Thursday, 13 July 2017

The RBI's Silence Means Modi's Demonetisation Was An Even Bigger Miscalculation Than Anyone Realises

On July 12, 2017, almost 8 months after the announcement of demonetisation, RBI Governor Urjit Patel told a Parliamentary Standing Committee that the RBI was still counting the money that had been received by the banking system, and hence he could not state how much money had actually come in.

This was doubtless an extraordinary admission. It speaks pretty poorly of India's banking system that there cannot even be a rough estimation of this amount, since all exchanges were stopped on December 25, 2016, giving the banks more than 6 months to count the cash.

I'm going to make a bold guess here and say that the RBI Governor is lying. Yes, you read that right. The RBI Governor is lying. He knows exactly how much money has come back into the system, but is unable to reveal it. Why?

Urjit Patel - Stuck between a rock and a very hard place

At the time of the demonetisation announcement last year, the amount of money in circulation in 500 and 1000 rupee notes was estimated to be 15.5 lakh crores. There was talk that the government was expecting about 13 lakh crores to come back into the banks as a result of the forced exchange, and that the remaining 2.5 lakh crores was "black" and could not be returned in the full glare of publicity. It was thought that black money holders would throw these worthless notes into the river (some of that did happen). This was how black money was going to be "hit".

Further, since 2.5 lakh crores of (in essence) promissory notes ("I promise to pay the bearer") were never going to be presented, it meant that the RBI would be absolved of 2.5 lakh crores worth of debt to the general public! This extinguished debt was going to be a one-time windfall that the RBI could transfer to the government as a huge budget surplus that could then be used to fund so many initiatives.

Now here's my theory.

I believe that the expected shortfall in currency returns did not materialise. On the contrary, I believe more money than the expected 15.5 lakh crores has come back into the system. It implies that far from demonetisation having struck a blow against black money holders and counterfeiters, the system has been cheated, and it has been cheated in more than one way.

1. Black money has been effectively turned white using demonetisation, since virtually all the deposits made have been under the no-questions-asked limit of 2.5 lakhs per bank account. A lot of private deals between black money holders and ordinary account holders must have been struck to enable this laundering, and the government is none the wiser. Minus a commission to the account holders, the original owners will eventually get back all their money. The whitewashed money will therefore largely return to the black economy, and the taxman will remain empty-handed.

2. Counterfeit currency in 500 and 1000 rupee denominations has been successfully exchanged for genuine currency in smaller denominations. Think about it. If the money that returned is more than what the RBI had put into circulation, it only means a large number of counterfeit notes have also been submitted and exchanged for genuine notes in smaller denominations. Demonetisation has unwittingly devalued the currency. By how much is anyone's guess. The RBI surely knows but is not telling.

3. Not only has the government not got its bonanza from the RBI in the form of the expected extinguished debt of 2.5 lakh crores (and hence no funds to spend on its pet initiatives), it is now in greater debt because of the demonetisation exercise. The increased deficit, as any economist will tell you, will add to inflationary pressures.

4. It means poor people have suffered for nothing. It was remarked during the months of November and December 2016 that the Indian people were demonstrating exemplary patience. Poor and lower middle class people underwent great hardship during these months, standing for hours in bank and ATM queues, and managing their lives with a chronic shortage of cash. Yet the thought that it was all in a good cause, and that holders of black money were suffering even more, kept them in relative good humour. But now, if it turns out that black money holders have managed to have the last laugh, and that common people have suffered for nothing, won't the voting public be outraged?

5. Paradoxically for a move that caused such widespread suffering, demonetisation boosted Modi's personal popularity. He was seen to have struck a blow for the common man against corruption, and the people were willing to suffer to see his efforts successful. The word "masterstroke" was often used, along with the phrase "He has delivered!" Modi seemed like a clever and decisive leader who had outwitted the enemies of the country and placed India on a path to growth and prosperity. Now everything has been turned upside-down. Modi no longer looks clever. He looks like a fool. The crooks have taken him for a ride.

Outwitted - an uncharacteristic look for a perpetually smug politician

This is politically explosive stuff. If it becomes common knowledge, Modi will be politically weakened, perhaps so badly that he may lose the 2019 election.

And that is why I believe RBI Governor Urjit Patel is trying to dissemble, obfuscate and delay his way out of the mess he has been forced into. His political masters have forced him into this sorry situation.

Tuesday, 4 July 2017

Four Things That Indian Hindus Must Understand About Their Muslim Compatriots

I've been reading a lot of highly polarising stuff on social media, and it has slowly been dawning on me that a lot of Hindus, even nominally educated ones, have been intellectually lazy in not taking the time to analyse the facts about their Muslim compatriots.

