Prime Minister Narendra Modi’s surgical strike on black money has created shock and awe to his supporters as well as detractors alike. What will be its short term and long term implications? How it will reshape the political contours? All these questions require detailed discussion to arrive at right conclusions.
It was midnight November 8, 2016 the time government chose to launch an offensive on black money.
Thousands of tweets, responses on social media by honest taxpaying citizens welcomed this bold decision. Others were cautious in reacting lest they be interpreted as supporters of black money.
Fortunately I had a few hundred notes in my wallet which I found sufficient to spend for the next two days and felt that I am impervious to any kind of surgical strike against black money.
But my curiosity to define the future by analyzing the present to arrive at the future of Indian politics prompted me to write the political and economic implications. For that, we need to analyze different sectors, communities and their implications on vote bank.
A sector-wise breakup is important to understand the political and economic implications of action against black money.
Real Estate Sector
First and foremost the rude shock will be felt on the real estate front. By the way, who are the ones who will be affected by the surgical strike shocks in the real estate sector? The answer will be politicians, bureaucrats, business honchos, and celebrities who ride high on real estate business. Now selling flats or properties will not be that easy for them as white cash holders will wait and watch for the emerging developments for an indefinite period. Let us put it as one to two years.
The real estate sector is already reeling under the impact of economic crisis since 2008. As the government executives with high salaries and ‘other income’ could own houses at a premium rate as they had assured monthly income and job security. These executives are going to postpone or abandon their decisions as their unaccounted hoarded cash became paper with no takers.
Then what will happen to the executives in the private sector. They are the ones who pay taxes, work hard, be safe with their hard earned finances. These people will wait and watch for the fall of real estate value; they will wait for aspiring buyers who will take risks, try and err so that can they take a calculated risk later, not now.
Let us think further and go for vertical thinking. Loss making real estate will cast a huge burden on banks which were unable to covert the confiscated property into cash. This will lead to liquidity crunch and resultant chain reaction on job loss in the construction sector leading to further sub economic crunches in the lives of laborers like masons, carpenter, helpers etc. So will be the case of civil engineers, architects et al.
Low demand of cement, steel, metal, and sand is sure to expect which will have a cascading effect on corporate India.
Having said these, we need to study on the effect on vote banks. If the black money unearthed was given as compensation or creating allowances to the unemployed laborers it will have a positive impact. Otherwise, the opposition will convince the unemployed about the ‘foolish act’ of sarkar only to establish themselves.
Jewelry Sector
Luxury metal is a sunshine sector as a result of the surgical strikes. As more middle class will lose interest on paper currency they will invest on easy to buy and sell jewelry, gold coins, gold biscuits etc. But remember one thing: consumption of jewelry will not create many jobs, nor will have positive impact on career. It will be just a security for the buyers where jewelry owners who are a minuscule segment will be benefited.
In such scenario what the government will do. Government should take action to sell gold coins and biscuits through banks and encourage the buyers to purchase it so that the government can be a huge beneficiary. Otherwise wealth will be accumulated to jewelers and gold traders that can lead to huge inequality of wealth.
Private Education Sector
Private education sector have been minting money by developing many education institutions as ‘charitable trusts’ and taking donations as well as hard cash and create ill gotten wealth. If investigated carefully these institutions are promoted by politicians as well as business houses who wanted to create more wealth under the guise of charitable trusts. They are the ones who are going to be affected by the government’s surgical strike on black money as their ‘strategically created wealth’ became paper.
In such a scenario what will be its political implication. Chances are high where politicians and businesses will join hands to wreak revenge on the government and they are armed with a network to disseminate negative information.
NGOs and Religious Trusts
India houses thousands of NGOs which are unorganized in nature. They take cash on hand and they have huge unaccounted wealth. As they receive political patronage owing to their hold on masses, politicians don’t dare to take action on them. For example, Satya Sai Baba Trust had INR 40,000 crore at the time of his death in 2004.
At present we don’t know the exact figure. Can somebody count the wealth of Amrita Math? Then there are organizations led by minorities also handle crores of rupees where many transactions are unaccounted. There are many NGOs which dole out the staff salaries by cash.
These segments are going to be badly affected and they won’t openly come out against the government.
But we can see them emerging out under other guises pitching for ‘other issues’. Let us wait and see.
Now the question is how it will affect politically. Through NGOs thousands were fed, supported, and promoted for the good or bad causes they espoused. They are armed with influential network that can reach masses. As their riches suddenly became paper, their dependents will be upset and will think and act on sudden losses instead of nation’s added wealth. This will lead to negative publicity among its core constituencies.
Retail Sector
The Indian retail sector gives jobs and livelihood to millions. The retail sector is dominated by bania caste traditionally. The traders opt for cash transactions and if they opt for legal transactions where they pay taxes to government, they will not be in a position to create wealth as ‘honest business’ is a utopian dream.
Business is in fact a white collar crime and in such a scenario, if transactions are become mandatory through banks, businesses will be forced to pay taxes, with less chances of wealth creation. After all, how many small scale traders are paying taxes? Traditionally they were keeping their wealth as cash which became paper now.
Now, let us check how they will react. The trading community had been the loyal constituency of the ruling party for decades together. After the decline and fall of Congress I, BJP dominated in North India after 2014.
During the same period, Bania politician Arvind Kejriwal threatened BJP with his outreach on Marwari community as he belongs to their caste.
It is this very community who are traders by profession facing existential threat may go into the eager embrace of AAP. We need to wait and watch for their reactions in the months to come, to see my predictions become true or not.
Elections and Black Money
The crucial UP elections are going to happen in the first half of 2017. How the surgical strike on black money will affect elections? There is no need for in-depth investigations that elections are bankrolled by black money. Just for the sake of joke, I want to narrate a story. During an election in Tamil Nadu, an old woman casted her vote and asked the election officer standing nearby, “I casted vote, give me money I am regularly getting”.
Politicians buy voters with cash and this cash is often illegal which has became paper now. So what? Unless and until there is an issue that is appealing or monetary rewarding, people will be indifferent to cast vote. Look at the other scenario which is even worst. The unscrupulous politician will convince the voters that their lives were made miserable because of the ruling party.
Mass is ass. If they don’t see benefits they will believe a lie and may go against reforms.
Remember, what happened to former prime minister V.P. Singh who are a reputation zero tolerance to corruption and wanted to bring sociological change to the underprivileged. We all know that how he was thrown out by the ganging up other political parties, media, with the funds of wealthy industrialists.
Pandit Vishnu Sharma said in Pancha Tantra, “Strategy is good, but at the same time one should also know where the strategy is leading to”. This is what going to happen for government’s decision. If that is the case what should have been done. Acting against black money is like waging a war.
For that, supporters need to be created first, and timely solutions for the affected in the aftermath of bold decisions. Secondly, there should be constant communications, immediate action to stop negative publicities, and some kind of alternative financial solutions to the ones who are badly affected by the de-growth in different sectors in the wake of the emerging liquidity crunch.
Now the government is all set to get huge wealth, but how fast it will be realized as economic benefits by the honest citizens, the poor etc? It is into these areas the government should think, work, act, and gather the support the good citizens for a good cause otherwise the politicians who thrive on black money will paper over their differences to fight against the ruling party that rendered their wealth as mere paper.