Movie Review - Badla

The repertoire of Sujoy ghosh as the director has some fairly forgettable films - like "Home Delivery" and "Aladin" - a sweet but unsuccessful "Jhankar Beats" and two very impressive "Kahani - 1 & 2". The latest one "Badla" firmly establishes the genre in which he is best - Badla is everything a movie can ask for from a suspense-thriller.

When was the last time you watched a movie that starts and finishes in a one BHK beautifully furnished flat, the only solace in which is a window with a view to a busy street in a happening British city, revolving around just three main characters and yet you remain glued to your seat, latching on to every scene and word - guessing what comes next. You only go out of that room to recreate the scenes of the story but you are back immediately.

I remember having that experience as a kid, watching a movie "Ek ruka hua faisla" on the door-darshan because that movie did not get any theatres for commercial release. However, that movie was another era and hence is no basis for comparison.

This one weaves almost an Agatha Christie murder mystery and I don't find a better simile because the movie is set in so clearly stated british environment, tones and style. Consider this - a murder happens in a room of a hotel 200 miles away in a snow clad place with only one tram-ish transport to and from the hotel. The body is in the bathroom showered with Pounds (or were those Euros 😃 ) and the suspect with her fingerprints on the vase that was used to kill the victim, sitting beside the body trying to save him when the police enters the scene. The suspect is screaming there is someone else in the room and pleads the police officer for help as the officer arrests the suspect. There is absolutely no signs of anyone having entered or left the room and there is no evident possibility of anyone having possibly done that. And yet there will be no suspense or thrill if this obvious suspect would be the killer. Would there be?? 😉 And while I am tempted to take you through the very Aghtha Christie-stic twists and turns of the plot but I think you are already sitting up believing me when I say that it is a Agatha murder mystery alright - so I rather suggest that you watch it - in a theatre, mind you. And let me assure you there were no spoilers in this review till now. You will enjoy the movie as much as I did even after reading this review.

I have often said that good cinema is about imaginative storytelling and here is another movie that proves it. You come out and say well it was a simple story - then why the hell were you sitting on the edge the seat for the full 121 minutes with gaping mouth and appreciating mind. Because the story is narrated in a gripping style, you are already curious about what comes next. A very tightly written script and tighter screenplay does a marvellous job - as does a very crisp and still fluent editing. It's an unputdownable murder mystery.

Taapsee Pannu turns out another stellar performance after "Pink", "Mulk" and "Shabana". She is talented and often her talent is wasted in movies like "Manmarziya" and "Judwaa-2". She holds on with confidence against the Big-B perfectly portraying the young, successful, sharp witted independent business woman who loves her hubby and the kid and yet is analytical, poised, confident, controlled, ambitious, liberal, evil - even cold almost sinister. Taapsee plays the emotions although the effort shows. Yet she does not let this movie become just a Big-B movie.

Amitabh Bachchan is Big-B. I generally cannot imagine anyone else in the roles he does in such a movie. In this movie you won't too. Think!! Two people sitting in a room narrating a story to you - you will not be bored only if you have the voice, eyes, delivery and style of Big-B. Yet again he wins me over as his long time fan. In fact, I relate so much to the first half of his character - cold, analytical, data/fact driven and always asking for the other aspect of the case.

And yes - some very crisp, timely and unforgettable dialogues are like the icing on the cake. Here are some favourites
"बदला लेना हर बार सही नहीं होता लेकिन माफ़ कर देना भी हर बार सही नहीं होता"
"वो मुर्ख होता है जो सिर्फ सच जानता है पर सच और झूठ का फर्क नहीं जानता"
"सच वही होता है जो साबित किया जा सके"

I tried hard but can't find a fault in the plot or picturisation. Maybe the only problem with this movie is that it is not for light casual watching - because a few seconds of distraction can cause you to lose a thread. Or that at the end you realise that movie did not have a song to let you relax and eat your popcorn, maybe. A few people may disagree with me when I say that I love movies the way "Badla" ends. Simply.

Badla is a "must see" recommendation from me - a movie that helps you realise that there are at least three aspects to every story/issue/case - my side, your side and the truth. Enjoy yourselves - and let me know later how it was.

#MeToo : Don't be Distracted

A lot of sound and fury generated over the #metoo movement misses a fundamental point.

To me, the #metoo movement is an indication of changing times and mindsets. It is a signal of increasingly more confident, articulate and brave women who are finally getting into their own and deciding on their own terms. Yes, it is primarily a movement of urban, educated women - but so what, if it gathers steam and it has and if it sustains it would eventually reach every nook and corner.

Many don't get it - that #metoo is about the recognition of the fact that getting sexual favours because of your position of authority or power is a no-no. It is also an assertion that a few more pillars of male domination have started to crumble. It is a manifestation of how deep and wide this mindset has purveyed in our society. Most of us know that such skeletons exist in the corporate world too and so this movement is the confidence needed by those ladies who are under constant pressure to allow, ignore and tolerate male voyeurism.

