Demonetisation: Tale of two Chief Ministers makes a fascinating case study
This is about the Andhra Pradesh Chief Minister N. Chandrabu Naidu and his counterpart in the state of Telangana K. Chandrasekhar Rao (KCR). Both are Chief Ministers of new born states, a difference of less than 24 hours separates their official identity. Yet their response to the recent `surgical strikeâ€™ of the Prime Minister Narendra Modi on ‘black money’ makes a fascinating case study.
For the record Mr. Babu was the only Chief Minister to have publicly demanded demonetisation of Rs. 500 and Rs. 1, 000 notes three weeks before the actual announcement by the Prime Minister. The Andhra Chief Minister held a news conference at the temporary capital of his state-Vijayawada on October 12 to articulate his demand. There was a specific context in which he made the suggestion.
He had linked his demand for immediate abolition of currency notes of Rs 1,000 and Rs 500 denominations as a pragmatic measure to curb black money. “”Out of the Rs 65,000 crore disclosed across the country, Rs 13,000 crore was declared in Hyderabad and, out of it, Rs 10,000 crore by a single individual. Who is that, we can’t know as per law. Is it possible for a businessman to declare such huge money,”” he had asked.
Noting that politics has become a “”shelter”” for corrupt people and black money earners, he said, “”Some people who are in politics are misusing the people’s mandate. I am writing a letter to the Prime Minister today asking that Rs 1,000 and Rs 500 notes be abolished and total bank transactions be encouraged.””
One can only surmise that either Mr. Naidu was in the know of a great deal of what is happening in his or the neighbouring state as well as the Centre or he was just speculating. One can only presume a CM of his stature and seniority would not talk loose.
Ten days later after the PMâ€™s announcement, Mr. Babu begun to demonstrate signs of nervousness. Last week he actually deemed it necessary to write for the second time to the Prime Minister as well as the Finance Minister and officials in the Union Finance Ministry on measures needed to make the whole operation smooth and a little less painful!
What went wrong? For academic argument let us say either he assumed his demand for demonetisation would never be fulfilled or he just did not anticipate the consequences of the decision.
How else does one explain his second letter to the Prime Minister seeking Rs. 10,000 Crore rupees of smaller denominations to the state to overcome the problems. The second letter pleaded for Rs. 10 thousand Crore rupees of smaller denominations–Rs.10, Rs.20, Rs.50 and Rs.100–to the state on the ground that it was required to overcome the problems following demonetisation of currency.
At a formal news conference in Vijayawada last week, the temporary capital of the state, Mr. Naidu urged the Union government and the Reserve Bank of India (RBI) to immediately dispatch new currency notes of smaller denominations worth Rs. 10,000 crore to tide over the crisis precipitated by the demonetisation of old currency notes.
â€œI spoke to RBI Governor Mr. Urjit Patel requesting him to despatch adequate new currency. The government will also mount pressure on the Centre for release of additional currency to ease the cash crunch,â€ he told the media.
He suggested to the Centre to provide 80 per cent subsidy on E-Pass machines to the businessmen and said his Government will be happy if the Centre is ready to agree for 100 per cent subsidy.
Mr. Naidu wanted the centre to exempt charges to the people who will make on-line transactions. Mr Naidu said the common people, farmers, daily wage earners and old people are facing immense inconveniences due to non-availability of cash in the banks and ATMs in the state.
Why should it surprise anyone if a Chief Minister chooses to point out the adverse impact of the demonetisation move? It should not in the normal course. But case of Mr. Babu is different. He was one who had made the suggestion in the first place.
It leaves one with two scenarios to contemplate particularly given the backdrop against which Mr. Babu had originally articulated his demand. His demand came after he dropped a bombshell that out of the Rs 13,000 crore of black money declared in Hyderabad under a recent scheme, Rs 10,000 crore belonged to a single individual, in apparent hints towards his political rivals. Yes, Rs. 10,000 crore by one individual!
“”In my vast political life and experience, this is the first time I’m seeing a crisis remaining unresolved for such a long period,”” the Andhra Pradesh chief minister said during a teleconference with Reserve Bank and state government officials and district collectors.
“”It’s painful to see that the problem caused by demonetisation is continuing even after 12 days.”” Mr. Naidu appeared to be handing a lesson in crisis management to the Centre as he recounted how fast his administration had stemmed the chaos from a cyclone and a stampede-scarred mass festival in the past two years.
