The nature of the ‘beast’

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Earlier attempts at demonetisation as an instrument of economic policy do not seem to matter.

There is something unusual about the Indian finance and economic scene which makes it, perhaps, the only one of its type in the world. What makes it unusual is a long list. We can perhaps begin by talking of the banks which are at the centre of all activity of, perhaps, all Indians ever since 8 November. 

Whether they have measured up to that role or not is a moot point. One recognises that they are there and there is no replacement for them in that role, as of now. 

Even before one come to that, like in many things Indian, there is a huge debate raging on the results of the current experiments with currency. The debate is a big one but has yet to enter the public psyche. The debate is: whether decommissioning of large currency notes was “demonetization” or “compression”? However, as of now, this will have to take a back seat. This is so because a lot of lives are so twisted out of shape by the present currency situation that conceptual battles appear a luxury. There is no clear cut consensus of what % of the money being sucked out of circulation can be termed “black”. The present writer going through the multiple columns being churned out and many hours of electronic media discourse, has not come across any figure of black money being hoarded in currency notes, as higher than 5% of the total black money, in play, in India.

The percentages tell a story to those who can hear.

The next unusual feature of Indian economy is that the vantage point of the economy from a politician’s point of view occupies the largest media spaces. It doesn’t matter that demonetisation as an instrument of economic policy has been attempted earlier on also. What matters is the slogan that this is the boldest financial intervention since independence. 

It doesn’t matter that political careers of many who rode to political heights on the anti-corruption plank have today metamorphosed into condemning an act of state policy, also, aimed at containing corruption. 

Strange logic on all sides pores in often through the day and sometimes through the night. That is the nature of the animal.

These peculiarities are not unique only to public domain universe. The “hardcore” economist is not far behind. This country has some professional economists who can sing the tune of any dispensation in power. A venerable character with the correct pedigree of associations with distinguished universities abroad may have spent years pushing the envelope for the Congress cause and finance ministers of the Congress dispensation. He can then move over with ease to work in a major office of national importance, headed by a major BJP politician. Undeterred, he can move on to the folds of a Lohiaite Party to return to the folds of BJP. Well connected, indeed with proper marriage alliances the person could be back in reckoning, perhaps, leading a major committee dealing with an aspect of debt. So be it.

The larger point is: this kind of committee work could affect the conceptual foundations of the banking systems. Hence it is important to look at the intellectual pedigree of the people who manage these committees and lead them. 

If the SLR requirements of the banks get affected then everything gets affected from the future of government bonds to commercial lendings. 

The holy cow approach of tip toeing around issues of public domain has been nailed once and for all by the victory of Trump in US electoral process. 

Many sacrosanct ideas of the 19th century liberal economic theory or indeed ethnic relationships seem searching for shelter as the new dispensation in US seems to take the centre of stage. In India the story line continues to spin around banks. Raghu Raman approach of highlighting the NPAs, which threatened the viability of banks, contributed to many forces being unleashed. As a Reserve Bank governor he had a large profile and what he did affecte the health of financal systems. What perhaps never got to the limelight was the competency level, the attitudinal factor and the systemic efficiency issues of the banking systems itself. In the last fortnight the banker’s especially below the DGM level have faced the raw end of the stick. That they have managed to keep the nose above water can perhaps only be attributed to the proverbial Indian resilience. 

There was nothing in the system which had equipped them to handle these numbers, handle the ever-changing regulations and indeed handle the ethics involved with these operations.

It doesn’t matter that political careers of many who rode to political heights on the anti-corruption plank have today metamorphosed into condemning an act of state policy, also, aimed at containing corruption. 

They are not equipped to handle these kind of volumes and if some official fumbles over the meaning and implementation of the regulations it was no surprise. Typically the question remains: if the limit of withdrawal from the bank was a week. How was that week to be measured? 

Other questions can be asked they need not be asked. The indifferent managerial condition of Indian banks had last year drawn observations from international monetary authorities—institutions affiliating with whom is necessary before the economic pedigree of the individual is recognised by the government and indeed some key institutions. 

In this day and age looking at sustainable structures of stressed assets continues to be as elusive as the basic efficiency of the banking operation. 

Not only the bank ATMs go all over but the kind of currency notes which got pushed into circulation by 20th or 21st day of the roll out is one of the better kept secrets of the banking systems. 

This may be bad news for getting to know the real nature of the beast. But then someday these issues will have to be frontally addressed.

Read 89 times Last modified on Sunday, 23 April 2017 22:10