Don't women take advantage of they being women to win favours and promotions? 
Yes, probably many do. That's not the point. Many women don't. Because many do - it does not make every woman available. Men can decide not to give those favours too. So, when we make it sound as if men did nothing wrong when a woman used her feminine charms to win favours from him, it is disgusting whataboutery.

Aren't many women using this opportunity to settle scores, destroy reputation unfairly or simply trying to get their few weeks of limelight or publicity? Yes, it must be true in many cases - but by far, look at those women who came out and spoke or wrote about male harassment. Many of them are well entrenched in their careers, have a family and reputation of their own and their families. Would all of them put all that on stake to achieve one or more of the above aims. I severely doubt that. The trouble is that not all cases are same - in fact each one of them probably is unique.

But why now. What were they doing for decades? If they had any honour they should have walked out of such jobs immediately or should have complained earlier. This is like saying Nehru should have managed better. It is impossible to understand those times, contexts and constraints. Instead of questioning the timing let's focus on truth. If their stories are true - does it matter that it came out so late. Should the perpetrators be not questioned because these are crimes committed years back.

But what if some unsuspecting and innocent men are targeted and their reputation destroyed? That is a nutty question. From what I have read of the many accounts (and I must have read close to 50 plus by now) most of them sound fairly true. IMO this movement should continue despite the risk of smearing a few innocent reputation and lives. Of Course those spearheading the movement need to do their due diligence before a story is publicised. The male in question also need to come out honestly and deny/accept the extent of allegations against them. Till now Varun, Chetan Bhagat and Siddharth Bhatia were swift and categorical in their denial/acceptance and so there are reasons to believe that they may have been targeted. But many others like MJ Akbar, Subhash Ghai, Alok Nath, Vinod Dua to name a prominent few have kept studied silence or have rambled some incongruities making the allegation look all the more credible. Of this MJA has finally responded.

The most ridiculous of the response has come from our junior minister of External Affairs. While he says the allegation are lies - he names it a political conspiracy. It is such a weak argument. 15 women have come out with their stories against his predatory style. They are from various contexts from fairly young to now middle aged and beyond. Almost all have similar signature style of advances made - if it is a political conspiracy, whoever organised he/she is a genius. No sir, it most probably isn't a political conspiracy.

His response to the allegation makes the stories against him more credible. Out of 14 stories that came out before he responded - he has filed criminal defamation against just one. Only two possible interpretations exist - one, at least the other 13 have some grain of truth in their stories; two, the filing of defamation is a intimidatory tactic to shut others up and to prevent this initial flow to become an avalanche.

While we are at it - we need to make a fine difference between sexual harassment and adventurous flirts. From all accounts available - chetan bhagat made flirtatious advances to a couple of females. But in all probability he did not stalk or harass them when they were not interested. That makes his act socially inappropriate, awkward for his personal relations, even stupid in some degrees. But it is by far not harassment. Morale of the story - let the #metoo movement not take the fun out of relationships.

The most important thing to learn from #metoo movement is that consent is everything. It doesn't matter what the character of women in question is, it doesn't matter if they are urban, educated and modern women with choices, it doesn't matter if they drink, smoke, party, stay late at nights. What matters is that when they say no, men need to stop.

Think about it this way - as a man, you don't want a relationship with a woman - can/should she force it and you would be ok with that. It's an uncomfortable question but the days are not far when male harassment will be a reality. Men should frame the rules in a more balanced fashion.

All in all the movement should bravely stand in front of male entitlement and must try to ensure that it is not derailed by over enthusiasm or by jealous pursuit of vengeance or by persona targeting.

Fuel price surge : Elections over !!!

On 12th May I had written a post on petrol price expectation and it has happened exactly as anticipated. Close to Karnataka elections - petroleum prices were held rock steady for close to 20 days and the crude price rise was absorbed by companies. Immediately after the voting was done and dusted there is a steep price rise that has continued till now. (check the two graphics - petrol and diesel prices - data for Mumbai).

It is a shame that public does not see through such brazen attempts by the Government to influence their opinions. Petrol/Diesel prices have been deregulated and theoretically the companies are free to link them to crude prices in tune with market. But it is clear that team-Modi does every little thing that in their perception may affect their electoral fortunes - policy be damned.

Like always - bhakts will post another graphic that will show that the annual fuel price rise during MMS years have been more than the four years of Modiji. To them here is a suggestion in advance - don't get swayed by BJP IT cell production - instead do some simple googling. That graphic needs to be seen along with the rise in International crude oil prices. Here are some brilliant nuggets collected by my friend K Jayaraman
1. In 2013, Brent Crude price touched about $119.
2. Todays international price is about $ 80 a barrel, i.e it was 50% more when we paid lesser than what we pay today.
3. Crude prices were at an all time high of $ 145.61 in July 2008.
4. Only Indians pay an all time high price when internationally it is almost half the all time high price ( $80 to $145.61)
5. Excise duty on diesel has been increased by about 400% since this govt. came in
So do not be fooled by the BJP IT cell propoganda - tha fact is we are being taxed left, right and center to fund the profligate means of our politicians.

and yes someone will also tell me to factor in loss of value of currency to compare with prices in MMS era - to them I would suggest also compare the rise in salaries and job creation that happened in the MMS era and last four years. Dr. MMS will win hands down on that front too.

