https://telegram.

me/TheHindu_Zone

https://telegram.me/pdf4exams

10 ISSUES AND INSIGHTS

MUMBAI | THURSDAY, 8 DECEMBER 2016

>

Awaiting a feedback loop

A virtuous cycle has to take take off if electronic transactions as a medium
of exchange is to soar in India following demonetisation

THE OTHER SIDE

A V RAJWADE
ver millennia, economies developed with more and more production of goods and services
for exchange, rather than consumption
by the producer himself. In an earlier
era, the exchange took the form of
barter, but the real growth of exchange
came through evolution of money as
a medium of exchange. Initially, after
the era of cows and cowries, precious
metals such as silver and gold became
the medium; later, under the gold stan-

dard, paper money backed by precious

metal became the medium of
exchange. The latest and current avatar
of money is paper currency backed only
by the central banks promise to pay
the bearer the sum of.
Kenneth Rogoff, the former chief
economist of the International
Monetary Fund, has recently written a
book, The Curse of Cash, arguing that a
large part of paper money is feeding tax
evasion, corruption, terrorism, the drug
trade, human trafficking in short, a
massive global underground economy.
He argues that paper money can also
cripple monetary policy. Will the next
stage be paperless, electronic money?
The Swedish Central Bank seems to be
investigating the possibilities.
In many ways, Swedens political
economy is a strange combination
among the advanced countries. It is one
of the richest in terms of per capita
income, with one of the lowest levels of
income inequality as measured by the

Gini coefficient; a strong social democratic tradition even as its central bank,
the worlds oldest, has sponsored the
Nobel Prize in economics, which has
honoured so many neoliberal economists from the US, the home of the
Chicago School of laissez-faire ideology. Sweden is not a member of the
Nato or the euro zone. There has been
a dramatic drop in the use of cash in
Sweden, and the number of notes and
coins in circulation has dropped by 40
per cent in the last seven years. Will
total demonetisation work, making
all transactions traceable?
Coming to India, it seems one of the
reasons that led to last months demonetisation of ~1,000 and ~500 currency
notes was a dramatic increase in the
number of currency notes in circulation over the last two years. In our country, almost 80 per cent of the transactions (by number) get settled in cash
in Brazil and China the number is
less than 50 per cent, and around 20

per cent in most advanced economies.

Since November 8, the use of electronic money in India, whether through
mobile phones or credit/debit/prepaid
cards, has gone up. Whether it will continue to expand in the years ahead
remains to be seen. The key may well be
whether we will witness a positive
feedback loop in the real economy.
(This phenomenon, also known as
reflexivity, is common in asset markets. The price of a share goes up; it
attracts other investors; the price goes
up further; and so on.)
We need a feedback loop if the use of
electronic transactions as a medium of
exchange is to increase significantly.
Most people do not use such money
because it is not accepted by sellers.
We need a virtuous cycle in which:
 more and more individuals subscribe
to mobile payment systems or wallets
or cards;
 more sellers subscribe to it or
buy/rent point-of-sale swipe machines
as they see business going to sellers
providing the facility;
 and this persuades more and more
consumers to resort to electronic
money systems.
The introduction of a uniform goods
and services tax may also help the phenomenon. The other side is that, once

the supply of notes becomes normal,

will we go back to our customary ways
of making purchases? Then the feedback loop will cease to spin and could
go into reverse. What is likely? Toss
a coin!
But if the experience of some East
African countries is any guide, we could
well see a virtuous feedback, particularly if the transaction costs are negligible. A mobile payment system, mpesa, was launched by Vodafone in
Kenya and Tanzania almost a decade
ago. Now it has around 17 million users
in Kenya (population 47 million) and
seven million in Tanzania (55 million).
Clearly, the pace of growth varies
widely even in two otherwise
similar countries.
But to come back to India, digital
money has as much potential to change
the way our consumer markets operate, as the National Stock Exchange did
two decades back in terms of the share
(and derivatives) market. To be sure,
no electronic system is hacker-proof,
not even the Central Intelligence
Agencys (as WikiLeaks proved). But
are not pockets picked in todays currency notes-based system?

