Home > 2017 > Demonetisation: Shadow-boxing against Corruption

Mainstream, VOL LV No 9 New Delhi February 18, 2017

Demonetisation: Shadow-boxing against Corruption

Tuesday 21 February 2017, by Kobad Ghandy

A Two-Part Article on Demonetisation-I

The following is a two-part article on demonetisation written by the prominent Marxist-Maoist thinker, Kobad Ghandy, and sent to us for publication in this journal from the Cherlapalli Central Jail, Medchal district, Hyderabad where the author is currently detained. The first part explains that fighting black money was not really the main goal of the government. The second part explores the real objective of demonetisation and the disastrous impact it has had on the economy as a whole and the lives of the masses, while calling for a rethink of the economic policies. Here we are carrying the first part; the second part will be published in the following week. —Editor

In an open letter to Vijay Mallya, Kingfisher employees (who have Rs 100 crores in dues pending) stated in March 2016:

“We know a little about the rotten system of our country but thanks to people like you the real scenario of our country is so hopeless that it evokes nothing less than suicidal tendency in the common man who regularly and sincerely pays taxes with pride only to be looted by people like you in collusion with politicians/banks who are custodians of our hard earned money.......”

Vijay Mallya was allowed to flee the country though he owed the banks Rs 9000 crores. To add insult to injury, Kingfisher Breweries, as recently as in September 2016, paid him a massive Rs 1.6 crore in ‘fees’ without a murmur from the Indian authorities. He lives a palatial life in London having robbed our country of thousands of crores of rupees.

The BJP won the 2014 elections promising to bring back to the country such stolen wealth; but not just Mallya, there are 57 such absconders in London living equally luxurious lives. Lalit Modi, a fugitive from the law since the past five years, was in fact assisted by a Central Minister; and as recently as in December 2016, an arms dealer, Sanjay Bhandari, was allowed to flee to London, though there was a look-out notice for him. Jet Airways owner, Naresh Goyal, is allowed to thrive, in spite of his known links with Dawood (in IB records) and smuggling syndicates in Dubai.

Corruption and black money, though inter-linked, are not synonymous. A major part of the black money is a result of the nexus between big corporates, bureaucrats, banks and politi-cians. The fruits of corruption finds its way into the black economy—they are basically of two types: first, the huge amounts (estimated at between 40 per cent to 60 per cent of any project) siphoned off by politicians, bureaucrats and contractors; and second, the vast amounts extracted from the people by officials who wield power. These huge sums act not only to drain the economy, but also result in enormous harrasment to the ordinary honest citizen. This is the ‘illegal’ corruption; but there are also numerous forms of ‘legal’ corruption. These are not included in any estimate: examples of these are like banks granting big loans to corporates with some quid pro quo; governments giving free land, huge tax concessions, subsidies etc. to big business; highly inflated arms and other deals with international companies involving huge kickbacks; promoting certain businesses (like Reliance’s Jio); also over-invoicing imports and under-invoicing exports, etc. etc.

Though the NIPFP (National Institute of Public Finance and Policy) estimates that the black money generated every year as 75 per cent of the GDP, if all these other/legal forms of extraction are considered, the figure would be far more than the actual GDP. Which country could possibly develop with such high levels of looting the national wealth of the country? No wonder, even 70 years after independence, India’s human index indicators are similar to those of sub-Saharan Africa. We continue to be one of the most backward countries in the world, while at the same time having one of the largest millionaire/billionaire list in the world. There is no doubt, if our country is to really develop, and the bulk of our people’s lives’ improve, corruption needs to be rooted out and black money confis-cated and its generation stopped. And why are our big businesses so inefficient that they need Rs 5 lakh crores each year in subsidies, gigantic loans on which they cannot even pay the interest and many other freebies?

And if any government is serious about such a fight they must primarily go after the big fish and rein in their own corrupt bureaucrats and officials. They should stop harassing the middle classes many of whom may avoid paying tax as they see their taxed money being frittered away by corrupt officials. If the government machinery is seen to be more honest, people will themselves pay and one need not send corrupt IT officials after them.

