"You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before."-Rahm Emanuel,Former White House Chief of Staff in the Obama administration.
Naomi Klein in her bestselling book 'The Shock Doctrine: The Rise of Disaster Capitalism' wryly observed "Extreme violence has a way of preventing us from seeing the interests it serves." Perhaps the small coterie of advisors close to Prime Minister Modi, driven by the ideology of disaster capitalism, took Klein's observation seriously.
On November 8 the shock to the financial system was administered by Mr. Modi by demonetising 500 and 1000 rupee notes. India is an overwhelmingly paper currency country: some 90% of the transactions are done with cash. India's cash-to-GDP ratio is 12% More than half of Indians still don't have a bank account and some 300 million have no government identification. The two scrapped denominations - 500 and 1,000 rupees - account for more than 86% of the value of cash in circulation. By this diktat the government effectively neutralized around 86 percent of the currency in India. The staggering implication for the informal sector in the Indian economy which employs close to 94% of the labour force was disastrous. The daily wage earners, farmers, small traders and small businessmen were left helpless clutching the dud 500 and 1000 rupee notes in their hands. Even the economist Lawrence Summers ,author of the of the infamous World Bank Memo was driven to write... "Most free societies would rather let several criminals go free than convict an innocent man. In the same way, for the government to expropriate from even a few innocent victims who, for one reason or another, do not manage to convert their money is highly problematic....". [i]
The RBI had its own Marie Antionette moment a few days later in a press release of November 12, 2016.It said "public are encouraged to switch over to alternative modes of payment, such as pre-paid cards, RuPay/Credit/Debit cards, mobile banking, internet banking. All those for whom banking accounts under Jan Dhan Yojana are opened and cards are issued are urged to put them to use. Such usage will alleviate the pressure on the physical currency and also enhance the experience of living in the digital world ." Economist Jayati Ghosh was aghast and wrote .. "Statements like this make one wonder whether the RBI is living only in the digital world. Surely the worthies in that institution have some idea of the conditions under which banking and money exchange occur for most Indians?[ii] For some families for whom getting a square meal was a luxury the mocking advice of the Modi government was if you don't have food eat plastic cards.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).