Op-Ed: It’s the Karnataka Elections, Stupid!

If the first one in 2016 was announced on TV by no less than Prime Minister Narendra Modi, the current round appears to be an ‘undeclared’ demonetisation. Mamata Banerjee’s claim about a ‘financial emergency’ in the country may be dismissed as political hyperbole. But there is little doubt that the cash crunch that has hit the people hard in the last few days reminds them of the worst horrors of the post-demonetisation period in 2016.

As ATMs across large swathes of the country run dry, people wonder if the sacrifices they made at the PM’s exhortation then were worth it at all.

A year and half after currency notes of RS 500 and Rs. 1000 denomination, representing over 85% of cash in circulation, were withdrawn, not one of the stated objectives of demonetisaion has been fulfilled. Far from progressing towards a ‘less cash’ economy, there is more cash in the market at present than there was on November 8, 2016 when Modi dropped the bombshell on an unsuspecting nation. Black money shows absolutely no signs of loosening its stranglehold on the economy. There has been no let up in terrorist attacks or Maoist depredations. In the light of all this, the people have a legitimate right to ask what was all the fuss about?

The current crisis has apparently been caused by the disappearance of the lion’s share of Rs. 2000 notes in circulation. Many experts had questioned the wisdom of introducing currency notes of Rs.2000 denomination after withdrawing all Rs. 500 and Rs. 1000 notes in the market in one go, purportedly because of their contribution to the black economy. The federal government had sought to parry all such questions at the time, but they have come back to haunt the government with a vengeance.

Could this be a precursor to the demonetisaion of the Rs. 2000 note? TMC MP Dinesh Trivedi has already expressed such an apprehension while the secretary in the Department of Economic Affairs in the Finance ministry Subhas Garg has admitted that printing of currency notes of this denomination has been halted for the last few days. Thus, apprehensions about the withdrawal of Rs. 2000 notes have a basis after all. If there are any such plans, the government must take the nation into confidence about it instead of trying to obfuscate the issue.

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The government and the RBI have come out with all sorts of reasons to explain away the current cash crisis. The government has attributed it, at least partly, to higher procurement of grains under MSP while the RBI would have us believe that it has been caused by problems of logistics and the slow pace of recalibration of ATMs to for the newly introduced Rs. 200 notes. But the reason that appears most convincing has understandably come from other quarters. As per this reasoning, the current cash crunch has to do with the Assembly elections scheduled in Karnataka next month. What lends credence to this reasoning is the seizure of cash worth Rs. 32 crores and items like liquor and other contraband, gold and silver worth several crores more in the poll bound state. As is only to be expected, this seizure could well be the proverbial tip of the iceberg.

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Finance minister Arun Jaitley has claimed that the current cash crisis has been caused by a ‘sudden and unusual’ spurt in the demand for currency, a claim that has been rubbished by the revelation that the Andhra Pradesh government had written to the Finance ministry, RBI and SBI warning about the impending crisis as early as March 9. Even if the Finance minister’s claim is to be taken at face value, the only conceivable reason for the ‘sudden and unusual’ spurt in demand for currency appears to be the Karnataka elections.

If that indeed is the case, the crisis, contrary to what the government would have us believe, would last several weeks more. And needless to say, that would have disastrous consequences for the economy.



(DISCLAIMER: This is an opinion piece. The views expressed are author’s own and have nothing to do with OTV’s charter or views. OTV does not assume any responsibility or liability for the same.)