Demonetization, ‘Financial Inclusion’ and the Great ‘Unbanked’

A Prologue

There is a lot of talk these days about ‘exclusion’ – which is almost unquestioningly assumed to be a bad thing. The corollary to this understanding of exclusion is that all inclusion is necessarily good. One hears a lot about ‘financial inclusion’ these days,  which truth be told, makes me shudder. There is thus a lot of angst expressed these days, especially by the rich and powerful, over the ‘financial exclusion’ of the masses. Here is the basic argument (read the full article, disowned by the edit department, here):

Inclusive growth would mean that all sections of society benefit from economic prosperity. A key metric for inclusion is ‘financial inclusion’ i.e. the access to banking services and affordable financial products such as bank accounts, loans, and deposits for all individuals and businesses. When the poorest of the poor have access to credit and savings facilities, this translates to their financial security. They can grow larger businesses, manage consumption and household expenses better and plan for shocks. The standard of living improves and poverty falls, allowing people to contribute more to the economy as well.

Remember, however, before we proceed:

(i) That in 1997, the Asian financial crisis that wiped out the hard earned life-savings of millions of people, in one fell swoop, was an instance of financial inclusion.

(ii) That it was the banks that were fully responsible for the crises across the USA and Europe, 2008 onward. That the Occupy Wall Street movement was basically a movement against the  robbery of ordinary people’s money saved in banks by the banks, who on top of everything wanted to be bailed out with tax payers’ money.

(iii) That very recently Iceland has had to jail 26 bankers responsible for the 2008 financial crisis, “for crimes ranging from insider trading to fraud, money laundering, misleading markets, breach of duties and lying to the authorities”.

(iv) That one of the major reasons India escaped the worst effects of that crisis was because effectively 70 percent of its population still lies outside the banking and financial sector. Of course, the other important difference with the Western capitalist economies was that India’s banks were still largely in the public sector. In other words, banks do not only do what they and the economists say they do. Banks play with the hard-earned savings of the relatively poor, often simply handing handing them over to predator corporations and then writing off!

The Demonetization Gamble

A lot has already been said by now on the Modi government’s decision to demonetize Rs 500 and Rs 1000 notes. Economists and economic analysts from the Left-wing Prabhat Patnaik to others like  World Bank Chief Economist and former advisor to the Indian government, Kaushik Basu and journalist Swaminathan Aiyar have expressed serious doubts about both the rationale and feasibility of the move.  The point has been effectively made by them and others like Arvind Kejriwal (who have been centrally concerned with the issue of corruption and ‘black money’ for a long time now), that this measure does not touch the real big players in the game of black and unaccounted money. Big corporate sharks don’t need to go the ‘black money’ route because government policy itself is written by them and everything they do is made ‘legal’ either in advance, or retrospectively, because the government is in their pockets. Of course illegal activities even at those high levels often go on nevertheless, because the power-corporate elite has become so used to the idea that nothing really matters in this country – that everything they want is theirs. And in any case, the real big money lies deposited in Swiss banks or in circulation elsewhere, in other forms. Continue reading “Demonetization, ‘Financial Inclusion’ and the Great ‘Unbanked’”

Modi’s Demonetization, Black Money and Surveillance: Baidurya Chakrabarti

Guest post by BAIDURYA CHAKRABARTI

  • The demonetization drive of Modi is neither new in content nor in form. In India, it has been done earlier by Morarji Desai; the initial conversion to Euro in the European Union happened within a month’s span. Currency is routinely taken out of circulation. What is significant about Modi’s demonetization is the amount of sensation he has generated out of an otherwise insignificant move. What is routinely done through phasing out denominations is being done in an extremely abrupt manner. He is dressing up a withdrawal and issuing of currency notes as a revolutionary move, and it is being executed in the manner more suited to currency change. What we need to thus ask ourselves is this: why is a routine monetary policy being enacted in this—which I shall later call ‘terroristic’—manner? Clearly, the answer is not economic; even the government does not pretend it to be a strictly economic issue (when they harp on the ‘terror’ factor).

(But before we move on, an aside. This demonetization exposes how the nostalgia for socialist development has fuelled the rise of Modi. Disenchantment with neoliberalism has produced an obscene amount of nostalgia for the pre-liberalization days among the Indian middle class, especially among the left-leaning ones. However, now that a gesture right out of those hoary days have returned to our world, it turns out to be a nightmare.)

  • Let us state the obvious things first: demonetization will do next to nothing to the so-called ‘black money’, which are routinely converted into fixed assets or foreign currency. This move dis-incentivizes hoarding of cash, but not speculation, all sorts of accounting practices that can produce the so-called ‘black money’ while bypassing the level of cash transaction altogether. Demonetization is simply an old-school, brute-force monetary policy to curb hyperinflation. The Head of European Central Bank in Europe and Larry Summers, US treasury secretary, has proposed demonetization of their high-currency notes this year. But none of them dream of doing it within a notice of 4 hours!

Continue reading “Modi’s Demonetization, Black Money and Surveillance: Baidurya Chakrabarti”