> CHINESE

The author is chairman, A V Rajwade & Co

Pvt Ltd; avrajwade@gmail.com

Treading carefully a wise decision

The Monetary Policy Committees caution is understandable at a time of heightened uncertainty

SAJJID Z CHINOY
erhaps the only thing everyone
can agree upon is that we live in
times of heightened macroeconomic uncertainty. The economics of
demonetisation are complicated and
nuanced. Every day, assessments are
changing about the quantum of any
negative wealth effect, either directly
from any unreturned old tender or from
a spillover to other asset classes such as
real estate, as deposits continue to come
in. Every day, assessments are changing
about how long the liquidity constraint
to households will bind for, based on
the pace of remonetisation. Reasonable
people can agree to disagree on how
much of this is demand destruction versus demand merely being postponed
down the line. Every day, assessments
are changing about whether there will
be a supply shock, either temporary or
more enduring. Given these uncertainties, its hard to have strong convictions
on the growth trajectory in the coming
quarters, barring some more data. And
just because growth may be weaker, its
not necessary that inflation will be necessarily softer, to the extent that any
demand shock is accompanied by a
supply shock.
Furthermore, all this is only half the
story. Global uncertainties have arisen,
as the US is on course to pursue reflationary policies, yield curves have

steepened, the dollar has strengthened,

oil is up, and the Italian referendum has
created new uncertainties in Europe.
Unsurprisingly, the pressure on emerging markets (particularly, commodity
importers) will rise if global financial
conditions tighten and oil prices rise
in tandem.
Against this backdrop, it was hard to
harbour strong convictions about how
monetary policy should and would
react. At some level, therefore, its
understandable that market expectations (which ranged a 25-50 bps cut)
diverged from the Reserve Bank of India
(RBI), because the underlying assumptions were different, which is perfectly
understandable in this time of uncertainty. In particular, many market analysts are pencilling in a meaningful
growth slowdown in the second half of
the year. As a consequence, they have
forecasted a softer trajectory of inflation, which potentially opens up some
space for easing.
In contrast, the Monetary Policy
Committees (MPC) view was that any
growth impact from demonetistion is
likely to be more shallow and transient.
To be sure, the RBI marked down its
full-year growth forecast for 2016-17 by
50 bps, from 7.6 per cent to 7.1 per cent,
but much of this was largely on the back
of the growth disappointment in the
first half of the year. First half growth
has averaged 7.2 per cent. Therefore, by
pegging full-year growth at 7.1 per cent,
the MPC is pegging second half growth
at seven per cent, just 20 bps lower than
in the first half.
The implication, therefore, is that
the RBI is slightly less worried about a
deep or prolonged slowdown. This is a
perfectly legitimate view for the MPC
to adopt for now. With deposits surging
into the banking system (75 per cent of

TOWARDS REMONETISATION To the extent that the focus is now on printing ~500
and ~100 notes, the pace of increase of the value of new notes could be
slow, even though effective currency in circulation could rise
the outstanding notes have already
deposited by December 6), markets
have begun to fade any negative wealth
shock, and the RBIs policy statement
also indicated that any such wealth
shock is likely to be limited. Most
growth write-downs have therefore
been predicated on the fact that liquidity constraints that are impinging on
household consumption will endure for
a while, given that it may take time to
remonetize the economy. Indeed, the
current cash/gross domestic product
(GDP) ratio (as of December 5) was at
4.1 per cent of GDP versus 11.8 per cent
before the demonetisation. However,
implicit in the RBIs growth forecast is

How demonetisation hampers economic activity

Most bankers, it seems, are not aware
that discretion is the better part of
valour. Which is why we have a nonperforming assets-induced mess that
is holding back economic recovery.
Which is also why some bankers aver
that economists talk nonsense.
Many years ago, Irving Fisher
formulated the quantity theory of
money, the fount of monetarism. The
simple identity of exchange was that
the value of transactions that a given
stock of money could support would
depend on the velocity of money, viz
the number of times money changes
hands in the process of completing
transactions. What this means is that
if the price level and the velocity are
stable, there is a direct proportional
relationship between the stock of
money and the volume of
transactions it can support. Now
comes the rocket science part: If the
stock of money contracts, so will the
volume of transactions. And, heaven
(or the government) forbid, if the
velocity of money falls (likely when
86 per cent of cash is demonetised),
then the decline in the volume of
transactions would be even sharper.
Now, all economists and
management-types (hopefully,
including bankers) have encountered
Fisher's theory at some point. The
critical point to note is that it is an
identity. That is, it is always true; it is
not some esoteric equation cooked up
by economists.
Now what does this have to do
with demonetisation? Everything.
Reducing the stock of money will
result in a reduction in the value and
volume of transactions. What sort of
transactions? Employers paying
wages in cash, consumers buying

A notice reading We are out of cash

is displayed on the shuttered entrance
of a currency exchange outlet in
PHOTO: BLOOMBERG
New Delhi
household staples, producers paying
cash for parts required for
production, farmers selling produce
in the wholesale market, daily
purchases of fruits and veggies, sales
at a paanwallahs, paying school fees,
hospital admission charges the list
could go on, but you get the idea.
Demonetisation and the limited
supply of lower denomination notes
imply that most of these transactions
will not go through, that is, these
remain contracts/trades that simply
cannot be concluded.
The consequences: Some
industries come to a grinding halt
(cycles in Ludhiana and textiles in
Tiruppur, Indian Express), reverse
migration of daily wage labour
(Indian Express and this newspaper),
farmers unable to harvest the kharif
and in difficulty about planting for
rabi (this newspaper, The Mint, The
Telegraph), shutdown of roadside
vendors (look around yourself), the
road transport industry facing major