BTW here are some celebrity statements on petrol price hike during Dr. MMS tenure
Salman Khan - "Don't worry abt petrol , sending u a pic of gobar all u hv to do vit it is make gas." - May 14, 2010
Narendra Bhai Modi - "Massive hike in #petrol prices is a prime example of the failure of Congress-led UPA. This will put a burden of hundreds of crores on Guj." - May 23, 2012
Amitabh Bachchan - "Pump attendent - 'Kitne ka daloon ?' ! Mumbaikar - '2-4 rupye ka car ke upar spray kar de bhai, jalana hai !!" - May 24, 2012
Smriti Irani - "Petrol price hiked yet again. Aam Aadmi ki UPA sarkar now only works for khaas tel companies!!" - Nov 3, 2011
Akshay Kumar - "Guys I think its time to clean up your bicycles and hit the road, expecting another petrol price hike." - 27th Feb 2012

And this post is not even about the price rise - it is about the dumb treatment that the government gives us as "praja" - regulated free price mechanisms to ensure that the boat is not rocked just 15 days before a state election is as cynical as it can get.

Sit tight very soon - our diyar modiji will chair a meeting and then announce a meagre excise duty cut that the BJP IT cell will hail as a national sacrifice to help the poor and the middle class and diyar bhakts you will be fooled yet again. Enjoy your dream ride of hypcorisy and double talks.

The GST Genie - Out of the bottle

Last night as the clock chimed twelve, India entered the all new GST regime. For close to fifteen years since it was suggested, it has been discussed, opposed and supported. It is now a reality. 

A few of my friends wanted me to write my views on the GST. So I kind of compiled some connected and unconnected musings of my own

Culmination of Long, deliberate and steady Tax Reforms

In 1991 when Dr. Manmohan Singh ushered in Liberalisation and Economic reforms marking the movement of India from a socialist economy towards embracing a capitalistic one. One of the first areas to come under the reform hammer was the taxation regime. From a direct tax regime (Income tax) that used to tax at ridiculous effective rates of close to 70+% we have a far more rational Income tax regime now. 

Similarly, the Indirect regime was first rationalised - meaning the rates were made more practical (one still remembers that Ravi Shastri who won an Audi as the Champion of Champions reward at the Benson and Hedges cup tournament in Australia was unable to bring it back to India because he was expected to pay more than the price of the Audi itself as the import duty for the gift that he got free) - in phases. 

Then, the cascading effect of taxation at each stage of value chain was gradually addressed by bringing in the Value Added principle(VAT), which also happened in stages. We heard and used the terms CENVAT, MODVAT and VAT.

Meanwhile Service Tax was also introduced as Services took increasing share in the GDP. And since its almost unheard and untalked of entry way back in 1994, it is now a source of Lion's share of Government's tax kitty.

As the GDP of India multiplied 40 times from a meagre Rs. 5.86 Lac crores (nominal GDP) in 1991 to a an impressive Rs. 135 Lacs crores by 2016 - the tax regime had its own problem of administering the sheer size despite it growing more rational and simpler.

GST was suggested as the culmination of this process - expected to result into (a) Value Added Taxation in the true sense of the word
(b) One form of Indirect Tax getting rid of so many offshoots at both central and state level 

(c) increased size of the formal economy.

After more than 15 years of consultation and debates it is now a reality. In many ways then it is a historic success of consistent movement across governments and generations towards improving the taxation regime of the country. That the, telecom, data and Internet revolution happened in the mean time is a fact. It ensured that the GST finally happens in a shape that not even its originators would have imagined way back, is an added advantage. The GST will probably first such reform in India that will be executed on a fully IT enabled backbone.

So, is it good for the Economy/Country?

There are many, many goods to the idea. 

One Tax

That there should be one integrated indirect tax in a country is an obvious good about the idea. It should/must simplify tax practices for the business in general as it currently deal with a web of indirect taxes at different levels coming across multiple and overlapping authorities. It should also increase business productivity as one expects to reduce delays and red tape in the tax administration system. It also should address the problem of tax cascading effect due to non-integration of Goods and Services and also due to differentiation of sales, Excise, various duties etc. However, there is probably more to it than just getting rid of the entry barriers at each state border and maybe even at the entry points of a few cities.

Challenges

As always the devil may be in the detail. As the GST went through its trials and tribulations - the form in which it is finally getting implemented may be a fairly complex one. Almost seven plus slabs of taxes with three types GSTs makes it a little difficult to understand. This may be the first barrier for small businesses to embrace the tax system and people may try to find a way out of the system if its compliance is tedious and costly (both of which it appears to be in the first look). More on this later. :-) 

Less Tax Evasion

Our country is notorious for bypassing the tax system and it is believed that there is a parallel informal economy outside the indirect tax net, probably as large as, if not larger than, the formal economy.

