Dr Kailash Chandra Mishra is one of the best brains of our times that our country is proud of. A kaleidoscopic personality mellowed with the expertise of a scientist, endowed with the vision of a philosopher, having pragmatic wisdom of a Bentham, imbued with the skill of a top-brass management guru, a think-tank of banking and insurance economy; he held many top positions both at home and abroad leaving behind him all the mud as gold during his career. As the founder Vice-Chancellor of Sri Sri University, Odisha, Director and CEO of lal Bahadur Shastri Institute of Management, Delhi, Director and CEO of National Insurance Academy, Pune, Area Chairman, Finance and Strategy at Administrative Staff College of India, Hyderabad, Principal, Bank of India Management Development Centre, Representative of the World Bank for Agricultural and Disaster Risk Funding in South Asia, Regulatory Consultant for Ghana, Mauritius, Muscat, Nigeria, Ethiopia, Qatar; he has carved a niche for himself everywhere. He has taught financial management in Connecticut, Colombia, Manchester, Mauritius, Ghana, Nigeria,Yale and in many other universities. He was adjudged as the Best Service Skill Developer of India and the UK. He was also collaborative consultant of Mercer for RBI Reserve Management Best Practices..In an interview to The Pioneer, this scholar-extraordinaire spoke to Sugyan Choudhury, revealing his timely reflections of much value and significance on Modi’s demonetisation and present-day India.
How come when most of the ordinary citizens of Indiay are praising Modi’s demonetisation, some opposition leaders are hostileIJ
Politicians maintain a conspiracy of silence amongst them as they fight for power but united for electoral compulsions of expenditure. Modi showed political will to break this conspiratorial silence and elegantly won the confidence of common man. He preempted the pain point effect by an emotional appeal to masses, giving a deadline to the possible endurance. Politicians of most hues were unsettled as they had no defense against black money. Even those who hoard, have to look pious. They oppose demonetisation for their unbearable inconveniences. But they have to talk of inconvenience of the poor or the old widow or patient in hospital. All they assert may be real, but unfortunately for them, the sufferers are ready to endure. Common man thinks of total elimination in parallel economy, counterfeit currency and terror financing. To this list is added post-modernism of cashless society pride. But politicians know Modi’s weakness in not unearthing the stash of foreign black money. Even, the CBI’s scaled-down version of $500 billion foreign black money is tapped to only 0.7 per cent. Political duel will continue till Modi does something for black money in real estate and gold and stashed abroad. They also try to pin down the Government by quoting Kirit Ganatra’s Akila or Brajesh Dubey’s Hindi daily Dainik Jagran before Modi’s announcements. But public perception remains in Modi’s favour. If the RBI gets an estimated Rs 3 lakh crore black money from this exercise, Modi continues to be a war hero.
Some pundits argue that demonetisation will make the currency weak. Dollar is strong because it has never been demonetized. What’s your viewIJ
There are a number of country-specific variables that go into determining a currency’s strength. Demonetisation has often created strength of currency and sometimes resulted in weakness as well. Russia and Australia are two best examples. In January 1991 under the leadership of Mikhail Gorbachev, USSR withdrew 50 and 100 Ruble notes from circulation in an attempt to remove black money. But Gorbachev failed and was removed in a coup. But Gorbachev’s failure brought success later in 1998 by re-domination of Ruble where three zeroes were removed. But when in 2010 another two zeroes were removed from Ruble, poor harvest antidote the effort. In 1996, Australia became the first to introduce such reforms in currency. The currency gained in tremendous strength. The USA has cleverly demonetised currency, giving a feeling that Dollar was never demonetised. For example, in the Vietnam era, when US military personnel arrived in Vietnam, they exchanged all Dollars for military currency of the same denominations intended to be used only for on-base transactions. For off-base, US military men were supposed to convert into the local currency, Piasters. However, contact between locals was common, and local sellers would take US military script as well as Piasters. Then one day, without warning to any one, all US bases millitary currencies were forced to exchange for a different series. They could exchange as much as they wanted on that day but knew that the following day the old script would be worthless and could not be exchanged. US military didn’t suffer, but locals were duped for having accepted US military currency in good faith. In this entire demonetisation process, Dollar was immunised cleverly.
