A society can’t be served by intention alone

That the demonetisation measure needed utmost secrecy because of its stated objective is a given. However, a prior study of execution capacity would have been vital

The genie has been let out of the bottle. Two weeks ago, nearly 85 per cent of the value of currency in the Indian economy was rendered invalid overnight. Repercussions had to follow. Discourse on the subject is so deeply divided that there is more sound than light. Some quick lessons are important to learn.

First, the measure must not be rolled back. Crores of people have gone through hell to change their currency holdings rendered invalid. Many have responded to the exhortation to stand shoulder to shoulder in the war against black money. They have obliged. A rollback will make them feel betrayed. They would be livid and take to the streets. Rooted deep in the fertile soil of faith is a switch that makes the devout convert. At times, just one perceived deep truth turning out to be a perceived white lie is all it takes. Patriots can become traitors. 

A rollback may be politically very tempting. It would expose the Opposition by establishing them as hurdles in the path to waging war against black money. Before the full scale of costs inflicted and benefits gained by the measure can be computed, an aborted project could enable arguing that the real benefits were not allowed to be measured. A rollback would help obscure whether the idea was at all a logical and reasonable one. Pretty much the no-pain-no-gain excuse any CEO can make if his board were to force him to abort persisting with a loss-making proposition.  

Second, one could not have a better case study of the need for a cost-benefits analysis in policy-making and the use of law. What appears fantastic as a policy objective and indisputably of noble intent could impose costs far more severe than the benefits conferred. A shot in the dark could wound innocents. In war, one coins terms like “friendly fire” for deaths inflicted on one’s own colleagues. However, every death from friendly fire leads to an investigation and findings on what went wrong. Without cogent, focussed and articulate analysis of costs and benefits of the proposed use of a weapon, the weapons used could end up hurting the user. Economists have started projecting a contraction and a shock to the system.  

The answer, of course, cannot simply take the form of memes on social media that say “Nation under renovation. Inconvenience is regretted.” Footfall in shopping malls in Mumbai has become sparse. The notorious Mumbai traffic continues to elude the roads. Productivity is coming down even for the banked sections of society. Non-essential shopping is off the agenda for most households. Daily wage-earners are being asked not to report to work. Calamitous accidents will bring the need for currency to the fore. The current shortage of currency, making those with legitimate money in the bank struggle, cannot continue for long without serious consequences. 

The Chief Justice of India was only echoing in the court room the thoughts many express in the drawing room, when he said there could be riots on the streets unless execution shapes up. One can always generate memes on the internet to show queues outside court rooms being longer than queues outside ATMs, but pointing to an unconnected problem has not been known to solve a problem.

If one has an economic slowdown because of the measure, it would be akin to burning down a room in a house that is infested with rats without risking killing the human occupants of the house. Population control was a laudable and noble policy objective, but Sanjay Gandhi’s execution of purush nasbandi (male sterilisation) is what really lost Indira Gandhi the elections that followed. Trains ran on time, public services were proper, and the common man was quite happy with the Emergency. The fight for liberties and fundamental rights was less a mass grievance and more an intellectual disaffection. But, it was nasbandi that changed the game. It was the Indira Hatao, Indiri Bachao campaign that lost her the polls. Indeed, she was back in power in the polls after, but the nature of the beast is that it could be politically very expensive.

Which brings one to the third and final lesson: No idea is worth the paper it is written on unless it can be executed well. That the demonetisation measure needed utmost secrecy because of its stated objective is a given. However, a prior study of execution capacity would have been vital. For example, one would have expected attention to availability of card reader machines (reports suggest that the market does not have enough machines to sell to merchants who want to go digital); to capacities of ATMs to dispense cash; and indeed to capacity to print new notes (the time necessary to replace 85 per cent of India’s outstanding currency in new notes is an official secret and officially unknown). The size of the note changed in all particulars, and ATMs were not at all ready. 

Banking is a private service between the bank and its customer, and yet currency is a public utility. When 85 per cent of the cash any individual held was to be made illegal overnight, the execution plan has to consider the impact on the unbanked but innocent sections of society, as indeed it must consider the impact on the corrupt but banked segments. It is easier for a city kid to opine that the panipuri seller at a market intersection in Agra should start using PayTM, than for the poor fellow to open a bank account. Scams are bound to follow — it does not take genius to know that no-frills accounts of poor people are prime assets for use to launder currency. Enforcement against the abuse would also inflict an additional cost on the fisc.

It is true that it takes a lot of courage to take such a serious decision that has far-reaching social consequences. It is also true that even if only a fraction of black money would be actually impacted, one may argue that demonetisation would not be without some positive outcomes. But society cannot be served by intention alone. 