GST has an inbuilt incentive to comply with the tax system as it implements the VAT principle of letting the businessmen pay tax only on the Value Added (which in simple terms is difference between the sales and cost of the good) across goods and services (integrated). One expects then that the businessmen will be more amenable to sell all goods/services billed and so it should dent the parallel informal economy.

Challenges 

The jury remains out on this. One needs to appreciate that tax evasion galloped due to two reasons - one was irrational and ridiculously high levels of taxes, so much so that tax evasion was the only way businesses could have remained profitable at one point of time. The other was a corrupt and decayed tax administration system where the officials were more interested in harassing the tax payers and generating instances for them to get bribes. The increased cost of doing business due to this was an incentive for business to bypass the tax system.

While over the decades the tax structure has become increasingly more rational (and it continues to move in that direction) little or nothing seems to have been done to fix the babus for whom corruption has settled in as a culture. And this remains the biggest question mark on how successful will GST be in preventing tax evasion. 

The nut and shell of it is - GST may not be able to address tax evasion much if the cost of evasion remains less than that of complying with it and till evasion is simpler than compliance. The tax rates seem to be pretty high and add to it the increased cost of compliance due to increased paperwork and one is looking at a possibility that the intent may not be so easily realised.

Better Tax Administration
Many readers will jump on me when they read the above criticism about tax evasion. The counter is that the GST is being implemented on a digital backbone of Internet based reporting and reconciliation system which will make tax compliance almost a compulsion and will also help track tax evaders better. 

It is pointed out that "Invoice Matching" using the IT backbone will ensure that there is very little space for tax evaders to escape the taxman's eye. It is expected that the tax to GDP ratio will grow because of this development.

Challenges

One is entitled to a fair question here. What do we mean by better tax administration. Does it mean easing ways for the honest tax payer and making it hell for the dishonest one? I would think yes - this is what it should mean. Should it mean - making it convenient for the taxman to do his job? I would think not necessarily.

If so, there remains question mark on whether the current form of the GST meets/will eventually meet the aim. The structure of the GST seems to have put the onus of grouping the goods and services into various categories and finding and applying tax rates on them, reporting it clearly in defined formats, even working out the central and state share in that tax, to connecting the invoice of input costs for which credit is asked for, on the business and businessmen. Over the years the approach to Governance has tended to shift the clerical work of the Government to the tax payer.

In such an environment, the job of the taxman may get focussed on the mismatch or default in reporting and then regulating/punishing the businessmen to  ensure better compliance. Read in the above line the greatest risk the GST faces today - a possible return to the Baburaj that was reduced over the two decades of Liberalisation. Businessmen harassment by the Babu may be back on the table. A simple example is that a Babu may come knocking at your door for you may have defaulted/delayed in one or more of filing of the 37 returns annually mandated for you.

In short, the government must focus on ensuring that the Babudom does not abuse the new found authority they have otherwise there is great risk of the intent going haywire. In my humble opinion the bureaucracy remain the biggest risk to the success of the GST. 

Disruptive Change
One of the goods of the GST is that it brings about fundamental changes in the way both businesses and government deals with indirect taxes. It is like we are recreating the taxation regime into something all new. 

One of the universal positives of disruptive change is that it gets rid of old mindsets and old practices - trashing in its vain the old corrupt or bad practices. Such disruptive change gives the honest and upright elements in the Governmental system to assert themselves and help the system take a more positive, cleaner shape. GST is one such opportunity for the entire system.

Challenges

The biggest challenge to disruptive change is people. Old mindsets remain in the heads of the people and not in files, papers or systems. The fact is that people in charge of executing the change to the GST remain the Babu who has lived in legacy system for decades. There first instinct is to safeguard themselves from taking clear and firm decisions and the second is to find ways to make that extra buck. To them, changes like GST with its detailed systems of reporting and reconciliation is a God sent opportunity.

Lets hope that the Government has taken steps to ensure that it will not let the babudom derail the reform by wrapping it up in red tape, harassment and legal technicalities. It is however going to be a tough task.

The Political AngleIt is easy to suggest that Modiji and his Govt. burnt the midnight oil, worked out compromises and ensured that the GST meets its deadline. It managed the toughest part - that proverbial "last mile". To some extent this is true as well. Modiji/Jaitley's resolve has played an important role in ensuring that the reform does take place.

However, it will help the cause of balance to recall that everything that made this possible (Aadhar, digitisation, GST itself) was blocked and delayed by those very people who are now the torch bearers of the initiative and who now claim to have transformed the country. Revenue neutrality to the state was always on offer, but BJP ruled state under the UPA regime steadfastly refused to buzz. They did so to protect the small business lobby - those very loyal voters of the BJP whose support - the party has taken the gamble to risk by implementing the GST. Who is opposing the Govt. most on this step? Their most loyal vote bank of the traditional small businessmen. 

