State at Rs.1,000-Rs.1,400 a quintal, whereas prices have now fallen to Rs.350-Rs.450 a quintal depending on the variety and quality. Prices have not recovered in any of the States.

In Bihar, arhar/tur dal (red gram) at present fetches farmers merely Rs.2,800-Rs.3,500 a quintal, whereas before demonetisation it fetched Rs.9,000-Rs.9,500. Earlier, farmers in the State grew green gram so that it could be sold for money that would be invested in the next paddy season. However, this time, the price fell drastically from Rs.7,000-Rs. 9,000 a quintal to merely Rs.2,600-2,800. The usual trend of rising prices a few months after the harvest season has been reversed. Now prices rise progressively as the harvest season is left behind, according to farmers. Arhar/tur farmers in Kalaburagi, Karnataka also reported that they were getting far below even the MSP of Rs.5,050 a quintal after demonestisation with prices falling to Rs.4,200-Rs.4,700 and then to as low as Rs.3,800-Rs.4,000. In the case of wheat and pulses, the ill-timed decision to import from other countries ensured that the prices continued to fall.

Chilli farmers

In Andhra Pradesh, chilli was cultivated in about 4.65 lakh acres in 2016-17 compared with 3.9 lakh acres the year before, and production shot up to about 93 lakh quintals compared with around 80 lakh quintals the year before. In Telangana, the production was around 40 lakh quintals. The BJP-led Central government’s much-hyped Market Intervention Scheme (MIS) for Fair Average Quality (FAQ) variety was applicable only to 8.83 lakh quintals in Andhra Pradesh and 3.37 lakh quintals in Telangana. The Union government’s decision ensured the purchase of less than 10 per cent of the total produce under the MIS and at a price lower than what farmers are already getting for FAQ variety. The price announced was only Rs.5,000 a quintal while the going rate was already around Rs.7,000; farmers will be able to recover their investment only if a minimum of Rs.10,000 a quintal is assured. The cost of production itself ranges from around Rs.7,500 a quintal to Rs.10,000 a quintal. The handling/transportation charges of Rs.1,250 also do not meet the actual expenses. The Telugu Desam Party government’s promise of an additional Rs.1,500 a quintal for up to 20 quintals also falls short of expectations. It has to be noted that the sale price of export quality Teja variety of chilli had crossed Rs.13,000 a quintal last year. The price of chilli-334 plummeted to Rs.1,500 a quintal, while the cost of production is as high as Rs.10,000 a quintal. Given that it was a drought year and irrigation costs escalated while productivity fell from around 25 quintals an acre to below 15 quintals an acre, the prices of Rs.3,000 a quintal plus the Rs.1,500 a quintal bonus will not even meet 50 per cent of the costs of cultivation. The bonus price announced by the State has also not been passed on to farmers by traders, who are underpricing, leading to heaps of chilli bags remaining dumped at the Guntur Mirchi Yard, Asia’s biggest chilli market. Clearly, the depressed prices for farmers meant enhanced profits for big traders and corporate companies. This is the pattern that is unfolding increasingly across all crops post-demonetisation.

The M.S. Swaminathan Commission recommends effective intervention to ensure remunerative prices of at least 50 per cent above the cost of production, crop insurance for all farmers, interest-free loans, and the distribution of free seeds and subsidised inputs in advance. Instead of implementing these recommendations, the BJP government resorted to flawed import policies, made a mockery of the people’s plight, failed to ensure effective crop insurance, and performed dismally in procurement and price stabilisation. This scenario led to heart-rending scenes of farmers leaving vegetables to rot on their fields in parts of Karnataka, while flowers, tomatoes and milk were dumped on the streets. Goods and Services Tax (GST) has added to the peasantry’s woes.

The rising wave of protests post-demonetisation and the unprecedented unity of the peasantry against the BJP government’s apathy to their plight and against the neoliberal economic policies had forced governments in Maharashtra, Rajasthan, Madhya Pradesh, Punjab and elsewhere to bow to their demands. The anniversary of demonetisation will witness massive protests. The trade unions have called for a Mahapadav on November 9, 10 and 11 and over 184 organisations of the peasantry and the rural poor have come together for a massive protest from November 20 onwards. If demonetisation was the beginning of an onslaught on the poor, it is now evident that the battle has been well and truly joined by the victims of the extraordinarily callous misadventure.

Vijoo Krishnan is joint secretary of the All India Kisan Sabha.