The chief minister said he was “”becoming impatient””. Modi had asked people to be patient for 50 days. Mr. Naidu had been advocating a ban on 500 and 1,000-rupee notes since 2013, and was one of the few politicians outside the BJP to welcome the demonetisation announcement of November 8.
Indeed, a few days before the announcement, he had written to Modi urging such a move to stifle corruption and vote-buying. The letter has prompted a couple of Naidu’s ministers to claim the chief minister had inspired Modi’s decision. “”I compliment the PM,”” Naidu had himself said after the demonetisation drive was launched, while at the same time questioning the plan to introduce 2,000-rupee notes and seeking a debate on it.
In a show of support for Modi’s decision, Naidu’s government had opened a helpdesk at Vijayawada and a toll-free line to help people deposit their old notes at banks and post offices. The endowment department, which oversees the running of many temples, offered the coins and smaller currency from the hundis to the banks. In certain districts such as West Godavari, the administration initiated a system of tokens substituting for notes in the purchase of vegetables at government-administered farmer markets.
Mr. Naidu cited how he had dealt with crises. “”We overcame the catastrophe caused by the cyclone in eight days,”” he said, referring to Cyclone Hudhud, which had pounded Visakhapatnam in October 2014. He had camped in the port city for about a week, operating out of a bus and winning praise from residents for restoring normality in a short time.
“”We held the Godavari pushkaram (a festival in July last year) for 14 days without further hiccup after the trouble faced on the first day (a stampede that killed about 30 people). But the demonetisation trouble remains unresolved after 12 days,”” he said. “”Bankers should take this as an opportunity to prove their capabilities. We should move forward to tackle the situation with cooperation, coordination and efficient action.”” He warned that notices would be served on banks that failed to cooperate.
Mr. Naidu asked the banks to set up call centres to keep customers abreast of the latest position on cash. He asked the bigger banks with currency chests to share the money with rural branches. He said that more point-of-sale machines would be added to the already operating 25,208 e-pass machines at ration shops. He asked state officials to make all the transactions cashless.
The chief minister also directed that 60 lakh students be trained in mobile banking and online transactions so they could spread the knowledge among family and friends. In contrast the response of his counterpart in Telangana K. Chandrasekhar Rao was entirely different.
His state was badly hit on account of withdrawal of Rs. 500 and Rs. 1000 notes,Telangana CM KCR rushed to New Delhi for an interactive session with Mr. Modi on urgent steps needed to be taken to ease the sufferings of people as well as the state governments on account of the crisis triggered by the ban on Rs. 500 and Rs. 1000 notes!
According to his office last week Mr. Rao had telephoned the Prime Minister to apprise the Prime Minister of the serious situation faced by the ordinary folk in his state on account of the currency ban. In the course of the conversation the PM not only asked him to visit New Delhi but also requested to come with a blue print on what can be done to ease the situation.
So on Saturday Mr. Rao had a meeting with Mr. Rao with a demanding moratorium for states on payment of interest on loans due to centre. He also appealed to the PM to direct the concerned enforcing agencies and officials to ensure that money kept by women for `emergenciesâ€™ is not treated as a crime. In addition he wanted the centre to direct that private hospitals also accept old Rs. 500 and Rs. 1000 notes
There are no views that Telangana state is in dire straits following the recent decision of the Narendra Modi government to ban Rs. 500 and Rs. 1000 notes. The state has been hit severely due to the demonetisation move. On Friday hours before the Chief Ministerâ€™s was to depart for New Delhi, the state officials had maintained that though bank deposits swelled to Rs.30,000 crore of which only 10 per cent is in circulation.
The sharp decline in revenue from liquor is evident from 50 per cent drop in sales in the retail outlets. VAT revenue declined steeply in the last 10 days. As against collection of about Rs.2,400 crore a month, so far only about Rs.200 crore was realised in more than two weeks.
The irony of it all is that of the Rs. 63000+ plus that got converted into white thanks to the recent tax amnesty scheme of the Modi Government, Telangana alone accounted for Rs. 13000 crore of the disclosure. Of this one individual is supposed to have benefited to the extent of Rs. 10000 crore.
In the course of his meeting with Mr. Modi the Telangana Chief Minister made a plea that the old currency kept by women and housewives, as home contingency fund, should not be considered illegal. He also wanted the PM to direct that all private hospitals should accept old currency notes till normalcy returns.
It seems the Telangana State has been hit very hard by the decision of the Modi government. He is perhaps the first Chief Minister in the country who actually deemed it necessary to dial up Mr. Modi to give his frank assessment of the ground situation.