The BJP and its "chankya" is counting heavily on the support of the young and impatient population of the country who are voting for it. The BJP has been successful in doing that till now as most elections have shown till now. So as long this particular segment of the voters are solidly behind the BJP they have little to worry about winning elections. The midnight launch of the GST is just one more of the series of events that gets unveiled to keep this section of society engaged and hopeful. Remember the Lion of "Make in India" unfurled and maintained for more than a year in these young minds. It has been gradually shifted to new symbols and new slogans because that works best with is segment. They forget and move on easily - the Fast Track generation.

Quite characteristically, the Modi government has been able to build a hype around the GST too. Many followers believe it to be a cure all for corruption, black money and decayed tax system all packaged in one. They may be in for another surprise as they will see the next two years of teething troubles and constant tweaking of the system bringing in confusions and disappointments, before it settles down to a more practical system which may or may not achieve these high sounding goals. 

Now, to the above, may I add, that I have always expected that people will be surprised by how little the hyper promises of the Government will actually end up achieving. But the supporters have always amazed me by being super loyal to Modiji, despite in the face evidence of sure shot hype and then taking U-turns on many issues. In fact many believe this to be the natural and necessary way of getting things done. What Modiji has been able to successfully do to them is open up new bottle, turning out a new genie everytime. It helped supporters focus on the new genie and to move over from the earlier one. GST is yet another which will make them forget Make in India, skills India, Demonetisation, Pakistan etc. for some time at the least. To that extent, the constant zest of Modiji to keep doing something or the other is to be admired. Modiji has been a successful charmer till now who has been administering a bitter pill and still make people feel that they have been given a chocolate that will eventually be sweet. In the long run........

The opposition on the other hand remain a sad and hopeless story of its own. Whoever, in the congress thought of boycotting the session on launch of the GST remain blind to the fact that the Congress has failed to register its body of work  that the Modi government is deftly using to build on. The boycott may only help people forget them faster. As I have been saying this consistently - sonia/rahul must now resign and pass on the reins of the party to whoever has the capability of winning the imagination of the party workers - and that person does not seem to be Rahul Gandhi for quite some time now. If at all they have any chance to regain some political space it is to milk the resulting disruption that will take place in the coming one to two years as the GST is rolled out on the ground.

Final Thoughts

It's good that GST is now a reality. It is a step in the right direction. It is also a baby step in a series of such steps that the country took over the last two and a half decade. It is an opportunity for the country and the Government to speed up economic growth.

As a supporter of the idea of the GST - I am little pained by the complexity it has achieved in its launch avataar and the kind of uncertainties it has resulted into - at least in the short term. There remains bigger challenges - bringing petroleum, Alcohol, Education, Healthcare in the GST ambit. Increasingly government will come under pressure to act either ways. 

At the same time we must understand that anything so fundamentally different will come as a compromise package - the trick is to gradually take the initiative towards its intent. Do recall that Dr. Manmohan singh ushered in the era of Foreign Investment packaged with back to back agreements committing equal amount of exports from the country. The nation seems to have forgotten all about that - but FDI is now a reality and higher FDIs are touted as achievement by the Government of the day. 

The problem will be that government will find it tougher and tougher to maneuver as they face citizen ire over teething troubles. Then there is that proverbial sword of inflation hanging - one does not know clearly whether this will lead to increase or reduction in inflation. To my mind, if GST will actually bring more of informal economy into the formal one then it should surely lead to increase in on the ground inflation even if it is not reflected in official numbers because may be it was never a part of that data.

In summary, GST will most probably succeed like Aadhar is now succeeding. How effectively it is implemented will decide how long it will take before it settles down in the veins of the country. The challenge for the Government is to ensure that it does not settle down into another web of notifications and clarifications making things further complicated. Instead steady and resolute movement towards further simplicity and fairness will make it really a game changer. Will the Government be able to achieve that - only time will tell. Tighten your seatbelts - enjoy the ride and pray that the drama that unfolds actually touches your lives positively.

Deciphering the Demonetisation Demon - Part II

This post is a sequel to another post  that I started to write on the demonetisation of 500 and 1000 re notes initiated by the modi Government on 9th Nov 2016.

In the earlier post I presented my view on the positives of the step. This post looks at the other side of the issue (not necessarily negatives but the challenges that lie ahead of us) - what could go wrong with the initiative. What should be expect or not expect in the future

Black economy isn't going anywhere - not yet.

There have been varying estimates to the size of the black economy but all of us agree that the size is huge. The question is how much of it is in cash and how much of that cash will demonetisation be able to kill. 

There is hardly any reliable estimates but most experts quote a figure varying from 6% to 15% of the black money to be in cash. It is well known fact that lion's share of black money is stored in the form of precious metals/diamonds, real estate or as foreign currency often in another country. 

Between the time that the PM made the announcement and 12 PM barely a time of four hours - the entire stock of gold/silver jewelry was sold out (close to 100 crores) in Indore alone. 

It is also a fact that India sent a record $4.6 billion as outward overseas remittances a spectacular jump of close to three times the figure sent last year.

People ofcourse are trying various means to convert notes including depositing notes in the accounts of their maids and other employees. It is expected that these amounts will be converted into cash in new denominations within anywhere between one to twelve months.