Many of them have strong opinions that seem to be backed by facts, but their logic is a bit dodgy.

I would like to spell out the four fundamental flaws in their logic.

1. Worldwide Islamic terrorism has little involvement from Indian Muslims

2. The Kashmir problem does not concern Muslims in the rest of India

3. Bangladeshi Muslim immigration is different from the population growth of Indian Muslims

4. Mediaeval Muslim invaders have very few genetic links to modern Indian Muslims

Let me elaborate.

1. Worldwide Islamic terrorism has little involvement from  Indian Muslims

Since September 2001, the world has rudely awoken to the problem of Islamic terror, and Muslims are now looked upon with suspicion worldwide. Acts of Islamic terror in Western countries have been carried out by Muslims from many countries. However, hardly any have been from India. 

The curious case of the Indian Muslim and terror did not escape the notice of Time Magazine, which carried an item in its April 10, 2015 issue - "What India Can Teach Us About Muslims And Assimilation".

Since the rise of ISIS in Syria and the establishment of a putative caliphate, Muslims from around the world have travelled there to become part of the group, with a couple of notable exceptions - India and Indonesia. There are hardly any ISIS recruits from these two countries.

Perhaps the best certificate, though, is the left-handed one from Zakir Musa, a former member of the Hizb-ul-Mujaheddin who joined Al Qaeda. He called Indian Muslims "shameless" for not joining the global jihad.

There is thus sufficient evidence that the Indian Muslim is a breed apart, and deserves a greater degree of trust and reciprocal goodwill.

2. The Kashmir problem does not concern Muslims in the rest of India

Kashmir has been a simmering problem for India ever since independence. Part of the problem has been fomented by the Pakistani army, but that doesn't fully explain it. Part of the problem has been the periodic dishonesty of the Indian government (rigged elections in 1987, for example), and a heavy-handed approach to security (AFSPA and the human rights violations it condones), but those don't fully explain it either. An unspoken aspect of the Kashmir problem is a fairly widespread desire for an Islamic state, and the readiness of the more extreme separatists to simply eliminate their moderate counterparts.

So there definitely is a hardline Islamist element to the never-ending violence in Kashmir, and a major part of it is local in origin. This can be frustrating and infuriating to the average Indian, who sees Kashmir as always getting favourable treatment (both through the protections of Article 370 and the investments made by the Indian state into J & K). The expulsion of Kashmiri Hindus (the Pandits) from the valley during the 1990s also exacerbates this feeling.

However, Muslims in the rest of India have nothing to do with Kashmir. There is hardly any support for Kashmiri separatism expressed by Muslim groups in the rest of India. The non-Kashmiri Muslim voice has been remarkably muted on this issue. Hence there is no reason for any frustration that Indian Hindus may feel about Kashmir to spill over towards Muslims in the rest of India. Apart from the accident of sharing a religion, there is nothing in common between the latter and the separatists in Kashmir.

3. Bangladeshi Muslim immigration is different from the population growth of Indian Muslims

There is a serious problem of illegal immigration of people from Bangladesh into the northeastern states of India and West Bengal, and from there, into the rest of India. Some estimates put the number of illegal Bangladeshi immigrants in India at 20 million. Not only is illegal immigration indefensible, it also threatens to rapidly change the demographics of Indian states, turning many districts and electoral constituencies into Muslim-majority ones and potentially shifting the balance of political power within India. Clearly, this is a serious national security problem that needs to be urgently tackled.

However, the problem of Bangladeshi immigration is not to be conflated with the population growth rate of Muslims in the rest of India. In this context, I have often heard the scaremongering message that "Muslims will outnumber Hindus in 30-40 years".

I found this such a remarkably precise and potentially falsifiable statement that I immediately got to work with a spreadsheet, and the last four decades of census data. I saw that over these four decades, both Hindu and Muslim growth rates have been steadily falling, and also that the Muslim growth rate has always been higher than the Hindu growth rate. I extrapolated forward for the next 40 years, by factoring in continuing falls in both Hindu and Muslim rates of population growth, but also ensuring that the Muslim growth rate remained above the Hindu one throughout. I also had to keep my growth rates from becoming too high, because otherwise the total Indian population would exceed reasonable limits.

As I had pretty much expected, the highest percentage of the total population that my model projected for Indian Muslims in 40 years was 19%. A more realistic set of growth rate figures put this percentage at 16% (at which time the total Indian population would be about 1.7 billion). This is a far cry from the 50+% that the term "outnumber" implies.

The myth of a soon-to-be Muslim majority is precisely that - a myth. Fortunately, it's extremely easy to refute with a spreadsheet and some independent thinking

It's clear that Indian Muslims are in no position to threaten the numerical dominance of Hindus any time in the foreseeable future, so the majority should stop thinking of itself as a threatened minority.