Kashmir

Dogra raj in Kashmir

A.G. NOORANI the-nation

“IT was the tendency of the Kashmiri Pandits to turn to India, with its comfortable Hindu majority, when in trouble in Kashmir that earned for them the honour of being secular nationalists. That they merely demanded protection of religiously conceptualised interests is obfuscated by an Indian nation that has not acknowledged the tenuous nature of its own secular credentials. In contrast, the Kashmiri Muslims’ demands for a similar protection of rights, denied to them as a religious community by both a Hindu Dogra and a ‘secular’ Indian state, has been all too easily misread as engaging in an illegitimate politics of religious fundamentalism. This duality in nationalist treatment is born, in the ultimate analysis, of the fact that Kashmiri Muslims have, by and large, chosen to tread a path all their own and certainly one that leads them neither to Delhi nor to Islamabad. Above all, the clamour by Kashmir’s Muslims is for a legitimate government. It is the helplessness in which they were placed first by their Dogra rulers and then by Indian politicians, each neglecting to negotiate their legitimacy with the popular constituency of Kashmir, that has provoked a militant response” (Mridu Rai, Hindu Rulers and Muslim Subjects, Permanent Black, 2004, page 297.)

A calculated campaign

This accomplished scholar, who teaches history at Yale University, accurately summed up the situation that has been prevailing in Kashmir all these years. Two fundamental changes since the book was published in 2004 have rendered the situation even more bleak. India’s “secular credentials” are rejected by the Rashtriya Swayamsewak Sangh (RSS) government which came to power at the Centre in 2014. In the same year its State unit in Jammu and Kashmir won power under a deal with Mufti Mohammed Sayeed. It has since begun making demands it could never have dared to make before. One of them is that the birthday of the last Dogra ruler, Hari Singh, be declared a public holiday. His son and successor, Karan Singh, endorsed it, predictably. On October 1, Deputy Chief Minister Nirmal Singh, a Bharatiya Janata Party (BJP) member, called for Kashmir’s “complete integration” with India. On October 22, Karan Singh’s son, Vikramaditya Singh, resigned from the People Democratic Party (PDP) for neglecting Hari Singh’s record. The BJP next demanded that October 26, the day Jammu and Kashmir acceded to India, be declared a public holiday. For the last nearly 30 years, Kashmir has observed a complete shutdown on that day.

It is a calculated campaign whose objective is to reverse the march of history since 1947 and restore Hindu Raj, which was what Dogra Raj spelt in the State.

The Dogra dynasty is justly hated and despised for its sordid record since the Dogra Gulab Singh bought Kashmir for Rs.75 lakh in 1846 from the East India Company under the Treaty of Amritsar. He accomplished this through treachery to his masters, the Sikh rulers in Lahore, in collusion with the British. Conceived in treachery, Dogra rule was established by military force. Gulab Singh, who had joined Maharaja Ranjit Singh’s army in 1809, was made Raja of Jammu in 1822 as a reward for his services.

The history of the times written by Captain Amrinder Singh in The Last Sunset: The Rise and Fall of the Lahore Darbar and Khushwant Singh in A History of the Sikhs contains ample documentation of the crime. The latter calls Gulab Singh “unscrupulous”. As Sikh rule declined, he made a secret pact with the British to prevent “the Dogras from joining the Punjabis” in war. Pandit Prem Nath Bazaz records how he performed this role in the war in 1845 ( The History of Struggle for Freedom in Kashmir, page 121). “The treaty was enforced with British arms. Sheikh Imamuddin, the Governor of Kashmir appointed by the Sikh rulers, refused to hand over the valley of Kashmir to Gulab Singh. British troops had to be sent to instal him as ruler of Kashmir.” The 1929 edition of C.U. Aitchison’s Treaties says: “Thus Gulab Singh owed not only his title to Kashmir, but his actual possession of it, wholly to the support of British power.”

Joseph Davey Cunningham describes Gulab Singh’s investiture as sovereign of his new territories on March 15, 1846. “He stood up, and with joined hands, expressed his gratitude to the British Viceroy—adding without, however, any ironical meaning, that he was indeed Zurkharid, or gold-boughten slave.” Gulab Singh was not the founder of the State of Jammu and Kashmir. It was the East India Company. Over his protest an Officer on Special Duty was sent to the State as early as in 1852.

Robert A. Hultenback’s Kashmir and the British Raj 1847-1947 contains damning material on the Dogras. The Viceroy Lord Lytton wrote to London on February 25, 1880. “The people are systematically oppressed and depressed; the administration thoroughly rotten; the land settlement vicious; the officials corrupt and unscrupulous; and their pay in arrears. …I consider the time has come when we must decisively intervene for the rescue of a perishing population on whose behalf we certainly contracted moral obligations and responsibilities when we handed them over to the uncontrolled rule of a power alien to them in face and creed, and representing no civilisation higher than theirs.”