According to the Finance minister Rs. 2 Lac crores was deposited in the banks in just two days of announcement of demonetisation. It would be interesting to study how much of it was deposited in the newly opened Jhan Dhan accounts. Even when these accounts were opened at a crazy pace - it was pointed out by experts that these accounts may not be controlled or operated by the actual account holder but may be used for parking black money. Now it is a real possibility looking at the flood of money deposited in the banks. 

The point is - demonetisation may have done very little to destroy the black economy. As the new notes increase in circulation the black economy may start thriving again unless the Government further cracks down on the three larger ticket items - Gold, Real Estate and Foreign accounts with black money. The PM on his Japan visit hinted that the next attack on black money may happen on "benami" properties. However, in this very post, I try to make a case for why the Government may find it very difficult to crack down on them.

Demonetisation by itself may end up reducing the size of the black economy by 5% at the worst and 10% at the best (assuming at least 1/3rd of the cash will still be rescued by several means).

Given that we have launched a higher denomination note of Rs. 2000 it is difficult to see how demonetisation is a major effort in addressing the black money problem.

There is a huge cash economy that is Legal

By 13th November the deposits in the bank accounts touched around three lac crores. Supporters of the Government feel vindicated and happy. However they are missing a very important point. Assuming that all these money is black may be a huge mistake. 

Our legal cash economy might actually be far bigger than this figure. And people who are unable to pay because of demonetisation may have been depositing the money in desperation. On a gut people with black money have no hurry to deposit their cash in the bank so soon, except when they get accounts of trusted people to deposit amounts upto 2.5 lacs each. They must be currently looking for ways to convert in the grey market and once they fail in achieving this objective they might deposit the money in last ditch attempt. If this conjecture is true largely we may see a surge of deposit at the fag end of December.

The other assumption that is wrong is that Rs. 500 note is a high denomination

note (it forms almost 50% of the currency available in the system) and that most poor do not have money in these denominations. What appears to be more true is that the poor saved whatever small amount in these denominations, while their routine transactions may have been in smaller notes. Retired old people may have their small savings in these notes too.

If so, the demonetisation has probably created a huge inconvenience to millions of people out there who need daily cash. 

No, I am not cribbing about the inconvenience of standing in a queue of ATMs or for notes conversion. Any exercise of such a magnitude is expected to create these scenes and I think there is no panic currently. I expect the crowds to fizzle out as larger denomination notes (specially the 500 Re value note) circulate more and more.

The inconvenience I am talking about is that we have clubbed a genuine citizen in the white economy with those in the black economy vulnerable to interpretations of and harassment by officers. This is expected to be played out in the coming months.

Black Economy is also an Economy

This might sound controversial but think about it calmly. Black economy is undesirable, it is illegal but it is an economy in itself - where real people produce and consume. Not all people who are a part of this economy are criminals and frauds. These are simple people who were born and brought up in a system driven by cash and they understand nothing else. Visit a rung-C city or villages and you will know what I mean.

It is an economy that produces and consumes. So it achieve the basic aim of distributing wealth (admittedly it is nowhere near equitable distribution - so also legal economy isn't). Meting out sudden death to this economy may create huge problems to these sections of the society. It may lead to stagnation in some parts of the economy - with consequences that I cannot probably fathom in this post.

What was possibly a better idea was to gradually merge this economy into legal one as has been happening over the last two decades and has only accelerated due to digital economy happening and growing fast.

To understand this point better be reminded of a basic lesson in Economics. Money is just a medium of transactions. To treat the disease of black money - squeezing out money from the system can kill transactions and hence impede distribution of wealth. One has to appreciate that the reason for black economy is not currency - the reasons are somewhere else - read the post further to understand those reasons as well.

Expect a Major slowdown in the Economy before it kicks up

The immediate effect of demonetisation will be a currency crunch - which means there would not be enough currency to support the transactions in the real

economy. The real estate sector which runs on black money to a minimum extent of 40% in each deal is going to go through a big adjustment cycle which may bring prices down and bubble burst effect may happen. We may expect that people will try to protect liquidity and hence discretionary expenses may be initially deferred. I wrote in the earlier post that inflation will cool down - the real fear is that it may cool down too much - leading to a temporary deflation. One can not predict the intensity but in all probability a short term slow down in the economy may happen. People who are preaching taking pain for the larger good of the economy may not have yet gauged that the real pain of this decision is yet to play out. That pain is NOT the queues that the common man is standing in currently. That pain would come from a decline in his business for no obvious reason of his own.

Add to this uncertainty inherent in the implementation of the GST from 1st April 2017 which is expected to increase indirect tax levels and would go through its own teething troubles that any new system goes through. This may cause more severe short term pain. Together, you have a sure recipe for a slow, dull and chaotic year ahead of all small businesses. 

One hopes that in the middle term it will be positive to the economy - that of course is based on the assumption that the govt. will stick to its firm stance on black money and that it will not chicken out after the UP Elections.