4. Mediaeval Muslim invaders have very few genetic links to modern Indian Muslims

Genetically speaking, Indian Muslims are virtually identical to their Hindu neighbours. The overwhelming majority of them are of Indian stock and are descendants of converts to Islam from Hinduism. With some (highly diluted) exceptions, they are not descendants of Turks, Mongols, Persians, Afghans or any of the other Muslim races that invaded, conquered and plundered India centuries ago.

Treating Indian Muslims as "Baabar ke aulaad" (children of the Moghul invader Baabar) is not only not based on fact, it is needlessly harsh. If the forefathers of Indian Muslims were originally Hindus (who were probably converted at swordpoint), they were probably victimised to an even greater extent than the Hindus who managed to hold out. This understanding should lead to greater empathy and a feeling of oneness, rather than alienation.

So, to repeat what I said at the beginning of this post, I believe many Indian Hindus have been intellectually lazy in not thinking deeply enough about the four distinctions I have made here. That may explain the flawed reasoning and needless paranoia that I see on social media. A cool head and the application of logic can lead to a much more reassuring worldview than an ideology based on fear and suspicion.

In addition, it would not just be unfair, but also needlessly self-defeating, to treat a loyal group of fellow Indians with suspicion. Continued "othering" of a group of people can cause alienation, and perhaps even radicalise a few in the process. It would be a tragic irony if the myth of the "enemy within" turned out to be a self-fulfilling prophecy.

Monday, 3 July 2017

India's Entitled, Privilege-Blind Elite And Their "All Lives Matter" Counter-Movement

Those reading the news from India would have heard of the "Not In My Name" protests, which were recently held across more than 10 Indian cities. This movement was the idea of liberal Indians to protest the increasing attacks on their Muslim compatriots.

The "Not In My Name" protests, with the hashtag #NotInMyName

Since then, I've come across outrage from many educated Indians against the "Not In My Name" protests. This chart circulating on social media got my attention.

One of the popular reactions to the "Not In My Name" protests

I found this quite remarkable, and it made me think about some parallels.

How many people believe that US cops are biased against black people? (Indians shouldn't be sanguine. Indian grandfather Sureshbhai Patel was assaulted and left partially paralysed by a white policeman, Eric Parker, and Parker was later cleared of all charges.) There have been many such cases. White people who commit crimes are led away in handcuffs to face trial, while black people in far less extreme circumstances are often shot dead on suspicion, and the cops get away scot-free. Some of the victims have been just children, but their families get no justice.

Anyway, those who believed that blacks were being unfairly targeted started the movement called "Black Lives Matter."

Shortly thereafter, another group of people, mostly white, started a counter-movement called "All Lives Matter." They may have honestly believed that they were correcting an imbalance, but to the rest of the world, including to many in India, they just came across as entitled, privilege-blind people. After all, what the original protesters were trying to say was that "Black Lives Matter Too", not that "Only Black Lives Matter".

Now a similar situation is playing out in India, and the irony is that many of the same people who could clearly see that the US system is biased against blacks have now taken on the role of the whites when it comes to their own country.

The injustice is startling. Take the earliest example. A man (and it is significant to add that he was Muslim) called Akhlaq Khan was lynched by a (Hindu) mob on the mere suspicion that his family had beef in their fridge. Today, it's still not clear whether or not they had beef in their fridge. But that shouldn't even matter! Even in states where eating beef is illegal, the law does not prescribe the death penalty, and definitely not through mob justice! His lynching is clearly a crime. Yet it's the victim's family that was slapped with an FIR. His assailants got away. Not only that, when one of those attackers later died of unrelated causes, a union minister attended his funeral, and his body was draped in the national tricolour as if he had performed a great sacrifice in the service of his country. To an external observer, this would seem to indicate that India had taken leave of its senses.

Full state honours for a member of a lynch mob

Not only that, even when the case gathered international headlines, the prime minister, who tweets about every inconsequential thing, remained silent for days. When he finally spoke on the issue, it was to utter a platitude: Hindus and Muslims must fight poverty instead of fighting each other. He reduced a mob lynching to a case of two groups fighting each other!

This is why Modi is considered a dog-whistling weasel.

Since then, there have only been more such cases, and they have garnered (unfavourable) international attention.

In response, we have a peaceful, home-grown protest movement called "Not In My Name". It shows that not all of India has fallen prey to this "mad cow disease". Yet even this peaceful protest seems to have outraged some people.

The chart in the image above is India's equivalent of "All Lives Matter". And it's mainly Hindus who take this position that the whole issue is being overblown, and everything is hunky-dory.

Well, they may think they are correcting an imbalance, but to the rest of the world, they come across as entitled, privilege-blind people.