“Lord Cranbrook, the Secretary of State for India, tended to agree with the Viceroy. He was incensed at the treatment of the Muslim population by the Hindu Dogras, ‘It is true,’ he admitted, ‘that we are not directly responsible, but we have relations with Cashmere which would justify strong interference with their enormities and the use of a tone which ought to have its effect…. We ought to have influence to prevent the annihilation of a race whose only crime is a different religion from that of the powers in authority….’ ”

On May 23, 1885, Secretary of State for India Lord Kimberley supported the proposals for internal reform in Kashmir: “It may, indeed, be a question, whether having regard to the circumstances under which the sovereignty of the country was entrusted to the present Hindoo ruling family, the intervention of the British government on behalf of the Mahommedan population had not already been too long delayed…”

Josef Korbel, the Czech member of the United Nations Commission for India and Pakistan, wrote in his acclaimed book Danger in Kashmir: “The land was mostly owned by the Maharaja or the Hindu landowners. The Muslims, toiling on their land, had to pay such high taxes that economic crises bordering on starvation became more or less a regular affair. … Not the least of his idle pleasures was his persecution of the Muslims, and to his underlings he gave his blessing for their slaughter. …

“In 1850 the Maharaja expressed the wish that the Kashmiris return to the faith of their forefathers and wanted to reconvert them en masse to Hinduism, but the high priests of Hinduism at Benares refused to give their blessing to the plan.”

Neglect and exploitation

Gulab Singh was succeeded in 1857 by Ranbir Singh. His rule was followed by that of Pratap Singh in 1885. Because of court intrigue growing out of the fact that the Maharaja had no son to succeed him, the British replaced his rule temporarily by a council in 1889. “But despite such reforms (continuing down to the last few years) the life of the Kashmiris remained saga of poverty and oppression. Everything and everybody was taxed. Production of silk, saffron, paper, tobacco, wine, and salt, as well as the sale of grain, was the monopoly of the state. The State police ruled mercilessly. For minor offences people were thrown in jail, often without trial. As late as the 1920s it was a capital offence for a Muslim to kill a cow; later, the penalty was reduced to ten years of imprisonment and still later to seven years (Section 219 of Ranbir Penal Code).

“Little was done by the Dogra ruler for the health and welfare of the people. According to the 1941 census 93.4 per cent of the population was illiterate. In 1939 there was one boys’ primary school for every 66 square miles and for every 3,850 people, and one girls’ school for every 467 square miles and 25,670 persons. One state college existed in the whole country. About 60 per cent of the peasants had holdings of about 16 kanals (two acres) each. Their net annual income was 74-8-0 rupees (about $17) per family and 10-10-3 rupees (about $2.50) per head. The rest of the peasant population was landless. As late as 1944-1945 the per capita income was only 11 rupees (about $3.00). Out of this sum people had to pay taxes of around 21 cents per head. Although the Maharaja’s court spent four million rupees, and five million rupees went to the army, only 3.6 million rupees were spent on the public health, agriculture, industries, roads, irrigation, and education” (pages 13-16). So much for “development”.

Hari Singh succeeded Pratap Singh in 1925. Lord Birdwood, who knew him personally, wrote: “Maharaja Sir Hari Singh remained in apparent indifference to the welfare of his people throughout the twenty-three years of his rule. While his own detachment contributed to the final debacle, we should remember that he inherited a system of taxation and land revenue which allowed the barest margin of subsistence to the Moslem Kashmiri. The production of silk, saffron, paper, tobacco, wine and salt was a state monopoly. An ad valorem duty of 85 per cent was levied on all woollen manufacture. The incidence of land taxation was still three times that levied in the neighbouring Punjab. The Maharaja by virtue of the Treaty of Amritsar was not only Sovereign Ruler over his domain but owned the land. Carpenters, boatmen, butchers, bakers, even prostitutes were taxed. Until 1934 the slaughter of a useless cow was a capital offence. The issue of arms licences was limited to Hindus” ( Two Nations and Kashmir, page 31).

Alastair Lamb’s careful account says: “In every aspect of the State’s life there was discrimination against the Muslim majority and the application of legislation expressly designed to favour Hindus. Until 1934, for example, the slaughter of cows was a capital offence; and it continued to be forbidden under lesser penalty after that date. The administration of the State was dominated at all levels by the Pandits, Kashmiri Brahmins, who were notoriously corrupt and avaricious. Muslims were in practice severely disadvantaged by the education system which began to develop in the State in the first years of the 20th century. Hindus, alone, were allowed licenses to possess firearms in the Vale of Kashmir; and Muslims from the Vale were carefully excluded from service in the State’s Armed Forces where the higher ranks were reserved for Dogra Rajputs. Muslim troops in the Jammu and Kashmir State forces (usually with Dogra officers) were mainly recruited from the Sudhans of Poonch, a military clan which the Maharaja believed could be relied upon to suppress any disorder in the Vale. The State did not hesitate to interfere with many aspects of Muslim religious life including the administration of Islamic shrines.”

