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

3 thoughts on “A society can’t be served by intention alone”

  1. This is wonderfully written and beautifully argued. This metaphor of the burning a room with rats is particularly trenchant re GDP. You are exactly on point that the real victim here is fiat currency. Indians already have too much gold – it’s not merely cultural trait but partially a synthetic gold standard as they implicitly don’t trust the government. This is only going to intensify after this cash confiscation.

    It would be really lovely if you could write an article on the importance of consumer, business and investor confidence for commerce and the duty of citizens to retain optimism and surmount this impetuous populist policy – happy to share my notes.


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