WEEKEND LIGHTER: GO AHEAD SIGNAL FROM C RANGARAJAN
WEEKEND LIGHTER: Go ahead signal
(November 19/20, 2016, No.49/2016)
Weekend Lighter is posted every Saturday @mgwarrier.blogspot.in
Feel free to mail your views on this edition of WL to firstname.lastname@example.org
Promise to pay…
Usha Thorat’s article “The dream of a cashless society” (Business Line, November 14) lucidly explains several interesting aspects of demonetization and its impact at various levels of economy, from vegetable vendor’s purse to GOI’s resources. What one understands from Prime Minister Narendra Modi’s November 8 speech announcing that high denomination currency note of value Rs500 and Rs 1000 will not be legal tender from the midnight of Tuesday, November 2016 is that the action is in exercise of GOI’s power to alter the legal tender character of currency notes.
As rightly pointed out in the article, the GOI announcement does not impact the RBI’s promise to pay ‘value’ or the sovereign guarantee printed on the currency note. Therefore, legally, it would be wrong to make any adjustment in Reserve bank of India’s balance sheet with reference to the quantum of notes surrendered within any stipulated time limit. Such adhocism in accounting practices can lead to erosion of trust in institutions like Reserve bank of India.
As regards acceptance of ‘demonetized’ currency in public transactions, perhaps it is a misconception that it would be perfectly legal to accept them in the normal course till December 30, 2016 or March 31, 2017(As RBI will be exchanging these notes till that date), and need to be clarified by authorities. Extended time limits allowed for certain essential services like Railways, petrol outlets, hospitals etc relate to accountable transactions and these entities will be able to show source of further accumulation of high value notes after the midnight of November 8, 2016.
M G Warrier
Stop playing with trust
This refers to your editorial “Monetising the deficit” (Business Standard, November 17). Floating of the very idea of “Using demonetization to plug the fiscal gap”, by itself is mischievous and if one attributes a motive of destabilizing India behind such a thought, one cannot be blamed.
The currency note of Rs 2 and above carries a promise (“I promise to pay the bearer the sum of …rupees”) signed by Reserve Bank of India governor and a sovereign guarantee (“Guaranteed by the Central Government”). The promise and guarantee are not governed by any date line. Prime Minister Modi’s November 8, 2016 announcement has talked only about the ‘legal tender’ character of Rs500 and Rs 1000 notes and has not withdrawn the promise by RBI to pay value or the sovereign guarantee that accompanies the promise.
Deadlines for exchange/deposit of the affected notes can at best be construed as ones fixed for administrative convenience of implementation of the scheme. Making notional entries in RBI’s books to create income by extinguishing liabilities against notes ‘withdrawn from circulation’ and not reaching back RBI, within a stipulated deadline can have perilous long term implications.
Though so far the gossiping is only in the media, and no proposals from the GOI/RBI side, a couple of points need to go on record. There are outer contours up to which governments can play such games taking judiciary and people for granted. The sanctity of public trust need to be preserved at any cost and if governments allow to be guided or lured by possibility of short term gains, the negative impact on financial sector and economy can be a multiple of the notional temporary gains. If one needs an example, such measures will have immediate repercussions on public debt.
M G Warrier, Mumbai
A common sense view of demonetization*
This refers to Ajay Shah’s article “A monetary economics view of the demonetization” (Business Standard, Snakes & Ladders, November 14). The observation that “Money is the lubricant of the economy” reminds one of a ‘Times View/Counter View’ column about corruption, some years back, where one side argued that ‘corruption is the lubricant of the wheel of economic growth’. The article, by a deft theoretical approach, almost confuses the reader to think that money is cash and reduced amount of money in circulation is, by itself, something bad for the economy.
The decision to demonetize presumes hoarding of high value currency for purposes other than normal genuine transactions, existence of fake currency in the system and evasion of tax by off-the-book high value transactions as in purchase of gold and property. Though there have been initial flip-flops, by and large, it appears, Reserve Bank of India has taken care to ensure availability of currency notes in exchange and for withdrawal from banks. Looks, there was a slip in making ATMs ready to dispense new Rs2000 and Rs500 notes.
While incidents during the first half of last century mentioned in the article should continue to guide us from a historic perspective, their relevance to present Indian context is debatable. Because, slowly the entire world is moving towards a cashless society (different from world without money!) and though India, with the present level of literacy and banking infrastructure, may not be able to keep pace with the developed world, cannot stand still, either.
As regards the success of demonetization now under way, common man would console himself that all the pain was not in vain, even if the measure partially succeeds in ‘purifying’ the economy and checking growth of corruption. The mainstreaming of idle currency will bring a large amount of ‘hidden’ wealth into books of accounts and that definitely have not only positive tax implications, but will be a deterrent to further accumulation of wealth from ugly sources. Compulsion to do more transactions through banking channels will be a disincentive for further ‘import’ or local printing of counterfeit currency.
M G Warrier, Mumbai
*A slightlyedited version was published in Business Standard on November 15, 2016
UPA’s demonetization proposal(Chakrabarty recalls!)