In 1929, Sir Albion Bannerji, who had been Member of the Council of State, resigned on grounds that he made public: “Jammu and Kashmir State is labouring under many disadvantages, with a large Muhammadan population absolutely illiterate, labouring under poverty and very low economic conditions of living in the villages and practically governed like dumb driven cattle. There is no touch between the government and the people, no suitable opportunity for representing grievances and the administrative machinery itself requires overhauling from top to bottom to bring it up to the modern conditions of efficiency. It has at present no sympathy with the people’s wants and grievances” (Lamb, Kashmir: A Disputed Legacy, pages 84 and 88.)

Bazaz is more candid: “The people of Kashmir consider the Maharaja as an alien ruler” ( Inside Kashmir, page 90). “The Dogras were not like those alien masters who came in the past and lived in the Valley as its permanent inhabitants. The Dogras have always considered Jammu as their home and Kashmir as the conquered country. As we shall presently see they established a sort of Dogra imperialism in the State in which the Dogras were elevated to the position of the masters and all non-Dogra communities and classes were given the humble places of inferiors. The people of the Valley were thus brought under the imperialism of the Dogras which itself was functioning as a vassal of the super-imperialism of the British. … Under Hari Singh’s rule Kashmiris began to be suppressed in many ways by the Dogras as had not been done before during the time of his predecessors. …

“The poverty of the Muslim masses was appalling. Dressed in rags which could hardly hide his body and barefooted, a Muslim peasant presented the appearance rather of a starving beggar than of one who filled the coffers of the State. He worked laboriously in the fields during the six months of the summer to pay the state its revenues and taxes, the officials their rasum and the money-lender his interest. Most of them were landless labourers working as serfs of the absentee landlords. They hardly earned as their share of the produce enough for more than three months. For the rest they had to earn by other means. … Almost the whole brunt of the official corruption had been borne by the Muslim masses.

“In the countryside the Muslim was synonymous with the hewer of wood and drawer of water. All sort of dirty and menial work was to be done by him. A Hindu was respectable in the eyes of the society, and the Muslim, because he was a Muslim, was looked down upon as belonging to an inferior class” ( Struggle for Freedom in Kashmir, pages 127, 141, 144).

Chapter IV of Robert Thorp’s Cashmere Misgovernment (published by Gulshan Books, Srinagar, edited by S.M. Hassnain, price Rs.450) is a thorough exposure of Dogra misrule. He records how the regime even gave licences to “State prostitutes”. In 1880, the Maharaja received 15-20 per cent of the revenues of his State from the earnings of his licensed prostitutes. Which other State had such a regime?

As Mridu Rai remarks, “The litmus test for the sovereignty of non-Muslim rulers in pre-colonial India was the issue of the ‘sacred’ cow and its slaughter. To allow it was considered an abdication of sovereignty.”

E.F. Knight, who visited the Valley in 1891, wrote: “Until recently the killing of that sacred animal was punishable with death. Imprisonment for life is now penalty, and many an unfortunate Muhammadan, I believe, is lying immured in Hari Parbat because in that time of famine he has ventured to kill his own ox to save himself and his family from starvation.

“We find that apart from imprisonment, severe fines were imposed upon the people who were suspected to be involved in cow slaughter. Even sometimes the Dogra police burned some localities, wherein it was understood that hathai was committed, to ashes. Chakpath [a village near modern Anantnag] is still commemorative of the destruction caused by the Dogra police to those inhabitations whose inhabitants were found involved in slaughter of cows, oxen or buffaloes” ( Where Three Empires Meet, page 115).

1947 massacre

In 1947, Hari Singh presided over the ethnic cleansing, rather genocide, of his own subjects, the Muslims of Jammu. This gory episode is documented beyond doubt. None other than Mahatma Gandhi lamented on November 27, 1947: “This has not been fully reported in the newspapers” ( Collected Works of Mahatma Gandhi, Volume 90, page 115). It was, and still is, little known in India. Gandhi said on December 25, 1947: “The Hindus and Sikhs of Jammu and those who had gone there from outside killed Muslims there. The Maharaja of Kashmir is responsible for what is happening there…. Muslim women have been dishonoured” ( ibid, page 298).

In 1947, Muslims were in a 61 per cent majority in the Jammu province. Horace Alexander wrote in Spectator (January 16, 1948) that the killings had “the tacit consent of State authority” and put the figure at 200,000. On August 10, 1948, The Times (London) published a report by “A Special Correspondent”, an Indian Civil Service official who had served in the State. He wrote: “2,37,000 Muslims were systematically exterminated—unless they escaped to Pakistan along the border—by all the forces of the Dogra State, headed by the Maharaja in person and aided by Hindus and Sikhs. This happened in October 1947, five days before the first Pathan invasion and nine days before the Maharaja’s accession to India.” The Muslim population of Jammu fell from 61 per cent to 38 per cent.

