Tilting at windmills

At a recent interaction with Chennai’s business elite, Chief Economic Advisor Arvind Subramanian neatly evaded a dicey question on what he thought of demonetisation, by quipping that the note ban debate was “so yesterday”. Readers who have been subjected to scores of op-eds and many slim volumes on this subject may share this sentiment when confronted with another weighty tome titled Note-Bandi: Demonetisation and India’s Elusive Chase for Black Money .

But after reading through Note-Bandi , edited by R Ramakumar, one feels that the title does a dis-service to its contents. While about a third of the book is indeed devoted to discussing (or more accurately demolishing) the recent note-bandi, the bulk of it is a compilation of in-depth academic efforts over the last six decades to get to the root causes of India’s parallel economy, quantify its size and discuss the efforts needed to dismantle it.

The debut chapter of the book (‘A nation in queue’) by Ramakumar helps one segue into the vast subject of the parallel economy. It offers a worm’s eye-view of demonetisation, how it was conceived and implemented, how it impacted key economic indicators and whether government claims on its benefits came good.

The biggest takeaway from this section is its reel-by-reel account of the dramatic events that led up to demonetisation and continued to unfold after it. In telling the story of demonetisation, the author has cut through garbled media coverage by relying extensively on primary sources such as Parliament proceedings, responses to RTI queries, speeches by RBI governors and on-the-record comments by RBI officials to piece together the narrative.

Ramakumar seasons the narrative with newsy anecdotes — how a senior BJP leader defended himself from an angry mob at an ATM by belting out a patriotic song, a disabled man penning a personal request for help to the RBI, widows discovering stashes of demonetised notes stuffed into mattresses.

He also diligently compiles all relevant statistics — the CSO’s GDP estimates, RBI data and high-frequency indicators such as IIP and PMI, to track the progress of the formal economy in the immediate aftermath of the note ban.

The author draws on academic research and field reports to evaluate less-discussed upheavals in the informal economy. Meticulous attributions and extensive data analysis make this section very handy for any researcher looking to revisit the note ban at a future date.

My main quibble with this chapter though, was its one-sidedness. Right from the word go, Ramakumar’s mind appears to be quite made up that demonetisation was a disaster forcibly imposed on the economy by a government with questionable political motives.

The book’s preface in fact says it upfront — “Demonetisation... will go down in history as one of the most reactionary and illogical economic policies ever attempted in India. It crippled an economy that ran on cash and was plagued by a slowdown.”

This kind of introduction instantly kills any curiosity that one might have about the author’s findings. It also makes one wonder if the considerable research and curative efforts evident in the book, were directed mainly at buttressing the editor’s preconceived notions.

Treasure trove

Thankfully, the subsequent chapters of the book do present more middle ground. In fact, they offer a treasure trove of academic and research perspectives on measuring the size of black economy, tracing the origins of black money and discussing the modus operandi used by ingenious corporates to evade taxes in the Indian context.

The 26 short essays include seminal works from well-known researchers that have been published by the Economic and Political Weekly over the last few decades. These essays do much to clarify the woolly-headed discussions and conspiracy theories about Swiss banks, round-tripping and black money that have dominated the public discourse in the past year.

Apart from a set of papers that use quantitative approaches (fiscal, monetary, physical input, labour market and national income) to put a size to the black economy, there’s an incisive 1983 article by Shankar Acharya that comprehensively critiques these attempts. The paper goes on to apply these measures to the Indian economy for an 18-year window from 1961 to 1979. It pegs the size of the parallel economy at anywhere between 5.7 to 48.1 per cent of the GDP, depending on the method used.

Some of this research work is dated and one does wish for more recent updates which would have rendered them more contextual. But more important than these numbers is Acharya’s admonition at the end — “An excessive preoccupation with the estimation of the size and trends of the unaccounted economy has its dangers. It can detract from serious exploration of its causal origins, its functioning characteristics as well as the economic and social consequences.”

Hows and whys of black money

Subsequent essays do a thorough job of following up on this comment. For instance, SSS Kumar statistically explores the correlation between Participatory Note issuances and foreign portfolio flows gushing into India. Dev Kar’s work tones down the outrageous numbers being put on cross-border transfers of illicit money.

D Ravi Kanth’s essay argues that the obsession with “bringing back” black money from Swiss banks is a political red herring, to detract public attention from brand-new havens such Cayman Islands, British Virgin Islands, Dubai and Singapore which have sprung up in recent years. Other writers in this book recount how different political formations in India have been strangely united in not cracking down on some age-old conduits for money laundering — HUFs (Hindu Undivided Families), participatory notes and political donations.

Overall, one message from the book is loud and clear. It is not just about note-bandi. When it comes to the war on black money in India, political parties of all hues are quite happy to tilt at windmills.

MEET THE AUTHOR

R Ramakumar is a professor and Dean at the School of Development Studies at Tata Institute of Social Sciences.

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