The journey to finish the black economy may not be played out till the very end
I already mentioned that the black economy isn't going anywhere due to demonetisation alone. Because demonetisation puts temporary brakes to a well oiled black economy which can start moving again quite quickly if we do not attack root causes. In fact, there were many effective ways to curb the black economy without causing so much pain due to demonetisation. So here is what HAS TO BE DONE if this attack on black economy has to be lethal and of long deep impact.

1. An attack on Benami Properties as already promised by the PM in an address

2. A surgical strike on the unaccounted gold kept idle as black wealth

3. A ban on Paticipatory notes. It is well known that a lot of black money is routed through PNs in the stock markets. This was once done away with under Dr. Manmohan Singh but ban was later revoked because it resulted in a sharp fall (bear market) in capital markets.

4. An immediate ban on all political parties to accept cash donations. All donations should be either done through cheques or online transactions. If the Government is sincere about killing black money and about creating a cashless economy - this should have been the first step - Leadership by setting examples. BJP spokesperson on the TV when asked flatly about this gave a lame "I am not the right person to answer this question".

5. Tax agricultural income beyond a certain limit (maybe higher than current exemption limits). It is well known that many top politicians and very rich people in India have status of farmer on books. Because agricultural income is not taxed in India. Both Modiji and FM are on record in saying no tax on agricultural income.

6. Implement the Direct Tax Code which was proposed by the UPA-II government which offered Income tax exemption for people with income upto Rs. 10 Lacs. This would bring better tax compliance.

As you were reading through these steps you may have realised that curbing the black economy is a very long haul and a politically very risky one too. On this path any Government will end up making almost everybody its enemy (or at least will upset everybody). 

If the PM did not walk this talk for whatever reason then we will have to accept that this demonetisation was a staged event to achieve some short term political gains only and not a long term economic vision.

Bureaucracy may play spoilsport
The corrupt bureaucrat, more than anyone may lose more substantial part of

their ill gotten wealth because they cannot obviously deposit it in the bank even on a penalty. So, one can expect a major part of the babudom feeling upset. The Government may come across (and this is purely conspiracy theory) bigger hurdles in implementation at the bureaucratic levels. The currency conversions was largely handled by banks who are salaried employees with little or no black money. They happily served the cause - that may not happen with the bureaucracy.

Another possibility is a spike in the harassment and bribing by the babus, due to losses they might end up booking, many of whom have paid a fortune upwards to receive the posting they are in.

Whether it be demonetisation, or GST implementation or crack down on the property market - a lot depends on the bureaucracy and to me it remains a black box ready to spring surprises.

Political Gambit - Is it Elections 2019?

The most curious bit in this demonetisation move is the political fallout. What I understand is that the small business/trading community are someone who have been traditionally solid supporters of the BJP and the PM Modiji. And what I reckon is that demonetisation will adversely affect this community the most. I personally know of people (some of them related to me) living in sub-urban rural areas of the country whose entire business is cash (both legal and unaccounted). Their business has come to complete stand still. Even when it takes off again none of them are sure whether it will recover the earlier glory and how will they keep it profitable. They might show their anger at the ballot box.

On the other hand there is another solid support base of the PM Modi - the young educated lot who are vocal on social media and are largely start up entrepreneurs and/or salaried classes. Add to them the existing middle aged middle class salaried people - who are actually happy about the demonetisation. This group is, I believe, expected to consolidate behind the PM/BJP. In fact many fence sitters in this group may finally move over to the BJP.

There is another group that was traditionally not a BJP supporter but were gradually moving closed to the party - The Indian housewives (Remember that they were the reasons for BJP's resounding defeat in the Bihar elections). In one stroke Modiji upset them because the notes that they accumulated over the years from often legitimate income of their husbands became worthless (to them) and was allowed to the extent of only Rs. 2.5 Lacs. I can vouch for the fact that over something like two decades a typical indian housewife ends up accumulating far more. This group can feel strongly anti-bjp just for emotional reasons.

However, in then medium term the positives of all this disruption may also start

kicking in and people may start feeling that the Government actually did something positive to the economy. Assuming that the BJP will keep promoting its whatever achievements, with the same deftness as it has done till now - this can be a big positive for reelection of modiji - the PM in 2019 (or maybe not if the medium term does not play itself out in two years). It may however affect the Punjab/UP elections adversely for the BJP.

The counter theory of course is that demonetisation actually conducted a surgical strike on parties like BSP, SP & Congress in the UP elections running them dry of cash to run an effective election campaign and that may actually benefit the BJP. The jury is still out.

Whatever be the truth - it is a fact that politically modiji/BJP has taken a huge gamble. To that extent Modiji has to be applauded for being the risk taker that he is generally known to be. I said on the 8th Evening after the demonetisation 

that this could either cost modiji his PM post or maybe he will establish himself as the natural PM for the next decade at least. I still feel so. It was brave of Modiji to have taken this bold decision (even if with lesser than expected prepration)

We may be pretty far from cashless economy

Disruption is a sexy word in recent times. Any one out there who is intent to bring about change in a "Amitabh Bacchan" style gets lots of claps and modiji has been able to translate those claps into votes as well. However there have been examples of disruptions that were played out without infrastructural support that fell flat and created even medium term pains. The best example that comes to mind was the dotcom bubble that played out in the first decade of the 21st century. People talked about the click economy taking over - but then what finally had to be built brick by brick is a "click & brick" economy to borrow a phrase from Mr. S M Dutta.