In 1971, Hari Singh’s complicity was fully exposed by the publication of Jawaharlal Nehru’s letter of December 30, 1947, and Sheikh Abdullah’s letter of October 7, 1948, both addressed to Sardar Vallabhbhai Patel, significantly ( Sardar Patel’s Correspondence, Volume 1, 1971, pages 135 and 237).

Sheikh Abdullah’s letter

Alastair Lamb estimates that at least 5,00,000 Muslims were displaced from Jammu and perhaps 2,00,000 of them just disappeared. This brings us to Sheikh Abdullah’s letter to Patel: “I regret that in spite of my repeated attempts in this behalf the sentiments of the people of this State with regard to the unmistakable part which the Maharaja and his satellites took in the general massacre of Muslims at Jammu are but insufficiently appreciated. Even at the risk of adding to the volume of this letter I would reproduce here some portions from my note of 1 June 1948.; I then said: ‘I have made no secret of it so far and I repeat it that the Maharaja has generally lost the confidence of the people of the State and Kashmiris in particular entertain bitterness against him. The reasons for this are not far to seek. In a moment of supreme crisis when Kashmir was actually facing annihilation in October 1947, His Highness left the Kashmiris at the mercy of raiders without giving a moment’s thought to the question of protection of their lives. At that moment a fairly large portion of the State had fallen into the hands of the enemy and thousands of men, women and children of his ‘beloved subjects’ were being butchered every day.

“‘In this testing hour his only anxiety was to collect his belongings, commandeer transport and bolt off stealthily with his kith and kin and a few chosen favourites. The Indian Army had not yet arrived and he was then feeling that Kashmir had gone out of his hands and he had better run away with his own life. He did not thus throw [to the enemy] only his Muslim subjects… about whom, it was patent, he never had any soft corner, but he completely betrayed the Kashmir people as a whole. The rude shock it gave the people can better be imagined than described.

“‘And what happened in Jammu after his arrival there is an unutterable tale. As early as December 1947 I referred to this in some detail in my communications to Panditji and Gandhiji. As he moved down from the tunnel [on the road from Srinagar to Jammu], there was enacted in every village and town through which he passed an orgy of arson and loot and murder of Muslims. In Jammu, the killing of Muslims all over the province continued unabated for weeks under his very nose, the town having been converted into a veritable hell. Innocent children and girls were not spared and the display of sadism to which they were subjected would render insignificant anything that happened on the two sides of the divided Punjab in its hour of madness. All this staggering tragedy on such a vast scale is alleged to have been accomplished by the participation of high-ranking Hindu officials and Dogra military in Jammu as well as His Highness’ own trusted relations and his then Prime Minister and Deputy Prime Minister. A widespread belief, certainly not without basis, was that the killing was carried on in pursuance of an organised plan of genocide under which free distribution of arms and ammunition was made to communalist organisations like RSS through Hindu officials, high and low. Thousands of Muslims besieged in the town of Jammu were asked to march in convoys to death under the very escort of State forces who themselves actively participated in the shooting and killing. This was done only at a few miles from His Highness’ Palace’” ( Sardar Patel’s Correspondence, Volume 1, pages 236-237).

Nehru’s letter

Sheikh Saheb was put in prison by Nehru in 1953. He cried in anguish on his release that he had crossed rivers of the blood of his own people to shake hands with India. Nehru was no dove. He was a hawk. Even so, he was repelled by Hari Singh’s crimes and wrote to him on July 5, 1952: “On the invasion of the State by tribal raiders and others late in October 1947, a crisis arose there. At the time of that crisis you left Srinagar at the dead of night for Jammu. Many of your officers followed your example and the State was left without leadership or means of defence, insofar as official authority was concerned. …

“You will observe that in this basic picture of the crisis of Kashmir you do not come in at all. The fact that emerges is that the people of Kashmir must decide their own future. We have pledged ourselves to this not only in the Security Council but directly to the people of Jammu and Kashmir State. If, as a result of the plebiscite, it was decided that Kashmir should not accede to India, we would naturally have to accept that decision. And, in that event, it is clear that your personal interests in the State would automatically disappear. If the people of Kashmir decided in favour of India, as we hoped and believed they would, then also it would be for them to say what, if any, your position should be in the future. India went to the help of Kashmir on the invitation of the people of Kashmir. We did not go there, as Pakistan falsely asserts, as an invading army to suppress the people. We do not propose to continue there for a day when we are no longer wanted by the people of the state.…