To what extent, then, did demonetisation achieve the purpose of fighting black money? I am not even taking up the other arguments of counterfeit notes and terror-financing; as counterfeit notes, even according to official figures, comprised a mere 0.03 per cent of the total notes in circulation. What is worse, there have been so many flaws in the printing of the new notes, that it has made counterfeiting even easier, in spite of spending a huge Rs 30,000 crores to Rs 40,000 crores in printing and disbursing them. Never before in the history of any country has its currency been printed incorrectly—recently notes were disbursed printed on only one side, earlier they did not have the Gandhi image, and right at the inception notes had seven to eight errors on them.

Did Demonetisation suck out the Black Money?

The government initially stated that they did not expect about Rs 3 lakh crores of the Rs 15.4 lakh crore notes demonetised to come back to the system. But corruption in the very process of conversion foiled this plan and the bulk of the old notes came back to the banks. The Times of India reported (15/12/16) that the sheer number of seizures of contraband money in new notes shows an endemic rot in the banking system. IT officials point out that large volumes of new notes appeared to have moved into the hands of hawala traders in the first two weeks. In fact on the very night demonetisation was announced, 15 tonnes of gold were purchased at a premium with old notes, indicating a nexus between jewellers and banks. As a matter of fact even money for ATMs, delivered by private agencies, was diverted to exchange the money of black-money holders. The fact that the RBI reported that a mere 0.5 per cent of the population (60 lakh people) were responsible for depositing nearly 50 per cent (Rs 7 lakh crores) of old notes indicates that the hoarders were successful in changing their notes.

The Rs 100 crores seized from a Tirupathi Trust Board member and a few others were the tip of the iceberg. Others were just ignored like the planeload of old notes ferried from an obscure airport in BJP-ruled Haryana to far- away Nagaland. After taking no action against such elements the government now announces the IT department will scrutinise lakhs of accounts to recover the black money deposited. But the IT department is itself notorious for the high levels of corruption that exists!

But this is not all. Even before the demoneti-sation began, the high levels of bank deposits had raised many an eyebrow. While during the last year PSU bank deposits reached their lowest level ever [for the year-ending March 2016 while bank deposits grew by a mere 8.8 per cent, for the past 53 years it has never been below 10 per cent], in the month of September 2016 alone deposits sky-rocketed by a massive Rs 5.88 lakh crores to Rs 12 lakh crores. Would the IT also raid these accounts? The government is even unwilling to disclose the names of these account holders. It is clear, except for harrasing some smaller players, the bulk of the big depositers will not be touched.

Even after demonetisation there seemed to be no dearth of funds with top politicians who have been spending thousands of crores on lavish weddings while lakhs of others had to cancel weddings. No action has been taken against the BJP mining baron, Janardhan Reddy, even though the suicide note of his driver gave many details of his Rs 500 crore extravaganza. Let alone taking action (including for abetment to suicide), it was followed up by equally elaborate weddings of families of Central Ministers Nitin Gadkari, Bandaru Dattatreya and the Congress-linked Kerala magnate, Biju Ramdas.

All these facts raise serious questions as to how serious the government was to flush out even that minor amount of black money held in cash—which is at maximum six-to-seven per cent of the total black wealth. People were duped to believe that their acute suffering was a sacrifice in the national interest—it was not.

Dubious Role of RBI

Through this entire episode, surprisingly the RBI has remained silent when it should have been the main player. The new RBI Governor, an ex-employee of Mukesh Ambani, has played the most dubious role in the whole process. What is even more mysterious is why the RBI and Patel are refusing to disclose, citing security concerns, the minutes of the Board meeting which decided on demonetisation. What is the need for secrecy now, once the entire process is over? Besides, BJP MLA Bhawani Singh Rawat has stated that Mukesh Ambani and Adani knew of demonetisation well in advance. Even as late as in mid-January it is refusing to supply details of the cash it supplied to the various banks’ branches saying it does not have the information. It has even refused to give information on the total cash supplied since November 10, 2016 to the banks.

Also, why was the RBI not releasing cash when people were so desperate for it? In response to an RTI the RBI had earlier said that Rs 4.94 lakh crores of Rs 2000 notes were ready by November 8th itself, but till December 19th it had released a mere Rs 4.07 lakh crores. Why? Besides, another Rs 2 lakh crores would have been printed since. So why was the RBI hoarding nearly Rs 3 lakh crores?

