Demonetization Follow Up

Yesterday, the PM addressed the nation on the issue of demonetization and its impact on the general populace. It was a damage control exercise with two objectives. First was to acknowledge the hardships that everyone went through during this exercise, thereby mollifying rising impatience. The second was to outline a roadmap for what the govt aims to get done in the next year. The points raised in the talk came as no surprise.

In fact, as we had noted in an earlier blog - (here) - the main target of demonetization hasn't been black money itself. While the bank deposit wind fall has been accepted with due gratitude by the government, the main targets were Fake currency rackets, terrorism and naxalism. One facet that we had not thought of, but turned to be a blessing was the almost complete crackdown on human trafficking. One would also imagine narcotics business to have taken a big hit. Each of these problems have enormous prevalence in various border states. On the whole, it has been a law and order / counter terrorism operation on war footing, that also took hoarders by surprise. This author had held that the PM will not make announce any big strikes (against RE specifically) during his 31st Dec speech, and stands vindicated.

Nonetheless, there are parts of the PM's speech that deserve our attention.

The first one was his comment about how less than 2 million Indians declared a net income of 10L INR or more. He also contrasted this with the number of cars that India has on her roads. Consider this small statistic: The year 2014 alone saw manufacturers shipping out 2.7million cars out to their dealers [Here]. A quick statistic check tells us there are 28million cars, jeeps and taxis in India totally. The same page also corroborates our 2014 shipment information - informing us that ~2.8 million passenger cars were registered in the year 2015-2016. Using 2010 data, we find that ~40% of the cars in the passenger segment in India can be considered to be large cars (1500cc or more), in the price bracket of 8+L INR. That is 40% of 28 million (12 million Indians). It is inconceivable that someone without 10L annual income would be able to afford / maintain a 8L car. Yet, about 10 million Indians seems to do so. Something smells rotten, and the PM is right in pointing it out. It is time that vehicle ownership / purchase details are mined for tax evasion detection.

The second important take away was the sops provided for various sections. This must be seen as a political move, and it was made necessary by the sloppy implementation. It must also be seen as a move towards UP elections (2017) and also towards 2019 (rural housing schemes). The difference between these and the doles announced by UPA is the insistence on a) duty before sops (sweat it before you earn it), and b) direct benefit transfer and the subsequent reduction in corruption. The Mammoth believes that the master stroke was the announcement of financial help for pregnant women during child birth and post delivery care. The impact of this announcement, even if implemented halfway through, would be phenomenal.

Many are disappointed with the PM not announcing a surgical strike at RE hoarders (probably the biggest sink for corrupt money). The mammoth believes that such a move will come around mid-end 2018. The reasoning is as follows: RE, despite its notoriety, is a mass employer - and is already at a slump. Any direct strikes on RE will deprive many millions of poor people, of their livelihood. The government will not touch this sector without taking care of the unskilled labour. The announcement about rural housing sops and the government's resolve to give a home to everyone (election manifesto) must be seen in this light. Just as Jan Dhan accounts were a cushion for the poor during demonetization, rural housing schemes will provide the necessary safety net for the unskilled / migrant labour dependent on housing market for their livelihood.

There are some worried that the PM has cast the rich as the villains while being a "knight in shining armour" for the poor. Unfortunately, in India, the reality is that the rich are looked upon suspiciously. Even after liberalization, profit making is considered a sin in India. That the PM is using such a black and white mentality for electoral vote seeking, while sad, is an acceptable political gimmick. Given his overall intentions and actions, I believe the PM may be given a pass this once.

-LM.

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