“In your letter to Dr Katju you refer repeatedly to what you consider your rights and the rights of your dynasty. There is little mention in this letter of the rights of the people. That is the basic difference between your outlook and that of the Government of India.… Whatever your theoretical position might be, you have no authority or position left now to influence the future of Kashmir. Because of various considerations, however, we have tried to maintain for you an honourable position, though that is devoid of authority. But if you claim rights which in reality you do not possess and if you come in the way of changes which are inevitable, then even that formal place that you occupy will be endangered. That place would ultimately be made secure only if you had the confidence and the affection of your people. Since you have lost this confidence and affection, the right also goes.…

“You ask for a definite assurance and a clear statement as to how your rights are to be safeguarded. The only assurance I can give you is that the first place will be given always to the rights of the people and to the wishes of the people. If you fall in with those rights and wishes, then we shall endeavour to help you to the best of our ability. If you do not do so, then events will take their natural course” ( Selected Works of Jawaharlal Nehru, Volume 18, pages 426-428).

Break-up plans

Nehru noted that in an intelligence report “mention was made of the Yuvraj [Karan Singh] getting mixed up with this business”. Karan Singh revived his father’s plans. On November 14, 1965, he confirmed to Neville Maxwell of The Times (London) his ideas on the trifurcation of the State. Kuldip Nayar, who headed the United News of India, reported his views at length—“a unilingual Kashmiri-speaking State”; Jammu’s merger with Himachal Pradesh; and Ladakh to become a Union Territory. Jammu and Kashmir was an “administrative monstrosity”. There was no “sanctity behind” it. His family had brought the two parts together through conquest and he as successor would say that “the sooner the present arrangement was ended the better it would be”. He had written differently to Nehru earlier.

B.K. Nehru became Governor of Jammu and Kashmir on February 26, 1981. “The only real briefing that I got was from Tiger [Karan Singh] who put the State of Jammu and Kashmir in correct perspective for me. He explained that the State was a wholly artificial creation, its five separate regions being joined together by the historical accident that Raja Gulab Singh had conquered all the territories over which his father Maharaja Hari Singh was ruling at the time of Independence and Partition. Those five different entities had nothing in common with each other.…In our part of the State, there were three clear divisions—Jammu, which was Hindu, Kashmir, which was Sunni Muslim and Ladakh, one part of which was Buddhist and the other Shia Muslim. Because of the lack of commonality between these three divisions, the sooner they were separated the better it would be for the future” ( Nice Guys Finish Second, 1997, page 589).

On June 30, 2002, the RSS’ All India Workers’ Conclave at Kurukshetra adopted a resolution that asserted: “The people of Jammu think that the solution of their problems lies in the separate statehood for Jammu region.” It also supported “the demand for U.T. [Union Territory] status for Ladakh region”. This is the agenda that is being promoted in Jammu now.

Jammu will be split evenly. Three of its six districts, now broken up into 10, have a Muslim majority—Poonch (91.22 per cent), Rajouri (60.23 per cent) and Doda (57.92 per cent). Two tehsils in Udhampur, Gul Arnas and Gulab Garh, have a Muslim majority. Farooq Abdullah warned that these areas would not live with Jammu; the massacres would be worse than those of 1947; and “India will be left with two and a half districts while the so-called Greater Kashmir will go on a platter to Pakistan eventually” ( Greater Kashmir, October 3 and December 11, 2000). Mirwaiz Maulvi Umar Farooq also said “if the Dogras of Jammu’s two and a half districts want to secede from the rest of the State… we won’t oppose it either” ( Indian Express, August 10, 2008).

Political games

The demands to declare Hari Singh’s birthday and October 26 public holidays are conceived in that disruptive spirit. Kashmiris cannot possibly accept a communal despot as a hero. They find the entire Dogra dynasty from Gulab Singh downwards a bunch of unscrupulous oppressors imposed on them by the British for their own ends. Men like Pandit Prem Nath Bazaz and D.P. Dhar and many Kashmiri Pandits supported Sheikh Abdullah’s revolt against the last Dogra oppressor, Hari Singh. The BJP knows that the demand is an impossible one and would be rejected. So much the better—the State will be split. This is where the Muftis’ sordid betrayal of Kashmir has landed the people. With Articles 370 and 35A under challenge, Kashmir faces an existential threat which it is beyond Mehbooba Mufti’s capacity to meet.

The BJP is not aiming at the collapse of the coalition, which suits it fine with the Centre leading its partner, the PDP (created by A.B. Vajpayee), to its death. The party is over. Once power is lost, its principles will be nowhere while the BJP is strengthening its constituency in Jammu.

The PDP eliminated, New Delhi will deal with the National Conference alone. The crafty Farooq Abdullah, sidelining Omar, has taken command. An emotional Farooq now flamboyantly hoists the autonomy flag while taking care not to alienate the Centre. But he has seniors who will not permit the kind of abasement that characterises the Muftis’ political culture.