The same applies to cashless economy as a concept. Cashless economy will not get created by simply squeezing cash out of the system. It will have to be replaced by mechanisms to pay electronically or by plastic money. An estimated 80% transactions in India happens on cash. A very large number of them are small transactions 200 to 1000 rs range. Millions of Indians do not have bank accounts. Many who have newly opened jan dhan account currently do not know how to use them. They are scared entering a bank and are treated badly at the branches. Point of purchase do not have enough swiping machines ready. Those which are available are hardly fail safe. and I am not even talking about unprepared police and judicial system who will face a flurry of online and card frauds.

I just bought one thing in the last five days (today is 15th Nov.) a pair of lenses for my son's spectacles. The bill turned out to be Rs. 1450. I offered my card to the shop owner - he swiped it and the transaction did not go through. I checked my wallet - it had many 500 Re notes - but just 850 in small cash. He tried multiple times and failed. I offered my wife's card - did not work. I offered my credit card - failed again. He tried his own card (probably to save me the embarrassment that my card might have been deactivated ;-) )and failed. we looked at each other awkwardly. Finally, I offered him four 500 Re. notes to be kept as deposit till the time I can bring him small cash and take those notes back for depositing in my account. He was immediately shaken and simply took three notes and returned me a 50 re. note mentioning that I was too reputed a person for him to get into such an arrangement. Now think, how will cashless economy work without a fast, efficient and fail safe plastic and electronic mechanism in place in every nook and corner. Are we ready for it - my gut says no. 

Another problem with the plastic money. Transactions through them are chargeable in most cases to the extent of 2.5% of each transaction. My card carries an annual maintenance fee. This are issues to be debated and resolved before a cashless society gets into top gears. Otherwise we will be saddled with a bumpy and costly cashless economy. The black economy is actually encouraged by such low levels of preparedness. 

All in all prepare for a bumpy ride to a cashless economy, if at all.

Hyped up Expectations

Modiji likes to launch things in style. He creates a spectacle out of every step. It has worked for him - he remains a popular PM despite any number of U-turns and regular heart breaks on earlier promises. He won spectacularly from the hype of "acche din" and then kept winning elections for his party for more than a year on his larger than life imaging - well managed and superbly crafted. 

So his image managers have been able to create another image from this event. Supporters seem to be believing that this is the start of the end of black economy. Or that it is a big slap in the face of terrorism or that it is the dawn of the cashless society in India. Once again a Utopian image has been built up in the media to present this step as a huge step solving all the country's problems. 

I went to bank for converting a 4000 cash only once till 15th No. 2016 and there I could break conversation with 5-10 people from different walks of life - my sense is that common people out there are confused, a little anxious, a bit irritated but still largely with the PM. They have this feeling that something good is happening. They somehow put a lot of faith in the PM. It would be interesting to see how this faith strengthens/weakens as the impact of these moves plays out in the real economy.

In fact some obviously manageable glitches in the initial implementation itself did not generate enough confidence. It is inexplicable that no one in the entire system anticipated that the new 2000 note is much lighter and hence will create problems in dispensing from the ATMs. How can one forgive that not enough 500 Re notes were not available with the banks for distribution five days after announcing the demonetisation. This caused increased pain and avoidable delay in stabilising the situation on the ground. Does it need rocket science to understand that public will feel irritated? could there have been party workers from the PM's party out in the open managing and calming down queues - offering them water and empathy? These are basic management issues - easily anticipated and easier to implement. 

Modiji boldly commit to images when I am sure he understands that there is short term pain involved in this surgery. A large number of unsuspecting public is expected to give in to the nationalist fervour and calls being given to sacrifice in the short term for long term good of the country. They may feel hugely

disappointed when in a 5-10 years they see the black economy thriving back or terrorism again raising its ugly head. In fact the short term pain in the economy itself may lead to many a heart breaks. If and when that happens - it would be interesting to see how Modiji protects his legacy for the posterior. What is possible is that future leaders may become heroes on his tough decisions. (quite like Laloo Yadav was considered the best ever railway minister on the back of huge infrastructure improvements that happened under his predecessors).

Closing Comments

The bullet has been fired. It is yet to be seen whether its a volley of bullets targeted at the villains or is it just a hollow fire to scare away accumulated birds creating noise and trash.

If you reached this line - you deserve a heart felt thank you. Because it means you read with an intent to understand. And thats what an author always expects from a reader. So thank you very much.

Do read both the pieces (part-I) and the Part-II again. I Look forward to your comments, suggestions, critique - all. Lets hope for a better world in the future. Lets pray for less pain to those at the bottom of pyramid and lets demand a more sensitive government when dealing with such fundamental change.