As I write this, the Iraqi army and state militias have encircled Mosul, the headquarters of Daesh (ISIS). In this siege, many civilians will be injured and inconvenienced, but they have welcomed the Iraqi army rather than suffer the depravations of the savage Daesh.
It may be a crude analogy, but what we are experiencing in India since the night of 8 November has some parallels to the situation in Mosul. Here, the government has launched a war on black money, counterfeiting and terror funding in a single measure called "demonetisation". There are many stated and unstated objectives in this mission. Similar to Mosul, ordinary citizens are trapped in this war.
It is an irony that large sections of the Indian society—including small farmers and daily wage earners—are still untouched by the formal financial ecosystem. Some of them may be having bank accounts but prefer to use cash as a means of everyday transactions. Demonetisation has—in one stroke—done away with this most convenient mode of holding value. So, are they doomed? Of course, not! Each of these self-employed people can begin to demand electronic payments.
The government has launched a war on black money, counterfeiting and terror funding in a single measure... Similar to Mosul, ordinary citizens are trapped in this war.
Let's go back to the Mosul analogy again. Daesh, a non-state terrorist organisation was able to annex Mosul and large swathes of Iraq and Syria because of the collapse of the state in these countries. Similarly, black money was able to take over large parts of the Indian economy because the state failed to bring them into the banking system. For a good part of the 70 years since independence, our formal financial ecosystem has tended to remain an educated man's privilege. Salary accounts, typically, are the first banking experience for most Indians.
Thanks to the popularity of cash—black or otherwise—unlike most developing countries, India actually saw cash to GDP ratio growing to 12% from 10% over the last few years. With the economy growing at 7%, the growth of cash is actually about 3% year-on-year. And, the truth is we, the common people in the country, have been fuelling this demand for cash. Every time we used cash for our monthly expenses such as buying groceries, vegetables, fruits, or to pay salaries to the maid or the driver, we supported the so-called "parallel economy" of black money. Those of us who have gifted cash during weddings or used a combination of cheque and cash to pay the builder are of course more responsible for this mess.
So, in a sense, we are responsible for creating the "Daesh" of black money. So, what does the government do? Bury its head in the sand like the proverbial ostrich? Or, acknowledge and admit helplessness? Or, take a bold new initiative to cleanse the system? Our Hon'ble Prime Minister. Narendra Modi chose the last option.
For the formal financial ecosystem system, this is a wake-up call. Use the lower cost of funding to aggressively push electronic payments and create a customer- and business-friendly tech-enabled delivery model.
We, the citizens of India, have to decide. Do we want to tolerate and allow the spectre of black money to consume us? Or, should we bear this little bit of inconvenience? Survey reports suggest that the majority of Indians support the government's demonetisation move. For the sake of posterity, I hope this good sense prevails!