I.V. Sasi

Trendsetting titan

THE departure of Malayalam film director I.V. Sasi marks the exit of a titan of south Indian cinema. In a career spanning four decades, he made more than 150 films, including a few in Tamil, Telugu and Hindi. For almost two decades after his debut in 1975, I.V. Sasi’s name was synonymous with superhits in Malayalam cinema. His films brought a new dramatic vigour, visceral sensuality and visual feel to Malayalam cinema. What marked I.V. Sasi apart from other filmmakers was his keen understanding of popular taste and his willingness to set trends and take risks rather than follow the beaten paths and play it safe. His most successful films, made during the 1975-1991 period—the post-Emergency and pre-liberalisation era—explored and dramatised the internal tensions and external conflicts of the period, whose thematic contours and pluralistic content resonate differently but significantly in our times.

He entered Malayalam cinema when its narratives were dominated by family dramas, jaded romantic comedies and outlandish detective stories. On the other side, the “new wave” ushered in by P.N. Menon, Adoor Gopalakrishnan, Aravindan and the like was already creating a parallel niche. For years, I.V. Sasi films and their commercial success constituted “art” cinema’s extreme Other. I.V. Sasi’s preference was for stories that unfolded in larger canvases and fresh narrative terrains; his characters were painted in broad brush strokes and their emotions were always high-pitched and their actions magnified.

His multi-stranded narratives were populated by people from all walks of life, classes and levels in society and, most importantly, social and religious sections. He introduced several new artistes and gave some minor actors momentous roles, while a few were moulded into superstars.

Lured by cinema at an early age, he left home and studies to pursue his passion in the dream city of Madras. He began his career as an art director and assistant director, and his first directorial venture was Utsavam (1975). This film dealt with the issue of drinking water shortage on an island and the conflicts arising out of it, and had K.P. Ummer, an “established villain” in cinema of the time, as its hero. It was a commercial success and launched I.V. Sasi as a much sought-after director, so much so that in the next five years he directed 45 films. In 1977 he did as many as 11 films in a row, followed by nine films each in 1978 and 1979.

Emotionally intense and dramatic storylines were his narrative forte; these dramas, whose epicentre was Malabar, were mostly set in a specific milieu with masculine tensions at the centre juxtaposed with strong female presences that ignited, spurred and sometimes mediated the macho conflicts, or became prey to its rapacious ambitions or unquenchable lust.

In the 1970s he made some very successful films like Itha Ivide Vare, Avalude Ravukal, Eeta, Iniyum Puzhayozhukum, A lavudinum Albudavilakkum, Manas a Vacha Karmana, Ezhamkadalinakkare, Aarattu, and a superhit of all times, Angadi. Avalude Ravukal became a cult film for its brazen depiction of the life of a sex worker (much before the term came into politically correct parlance) portrayed sensually and sensitively by Seema.

Depicting the raw and rustic life of people whose survival and fortunes revolve around the busy market in Kozhikode town, Angadi was another popular hit that also launched Jayan as a major actor.

The next decade saw I.V. Sasi marching ahead with more hits like Ahimsa, Ee Naadu, Ina, Aaroodam, Uyarangalil, Athirathram, Aalkkoottathil Thaniye, Adiyozhukkukal, Aksharangal, Kanamarayathu, Anubhandham, Karimpinpoovinakkare, Koodanayum Kattu, Vartha, Aavanazhi, Adimakal Udamakal, Abkari, 1921 and Mr u gaya.

The mood of the post-Emergency decades pervaded by general disillusionment and revolt and the crumbling of Nehruvian nationalism and the rise of corruption provided an ideal setting for the rousing popularity of I.V. Sasi films. They presented a society that was gradually being pulled apart by narrow power groups and vested interests of different kinds—communal, economic and party-political. Hence the immediate and intimate identification and empathy the viewers felt for his characters, such as the aged but defiant communist played by Balan K. Nair in Ee Nadu raging against corruption, the rebellious headload worker and union leader played by Jayan in Angadi, the sex worker played by Seema in Avalude Ravukal, the manic pursuer of pleasure and success played by Mohanlal in Uyarangalil, the belligerent Mappila rebel played by Mammootty in 1921, and the ever so many macho men and luscious women in his films whose desires, personal dreams and survival were in conflict with establishments of all kinds—political, social, sexual and moral. They offered a deadly mix of populist politics and misogynist energy that vibed well with the disillusioned mood of the times.