This refers to Manojit Saha’s story “UPA government also proposed it, we said no” (The Hindu, Interview/KC Chakrabarty, November 18). The former Deputy Governor ‘definitely remembers it (proposal to demonetize high value currency in India) had come’ and ‘We (KC Chakrabarty) said ‘no’ because it does not serve any purpose…’. For Chakrabarty, ‘Whether it came officially or over telephone, is not the issue.’
Answering the previous question, Chakrabarty says, ‘Yes, it(demonetization proposal) had come from the UPA government. After examining the proposal, we had said that this should not be done. The proposal never went to the board level.’ A proposal of this gravity is mooted over the telephone. The Deputy Governor who receives the call ‘examines’ it and says ‘no’. God save GOI and RBI.
This is indicative of the perception about the working of GOI and RBI, Chakrabarty maintained during his tenure as RBI Deputy Governor. What all happened to him (stripping of almost all portfolios held by him for a long period) and RBI staff (He meddled with RBI’s HR policies relating to recruitment- Chakrabarty was the architect of recruitment of ‘Executive Inters’ for short term experiment which failed- to retirement-he misinformed GOI about RBI pension scheme which resulted in RBI retirees losing the benefit of pension revision after 1997) is history.
M G Warrier, Mumbai
Go ahead signal
C Rangarajan’s article “Making the most of demonetization” (The Hindu Business Line, November 16) must give a lot of comfort to those who initiated action for ‘Demonetization’ and the thousands who are working 24X7 for implementing it as efficiently as possible with minimum pain for the common man, as the ‘Go ahead’ signal comes from an informed and unbiased veteran who has the backing of an entire life’s experience in practical central banking with post-retirement association with policy making at the highest level in government.
Former RBI Governor has endorsed the three objectives of targeting black money in the form of currency, funding of terrorism through cash and making fake currency which found mention in PM’s November 8, 2016 speech announcing demonetization, suggesting positive measures to achieve these objectives.
Taking the advice seriously, policy makers need to quicken the measures to prevent further accumulation of black money and to flush out the huge quantities of unaccounted wealth concealed in sectors like gold and jewelry, real estate and accounts abroad, leaving the burden of minimizing the pains caused mainly by planning and logistic problems to executives down the line with guidance from Reserve Bank of India.
The two steps suggested by Rangarajan in this context relating to keeping the tax rates at moderate levels and Electoral Reforms (though not specifically mentioned, government funding of electoral expenses based on need-the rich who fight election should not get this facility- is an immediate priority area) are significant and can go to the drawing board simultaneously with the preparation of Budget 2017-18.
M G Warrier, Mumbai
Prof: TS Ramakrishnan’s article “Demonetization is worth all the trouble” (The Hindu Business Line, November 17) should silence the criticism that the November 8, 2016 announcement by Prime Minister Modi about withdrawal of high value currency notes was a politically motivated exercise. The Hindu Group deserves a special appreciation for involving academicians and professionals in this debate which is dominated by writers with ‘constituency’ interests.
While the hardships experienced by the people of a country which is dependent on cash for several day-to-day transactions are real, the long term benefits outweigh the temporary inconveniences. The article, while bases its arguments on facts and figures, lucidly explains the link between corruption and black money and abuse of accumulated cash by miscreants.
The need to activate and use Jan Dhan Yojana(JDY) accounts, timely prevention of use of channels like Railway ticket booking to bypass legal routes for exchange of old high value notes and disincentivize use of currency as a ‘store of value’ brought out in the article should draw the attention of the authorities for immediate follow-up action.
M G Warrier, Mumbai
Evil and good co-exist confronting each other at the cosmic and individual levels. It is said that when Indra is driven out of swarga loka by Mahishasura, he seeks the help of the Trinity. Vishnu, Siva and Brahma become angry when they hear about the demon’s tyrannical ways. From their fierce faces there comes forth a great radiance.
Similarly, a great light issues from Indra and other devas and it looks as if the combined strength of all converges as the auspicious form of the Goddess Mahalakshmi also known as Chandi. The Goddess thus embodies the unity of the innate individual Shakti of all the beings including the celestial beings. This is symbolic of the truth that in the war between evil and good, the good forces have to unite to overcome the evil, pointed out Sri R. Krishnamurthy Sastrigal in a discourse.
The Goddess is given weapons by the celestial beings. Her large army, also endowed with tremendous power, helps the Goddess to vanquish Mahishasura. Every one exults in the glory of victory. But equally important is the fact that behind every faculty in every being is the power of Brahman and it is the same Brahman that is responsible for the success and victory of every individual effort. Hence no individual can claim ownership of one’s effort or victory to oneself.
In the Kenopanishad, Goddess Uma inculcates this basic lesson in humility to Indra when he goes in search of the mysterious being that Fire and Wind had failed to discover. She brings about the realization of the Brahman in him by pointing out that they attained their victory and glory not by their own merit but because of Brahman, in whom is subsumed all the power and energy that is manifest in the universe, good and evil included.
*FAITH, The Hindu, November 15, 2016
PS: I think, we can apply many of the examples and lessons to understand why some people behave the way they behave and perhaps we will be able to change our attitude to events and individuals.
Blog Post No W/243119112016