With the present demonetisation, will the real estate prices come down to be affordable to middleclass in big citiesIJ
Real Estate market runs partly in black wealth and partly in black income. Black income is circulating whereas black wealth is an accumulated stock. Expert economists do not subscribe to the view that black money creates parallel economy. Two economies are completely intertwined, generating black and white income simultaneously. Real estate is epitome of such intertwining, particularly in cities like Mumbai, Delhi, Kolkata and Bangalore. In the near term, cashlessness will result in arrest of fresh black income flows. But nothing will happen to black wealth unless the owner is in distress. But superior liquidity and resources with banks will allow them to lend more to real estate at low interest. Real estate prices may stagnate, but builders are not likely to sell in distress slashing down the prices unless steps are also taken to curb and contain black real estate wealth, which is formidable and daunting unlike demonetisation.
Will this surgical strike on black money be cathartic enough to purge the electoral battlesIJ
Parties in India do not function democratically. Constituencies are family properties. leaders often don’t know the people in the constituency. Even cadre-based parties are becoming leader-based parties. Only rich and influential in the constituency matter. State funding of elections will only provide funds to such pre-identified leader, with vested interest. Election expenses are 10 times the allowed limit and a bulk of the expenditures are on illegal activities and raised from illegal sources. Election financing is a very small part of the black economy. Eighty per cent of the declared funding of BJP, Congress and other parties are coming from donations below Rs 20,000, which don’t have to be revealed. That should be changed. Electoral politics creates a nexus between politicians, businessman and, often, executive governance system. A comprehensive electoral reform is necessary with honesty of purpose, not hypocrisy of everything.
What will be its impact on the various cross-sections of societyIJ
Top 3 per cent of the population owns much of black wealth, but black income is all pervasive that is intertwined with white income. This demonetisation exercise may eliminate a part of black money only with some obvious leakages due to high degree of manipulative skills of black money owners. With possibility of about Rs 3 lakh crore of black money from demonetisation pains, the Government may be in a position to catalyse some much-needed economic development activities. In steady state, it may equilibrate. Such incidents only jolt the common man a bit to gravitate to national standards in no time. Continuous reinforcement could bring permanent reform. In India, poor are still only takers. Middleclass will have expectations of unmet dreams. Rich will need a governance system where they encounter a no win at every breach of ethics.
Some opposition leaders in Pakistan are demanding mimicking Modi’s style of demonetisation in their country. What’s your responseIJ
The Pakistan Peoples’ Party found wisdom in Modi’s action. Sponsored by its senator Osman Saifullah Khan, the PPP submitted a resolution to demonetise in respect of 5000 and 1000 currencies. They argue ill-conceived taxation policy of Government is taking Pakistan to a cash economy. A Senate standing committee of Pakistan is generally agreeable to the Osman resolution, but political expediency has prompted Committee Chairman Senator Saleem Mandviwalla to make the resolution more consultative. The world doesn’t take Pakistan seriously any more. Instead of seeking ad hoc political gain from a nationally painful exercise, Modi and India should consolidate the gains keeping in view the 1978 demonetisation comments of the then RBI Governor IG Patel, “Demonetisation exercise seldom produces striking results. Most people who accept illegal gratification or are otherwise the recipients of black money do not keep their ill-gotten earnings in the form of currency for long. The idea that black money or wealth is held in the form of notes tucked away in suitcases or pillowcases is naïve. And in any case, even those who are caught napping or waiting will have the chance to convert the notes through paid agents as some provision has to be made to convert at par notes tendered in small amounts for which explanations cannot be reasonably sought. But the gesture had to be made, and produced much work and little gain.”