In 1990, with the spread of television and the rise of superstars who were dictating terms, I.V. Sasi found himself out of tune with the times. Inspector Balram (1991) and Devasuram (1993), starring the two superheroes of the time, were the last big commercial hits of his career; these films in a way also marked the end of a certain period and the beginning of another in Malayalam cinema, whose narratives until then were largely rooted in social and historical settings and whose heroes, heroines and characters were life-size. These features were to change radically in the post-Mandal, post-Babri Masjid decades. Though he did make a few films in the last decade, they were a world apart from his earlier works, both in terms of popular appeal as well as thematic resonance, far removed from the dreams and discontent of the post-television, digital generation.

Larger and plural canvas

What I.V. Sasi did to the Malayalam film industry was to shake it up from its small-scale vision and narrow narrative canvas. He set his narratives in different milieus, vocations and locales. The characters who populated these terrains came from all kinds of backgrounds; rich landlords, industrialists, abkari (liquor) contractors, communal leaders, traders, middlemen and corrupt politicians and trade unionists on one side, and on the other, coolies, headload workers, bamboo cutters, sex workers, pimps, hooch brewers, middlemen and beggars, along with aging but raging nationalists and communists and young idealists who voiced the despairs and desires of Kerala’s civil society. The social drama at the centre was about the promises of the Nation, and of the various renaissance and political movements that shaped a secular, pluralistic and democratic society like Kerala. With the narrative set on a large canvas and with several parallel story tracks within it, Sasi always featured several actors from different generations with equal importance in his stories. Actors like Madhu, Jayan, Soman, Sukumaran, Srividya, Seema, Sheela, Ratheesh, Urvashi and Swapna, and brilliant performers like Kuthiravattam Pappu, Balan K. Nair, Sankaradi, Bahadur, Kunchan, T.G. Ravi and Meena, who were usually typecast, played some of their most significant roles in I.V. Sasi films.

The strength, vigour and popular appeal of his films drew not only from the panoply of actors but also from the creative synergy he had with scriptwriters like Sherif, M.T. Vasudevan Nair, Padmarajan, T. Damodaran, John Paul and Sreekumaran Thampi in the first phase of his career and later with Lohithadas and Renjith. In each such association, I.V. Sasi explored distinct thematic streams; for instance, in his films with M.T. Vasudevan Nair, the dilemmas and conflicts of the individual in the changing social scene were foregrounded ( Thrishna, Aalk oo ttathil Thaniye, Adiyozhukkukal, Aaroodam, Aksharangal, Anubandham, Rangam, Idanilangal, Uyarangalil, Abhayam Thedi and Midhya); in his Padmarajan films, the themes of revenge, male sexuality and desire were central to the narrative ( Itha Ivide Vare, Vadakakku Oru Hridayam, Kaikeyi, Kanamarayathu and Karimpinpoovinakkare). With T. Damodaran, he created a successful film genre of political thrillers that fumed against the various political scandals, corruption in public life, belligerent unionisation and the degeneration of erstwhile progressive movements ( Ee Nadu, Ahimsa, Angadi, Innal enkil N a ale, Aavanazhi, Adimakal Udamakal, Vartha, Abkari, Inspector Balram, etc.).

The sheer versatility of a master craftsman is evident from his prolificacy as well as the range of themes and actors and his technical control in all departments of filmmaking. A hallmark of his films was his penchant for the sensual and the erotic. He explored very sensual themes through a visual idiom that unflinchingly placed the human body and its desires in all its dark shades at the centre.

He was at ease both with intense personal dramas as well as vast and complex narrative terrains. For instance, Avalude Ravukal dealt with the life of a “prostitute” in a trading town like Kozhikode, juxtaposing various faces and facets of Malayali male sexual desire and morality; Ina was about a taboo theme like adolescent sexuality. While Ezhamkadalinakkare (1979) was set in the United States and was about NRI life, 1921, one of the first big historical movies in Malayalam, was a journey back in time to narrate a very controversial moment in the history of Malabar. This contentious chapter of our Independence struggle, the Mappila rebellion, is dealt with in grand style, great visual detailing and high drama. In the next decades when the movie images of minorities became highly biased and parochial, the representation of the region, the milieu and the historic struggle in 1921 assumes great political relevance and social resonance.

I.V. Sasi was a pioneer and trendsetter whose impact on the Malayalam film industry is deep and far-reaching. He broke away from the old-generation storylines, dramatics, moralism and visualscapes, infusing a fresh vigour, pace and sensuousness into the narratives and confidence into the industry at large.

Looking back, his films leave behind a narrative archive of Malayali life and society at a very tumultuous period in its history, when assurances about the past, expectations about the present and hopes about the future were crumbling. The most successful of his films were animated by the hope and anger and dreams and frustrations of people from various social strata, classes, castes, political hues and religions. In various ways and at different levels, I.V. Sasi films portrayed the multicultural plurality called Kerala society, something that is fast disappearing from the life-world of our films.

Other Issues

View All
Oct 9,2020