The author is chief India economist at

J P Morgan

Money isnt everything

The Narendra Modi government has moved
fast to resolve the currency squeeze that
some of the embassies and high
commissions had faced after
demonetisation. The Pakistan High
Commission was upset that its staffers were
not being allowed by the bank to withdraw
their salaries in US dollars, as is the norm.
The Russians were frustrated for being
allocated a mere ~50,000 per week to run
their mission. Neither are complaining any
more. While most missions in New Delhi are
serviced by either public sector or big
private sector banks, the Pakistanis are
stuck with one of the smaller private banks,
which is headquartered in Maharashtra
and has a limited number of branches.
They say none of the bigger private and
public sector banks have been willing to
cater to the mission and its consulates,
pointing to the uncertainty in
India-Pakistan bilateral relations. Money,
at least in this case, isnt everything.

TINA vs TATA
At a session on inclusive insurance in New
Delhi, panelists were discussing various
ways, including using digital tools, to bring
more people under insurance cover. While
some panelists suggested going digital
might be the only alternative, David M
Dror, chairman and managing director,
Micro Insurance Academy, chose to differ.
He said TINA, the acronym for there is no
alternative the phrase associated with
former British prime minister Margaret
Thatcher was not the right term for
India. He added that India was the land of
TATA, where the acronym stood for there
are a thousand alternatives.

Like old friends

On Wednesday, the Embassy of Japan in
New Delhi celebrated its national day, on
the occasion of the birthday of the
Japanese Emperor. Japans Ambassador to
India Kenji Hiramatsu in his brief speech
noted New Delhi and Tokyos shared world
view. The event was attended by
diplomats, military attaches, politicians
and journalists. There was much mirth
when Pakistan High Commissioner Abdul
Basit (pictured left) and Major General
(retired) G D Bakshi (pictured) shook hands
and chatted with each other. Bakshi is a
frequent guest on news television shows
and known for his relentless tirade against
Pakistan. While Basit is known for his
charm, Bakshi was equally gracious, as the
two talked like old friends.

> LETTERS

INSIGHT

RAHUL KHULLAR

the that the growth hit from liquidity

constraints could be less than feared,
either because the remonetisation could
proceed faster than expected or because
there is more migration to non-cash
forms of payment. Indeed, between
November 27 and December 5, the new
notes that entered circulation jumped
from ~2.5 trillion to ~3.8 trillion, a higher-than-expected run rate. To be sure,
uncertainties remain because, to the
extent that the focus is now on printing
~500 and ~100 notes, the pace of
increase of the value of new notes
could slow, even though effective currency in circulation could rise if these
notes induce a greater circulation of the

~2000 notes. The point is that there are

too many known unknowns. But the
fact that the cumulative value of new
notes has jumped in the last 10 days,
combined with the RBIs more hopeful
view on growth, suggests that the remonetisation may proceed faster
than expected.
Finally, the MPC had to assess
whether the economy is being hit just by
demand shocks or by a combination of
demand and supply shocks, especially
with oil prices rising more than 10 per
cent in the last week. It obviously
believed that there are also supply
shocks at play, because that explains
why it marked down its growth forecast,
but did not change its baseline inflation
forecast (though the upside risks
are less).
So, if the MPC believes the growth hit
is transient and is composed of both a
demand and supply shock, its perfectly understandable why it stayed on hold.
Whats also clear is that the prevailing
global uncertainty the prospect of a
stagflationary shock emanating from
tightening global financial conditions,
but also rising oil prices gave the MPC
some pause. Clearly, they are waiting to
see how these uncertainties resolve. We
dont rule out more easing in this cycle.
If the growth hit is more sustained and
downside risks to the five per cent inflation target arise, we believe the MPC is
likely to ease again.
Markets may be temporarily disappointed. But its perfectly understandable why, at a time of heightened uncertainty, policymakers would choose to
act cautiously, rather than act in haste
and be forced to reverse course down
the line.