Then why were new notes prepared with so many flaws? This indicates an extreme level of irresponsibility, never before witnessed in our past history. Then why was it decided to bring an even higher denomination note which will only facilitate the hoarding of black money? And why did it focus on printing Rs 2000 deno-mination notes when it was the Rs 500 notes that were desperately needed by the people?

Then again, why did the RBI favour private banks against the PSU banks in the dispensation of new notes? Though the RBI is refusing to provide figures, in mid-December the Tamil Nadu unit of the AIBEA (bank union) reported that from November 8th to December 7th the RBI had sent Rs 14,000 crores in new notes. As much as 44 per cent of these had gone to the three private banks—ICICI, Axis, HDFC—which have a mere 900 branches in Tamil Nadu to 9000 of the PSU banks. In other words, the private banks had got Rs 6.7 crores per branch while the PSU banks got a mere Rs 86 lakhs per branch.

Such arbitrariness was also witnessed when the RBI in many places refused to exchange the old notes after December 31st. And overnight it changed its decision to exchange notes at only certain major RBI centres.

Yet again, the RBI has recently brought in a British Company, De La Rue, to print Rs 10 plastic notes. That too, when this company had been blacklisted by the Union Home Ministry in 2011 for its dubious role earlier.

Finally, top RBI union officials have written a detailed letter to the Governor of compromising the autonomy of the RBI as never before—a situation that did not exist even in British times. Generally, if extra-constitutional authorities are introduced in any institution, it facilitates corrupt practices, arbitrariness etc. as the official bodies are not held responsible for decision-making. As it is, the RBI and top PSU bank officials’ role in corrupt practices is suspect in granting lakhs of crores of loans to big corporates which they cannot pay back; now with increasing political controls such dubious decision-making is only likely to increase.

This is particularly worrying given the track record of most parties in fighting corruption. The common conception is that they are at the very fountainhead of corrupt practices. Now with the RBI behaving in a strange and secretive fashion it too seems to have been drawn into the corrupt network.

BJP’s Pathetic Track Record

The BJP came to power promising to bring the stash of black money abroad back home. But even when the Panama Papers came to light, not a single enquiry was made, when in other countries even Prime Ministers resigned and even the Pakistani Prime Minister is having to face the court. But in India, most have been sheltered, some even promoted. Even when the German Government and Swiss banks were ready to pass on the names of Indians holding money, the BJP merely followed the path adopted by the Congress in the 2008-14 period. As a result nothing has happened.

Of course in one sphere the BJP Government has taken a positive step in scrapping the existing taxation treaties with Mauritius and Singapore that exempted them from tax on profits on FDI from these countries. This was a major route for hawala transactions which returned to India as FDI in what was known as ‘round tripping’. Of course, this would have been more effective if P-Notes too, wherein the owner can hide their entity, were scrapped.

In fact the Vyapam scam was the most horrendous in the history of our country. Not only have thousands of crores been siphoned off, but till date 26 whistleblowers have lost their lives under mysterious circumstances. And even though it has been reported that both the Chief Minister and Governor of Madhya Pradesh are involved, no action has been taken.

Even regarding the recent disclosures of corruption in the Arunachal Pradesh power project, the Sahara Papers and the Aditya Birla records, there have been no investigation. But then such ‘commissions’ in projects and pay-offs to politicians by big business is common practice. It is the norm; what was odd was that the IT department and CBI took notice only to be ignored.

Then the government, while seeking to squeeze the last paisa out of the citizen through the IT department witch-hunts, calmly seeks to continue the tax concessions to all political parties. Thousands of crores pass through these parties without any record and with all income exempted from tax. Over and above this, the law (Representation of People’s Act) allows easy ‘registration’ of political parties, which then act as a front for conversion of black into white. There are at present 1900 registered political parties of which as many as 1500 have never participated in any election. When the govern-ment is coming down so strongly on citizens, why is it so soft on these ‘parties’?

And then there are the sports associations where corruption, nepotism, betting, bribery and scandals have destroyed not only our international image but also the future and potential of most of our sportsmen and women. The Sports Minister and his retinue of bureau-crats not only made a fool of themselves at the Brazil Olympics, they wasted crores of rupees meant for sportsmen. For a huge country like India our medals’ tally is worse than the tiny countries of Africa due to such high levels of corruption. This was also witnessed during the Commonwealth Games. In fact a leading sports firm, Lokesh Sharma, with a number of entities in tax havens, was mentioned in the Panama Papers, but no action taken.