A statement issued by the Chief Ministerâ€™s Office on Thursday had quoted Mr. Rao as saying that while he welcomed demonetisation `if it helped clean up the countryâ€™s economyâ€™, the Centre should take into account the loss incurred by State governments and decreased flow of revenue to them.
Telangana wants the Centre to defer payments by States on the loans borrowed by them as it they are hard pressed for payments due to various organizations as well as advances and salaries to the state government employees. Official statement of the Telangana CM had quoted Mr. Rao as saying that all those having more than Rs 2.5 lakh as income or savings should not be treated as black money holders. â€œInstead, it should be referred as unaccounted money. These small and medium traders, businessmen and others in the unorganised sector should be given certain exemptions. They should be given one more chance to disclose their income and deposit the money in banks, thereby granting them one-time amnesty.â€
It said that the Chief Minister has reviewed at length the impact of demonetisation on the Stateâ€™s revenue. â€œIt was informed that transport and registration departments bore the brunt while excise, sales and commercial taxes also had a setback. While welcoming demonetisation, Mr. Rao said any reform was a continuous process and aimed at achieving excellence. It would be nothing but success when thinkers and intellectuals collaborated for a purpose. However, any decision of the Centre to curb and prevent black money should not cause misery and suffering to lakhs of small traders, common public and those in the unorganised sector. Efforts should be put in place to safeguard the interests of these sections. People should be made partners and stakeholders in development.
Meanwhile Kerala Chief Minister Pinarayi Vijayan said that an all-party delegation from the state will meet Prime Minister Modi and Finance Minister Arun Jaitley in Delhi, over the prevailing corporate bank crisis.
The Kerala Assembly, which held a special session to discuss the turbulent situation in the state’s co-operative sector in the wake of Centre’s demonetisation scheme, passed a resolution stating that union government should withdraw the restrictions on cooperative banks. The resolution states that like commercial banks, co-operative banks should also be given permission to conduct transactions. Chief Minister Vijayan assured said that people who have deposited their money in co-operative banks need not get worried, guaranteeing that not even a single penny will be lost.
Vijayan has made his stand on demonetisation quite clear, as on several occasions he has voiced out against the Centre saying that the radical scheme has “”inconvenienced”” people across the country as no “”adequate”” backup arrangements were made. Asserting that people were suffering across the nation because of lack of planning by the government, the Chief Minister has emphasised that his government is not against curbing black money but was against the steps which cause hardship to common people.
Last week, Vijayan and his cabinet colleague Finance Minister Thomas Issac called on Mr Jaitley in New Delhi and conveyed to him the difficult situation on account of spiking of high value currencies. Mr. Vijayanâ€™s delegation would appraise the Prime Minister, the Union Finance Minister and all others concerned during their visit to N. Delhi would discuss among other issues on cooperative sector crisis that has gripped the state
Chief Minister Pinarayi Vijayan, while calling for unity among the major players in the cooperative sector, said the Centre should remove the ceiling on cash withdrawals by cooperative banks, exchange demonetised notes and give operational freedom to treasuries to handle cash transactions. He said Kerala had always stood united, irrespective of political affiliations, whenever the Centre had adopted policies intended to weaken the cooperative sector.
No other financial establishment could compete with cooperative bodies in the credit sector, he said. The cooperative movement had emerged as the most revolutionary development after the land reforms. â€œThe RBIâ€™s stand will adversely impact rural areas. Unfortunately, the RBI is not prepared to recognise the social commitment of the cooperative movement. It does not recognise the presence of the cooperatives in providing varied services such as interest-free loans, housing loans, running medical stores, consumer fair price shops.â€ He said the State could not accept the stand that cooperatives should withdraw from social objectives. â€œThe main dispute is connected to the Vaidyanathan Commission report which the State had rejected totally,â€ he said.
The second major issue related to income tax under which cooperatives are now deducting TDS on deposits above Rs.25 lakh. But the decision to keep the cooperative banks out of financial transactions after demonetisation was intended to strangle the sector. Scheduled commercial banks can never be a substitute for cooperative banks in the rural credit sector.
BJP State president Kummanam Rajasekharan and general secretary K. Surendran walked out of the meeting stating that the party could not support a move that was intended to help holders of black money! Chief Minister Pinarayi Vijayan said it was not possible to accept the BJPâ€™s stand on this issue.
About the author: The author is a practicing hack, a cynic to core.”