The author is an independent legal counsel. 

He tweets at @SomasekharS

This column appeared Without Contempt in Business Standard in editions dated November 23, 2016

Somasekhar Sundaresan: Lofty ideals don’t justify faux measures

Regulators often overstate the seriousness of the work they do to defend every measure adopted in regulations, however flawed

There was one subject other than the corporate governance fracas at that grabbed the attention of social media in the last fortnight — the Securities and Exchange Board of India’s (Sebi) consultative paper seeking to restrict free speech in the Indian capital market.


Sebi’s consultative paper proposes that “no person shall be allowed to provide trading tips, stock specific recommendations to the general public through short message services (SMS), email, telephonic calls, etc. unless such persons obtain registration as an investment adviser or are specifically exempted from obtaining registration”. Further, “no person shall be allowed to provide trading tips, stock specific recommendations to the general public through any other social networking media such as WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc. unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration” Regulations are proposed to be amended to provide that such expression of would constitute securities fraud.


The consultative paper has been out for public comment for a while. However, it caught the attention of critics only recently, and the critique has gone viral. Indeed, they are also those who support any measure from folks in authority on the ground that anything from authority should be assumed to be backed by divine wisdom. They speak in favour of proposals since investor protection as an objective is a lofty ideal. Therefore, one must examine if Sebi’s proposals would pass muster under the Indian Constitution.


The guarantees freedom of speech and expression. Such freedom is subject to “reasonable restrictions”. For Sebi’s interventions to be constitutionally valid, the restrictions sought to be imposed on making public comments on securities must stand the test of being reasonable.


Assume a commentator makes remarks on television news channels that the shares of a company that has taken an inexplicable, unexplained business decision would fall. Or for that matter, assume someone who believes that a business decision is right merely because it a decision taken by men of stature will lead to the securities price going up. Under Sebi’s proposed law, tweeting such a view, posting it on Facebook, or broadcasting it on or would be illegitimate, unless the person doing so is registered with as an investment adviser.


Now, everyone with a view may not be in the business of providing investment advice. But the law would require registration as an investment adviser to be able to legitimately express a point of view.This would mean that the commentator would need to subject herself to a regulatory requirement and get licensed to carry out a business that she in fact does not carry on — that of providing investment advice for a living. Worse, if one were to express an opinion, one would be committing a securities fraud regardless of the veracity and accuracy of the opinion. The liability would be civil monetary penalty of to Rs 25 crore, a term in jail of to 10 years, a criminal fine of to Rs 25 crore, or remedial directions in the form of a direction to shut unless registered with to provide investment advice. In other words, the law would have a “chilling effect” on the freedom of speech and expression — hardly a measure that could be considered reasonable.


Almost everyone on an Indian street has a view on the outcome of every possible election — whether it is the elections in the or in UP. Now, picture a law that would criminalise expressing an on whether it would be Mayawati who would become the next chief minister, or if a certain faction of the Yadav clan in the would gain power, unless registered as a psephologist, or for that matter, unless registered as an official member of a political party.


Those who defend curtailment of free speech in the securities market would jump to say that financial markets are different from electoral markets. In the former, people lose real money when they get influenced by the expression of opinion. In the latter they may at worst get bad governments if influenced by prejudiced opinions. First, getting a bad government could be worse than losing some money that can be recouped later from the same markets. Second, what is a fair and what is a motivated fraudulent false statement is always a question of fact. Registration with an authority would not change that. In election petitions, courts consider if political candidates have adopted corrupt electoral practices. Likewise, (and therefore the courts) consider if a person who made a statement about securities did so fraudulently, knowing it to be false.


Regulators often overstate the seriousness of the work they do to defend every measure adopted in regulations, however flawed. The lofty heights assigned to investor protection can indeed be assigned to every area of regulation — be it food, electricity, competition, drugs and cosmetics, financial data aggregation, or even plying of taxis. The objective of regulation can be lofty but the measures to meet the lofty objectives still need to be reasonable in order to be constitutionally valid. Misplaced and overstated concerns can kill the “good” in the name of working towards the “best”. It is not wise to burn a house down to protect it from the rats that infest it. It is not wise to inflict forceful nasbandi to achieve population control.


It is wise of to have sought public comment on such a problematic proposal. One can only hope that the reactions received in the consultation process make one point clear to the regulator – there is no short cut to fighting real fraud in the market. That fight involves examining the statements and comments made, determination of whether it was motivated by fraud and scrutinising circumstances that would point to intent to cheat the market by making a false statement. Registration as an investment adviser can never reduce this burden.
This column was published Without Contempt in Business Standard on November 8, 2016