The cricket association and betting syndicates are the worst example of how sports is milked for thousands of crores of rupees. The arrogance of the top BCCI officials even refusing to implement the Supreme Court decisions is an indication of the extent to which they are prepared to go. And the President of the BCCI, one Anurag Thakur, is a BJP MP from Himachal Pradesh and a four-time chief of the Himachal Pradesh Cricket Association! The vigilance and anti-corruption bureau has filed a case of cheating and misappropriation against the HPCA. The vigilance department has also booked Thakur for allegedly grabbing land near Dharmashala by forging revenue records. Known for his five-star lifestyle and due to his connections in top BJP circles, he can get away with scam after scam. And in spite of reports that IPL betting syndicates are primarily controlled by Dawood, many a BJP hack like Lalit Modi and Sreesanth have had deep links with it.

Every country nurses its sports people as they are the pride of the nation; in India politi-cians and bureaucrats milk these associations to pocket crores!!

So, there seems to be no strong will to fight corruption which affects every aspect of the country’s life. On the contrary, it is being promoted by making the anti-corruption laws ineffective.

Strangulating the Anti-Corruption Law

Barely 15 days into demonetisation, it was the Supreme Court that slammed the government for not introducing the Lokpal, which has been pending since 2013. Let alone wield this to fight corruption, in 2014, at the instance of the government, a Select Committee of the Rajya Sabha approved basic changes to make it a toothless Bill.

What was astounding was this Committee comprised members across the political establish-ment. The major changes passed narrows down the existing definition of corruption, it increases the burden of proof necessary for punishing the corrupt, makes things more difficult for the whistleblower, and strengthens the shield available to officials accused of corruption. Worst of all, it slips in a diabolic clause that would protect the babu-neta nexus from ever facing any anti-corruption probe. De facto, this Bill has been converted into a license for the ‘Promotion of Corruption’.

Here I will not go into the details (for this see Yogendra Yadav’s article in The Hindu, 12/12/16), but suffice it to say once this is passed into an Act, the officialdom will be completely fearless to loot and extract bribes and the corruption levels are only likely to rise. It should be made public as to who comprised the Rajya Sabha Select Committee.

Havoc of Cash Shortage/Restrictions

It was not the demonetisation, but the acute shortage of cash and its severe restrictions for over two months that was the cause for the acute pain the people faced and havoc to the economy. If the huge quantities of Rs 2000 notes printed in advance were quickly disbursed, if the new notes printed were made compatible to ATMs, if large amounts of Rs 100 notes had been printed in advance, and if the focus post- November 8th had been on printing Rs 500 notes, there would not have been shortages as witnessed.

Was this a question merely of poor implemen-tation or a conscious policy? After all, to restrict disbursements of new notes was in no way connected to ferreting out the black money! Could not the government/RBI have planned this better given their access to hundreds of top economists and vast resources? Given that this resulted in extensive destruction of our economy and acute suffering to crores of people (and even over 100 deaths), could the government have been so utterly irresponsible?

It would be extremely naive to think that any government could be so ill-planned. In fact it was not a case of bad planning, but a very conscious act. Their very intention was to seize the vast quantities of cash with the people and make them cashless by restricting disbursement of the new notes. By doing this they would achieve their two real goals: first, infuse vast funds into the PSU banks which were on the brink due to the spiralling NPAs (bad debts) of the big corporates; and second, forcibly push the people towards digital payments, planned by the mega corporates of the US and Reliance- type local ones.

But the government could not possibly give these two reasons for the havoc perpetrated on the rest of the economy as it would not be accepted. Why should the people and economy suffer so much to merely bail out the banks and promote the interests of private digital companies (that too mostly foreign)? So the government came with their masterplan that demonetisation was done to fight black money and in the national interest, and people were asked to bear the suffering in the larger interests of the nation.

But, on the contrary, bailing out banks with people’s money instead of confiscating the assets of loan defaulters; and pushing India into the arms of US mega corporations is going to seriously impact the country’s economic interests in the future.

Let us now take a look at how these two goals were achieved.

(To be concluded)