WHISPERS

problems, huge negative impact on

the informal sector (all daily and
business newspapers). Conclusion:
The reduction in the volume of
transactions directly impacts the
level of economic activity. And so will
it affect the size of economic output
(gross domestic product or GDP).
And, there are second-round
effects: As incomes decline so too
does demand. Sales of fast moving
consumer goods have slowed;
demand for other goods (clothing,
automobiles, trucks and other
commercial vehicles) has contracted.
Finally, expenditure on discretionary
consumption has been cut back. The
outcome: A reduction in the real
value of economic output.
Many (economists, finance
companies, equity analysts,
academics and politicians) will try to
estimate the impact on real GDP.
And, they will come up with different
numbers. But, any way you cut it, the
answer must be a slower rate of
economic growth, with the possibility
that there could actually be a
contraction in GDP (compared to the
corresponding quarter last year).
Forget what the economists
hypothesise or project. Look around
you. See the daily hassles of queuing
up for cash (only a symptom of the
underlying disease). Read the reports
in the newspapers. Economic activity
has been hurt. And, this may go on for
the next three to five months. Now,
make up your mind: Is this nonsense?
To be fair, not all bankers would
make the outrageous statement one of
them did. Obviously, there is another
proverb that remains unknown: the
one about glass houses.
The author is former chairman, Telecom
Regulatory Authority of India

Law not to blame always

Somasekhar Sundaresans article,
Failure to read the difference
(December 7), makes one think about the
need for distinguishing the purpose of
law including administrative and judicial orders and the desired outcome.
When the causes of a problem are
many and the law aims at eliminating one
of them, it should be judged only by the
outcome about that part of the problem
and not the whole. The ban on the entry of
a certain category of vehicles into New
Delhi was aimed at reducing pollution,
not eliminating it, there being other contributory factors. The question is whether
the intensity of the fog would have been
more if the ban were not imposed and also
whether it was implemented faithfully.
Second, a delay in implementing a
punitive law defeats its purpose to serve
as a deterrent for future violators. Our
legal process is too slow the Nirbhaya
case is still with the Supreme Court.
Moreover, crimes are committed out of
ignorance about law, too. The Mumbai
Shakti Mills rape case could be the result
of either of the two factors or both.
Besides, when the objective of a law is
laudable, protests by those opposed to it
should be ignored. The Supreme Courts
decision about singing the National
Anthem in cinema halls as an indicator of
patriotic spirit is beyond reproach. If
some people find it inconvenient to stand
for a minute to sing it or see it as a fruitless exercise, it does not matter. The question is how many can recite it fully and
understand its meaning.
Also, there are hardly any laws that serve
their objective fully. This is because upbringing, social influences and certain personality traits foster a criminal tendency, so that
laws and rules become ineffective.
The success of enactments and
administrative and judicial orders also
depends on their clarity and ease of
understanding by society. Thus, lawmakers need to be replaced, not the laws.
Y G Chouksey Pune

The law and order situation was perceived to be better whenever she was
chief minister. There was Jayalalithaa
Amma; will there be another like her?
V Jayaraman Chennai

Dont rush tax matters

Self-made politician
With reference to Aditi Phadnis article,
Jayalalithaa: Tamil Nadus mercurial
pharaoh (December 6), although MGR
facilitated her entry into politics, he did
not groom her as his successor. In that
sense, J Jayalalithaa (pictured) was a selfmade politician.
Economists might have frowned upon
the slew of populist schemes launched by
her, but several of them did benefit the
common man in the state. She also
focused on attracting investments to the
state. In terms of administration, she took
several bold decisions, keeping the interests of the state in mind, not going by
narrow electoral calculations. This
includes the stand she took against the
LTTE after Rajiv Gandhis assassination,
the firmness with which she handled the
state government employees strike and
the action she took against criminals
and anti-socials.

> HAMBONE

The Taxation Laws (Second Amendment)

Bill, 2016 on the voluntary disclosure and
investment scheme, Pradhan Mantri
Garib Kalyan Yojana, was passed without
waiting for the next Union Budget. The
government should wait for the Budget to
enact tax-related changes linked to
demonetisation and black money.
I support black money tax laws but
considering the way it is being presented
and/or changed, is this the right
approach? Current tax laws are enough to
catch those hoarding black money, but
the rich and politically influential can
never be touched.
To minimise black money, the root
causes have to be identified and weeded
out. One reason for the proliferation of
black money is multiple and heavy taxation. Also, frequent changes in tax laws
hampers tax planning.
M Kumar New Delhi
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201 E-mail: letters@bsmail.in
All letters must have a postal address and telephone
number

BY MIKE FLANAGAN

https://telegram.me/TheHindu_Zone

https://telegram.me/pdf4exams

OPINION 11

>

STAY INFORMED THROUGH THE DAY @ WWW.BUSINESS-STANDARD.COM.

Volume XXI Number 81

MUMBAI | THURSDAY, 8 DECEMBER 2016

ILLUSTRATION BY AJAY MOHANTY

Unclear outlook
RBI gives more weight to upside risks to inflation

ontrary to the broad consensus in the market, the Reserve Bank of

India (RBI) has not lowered the policy rate to boost growth. Not that
the central bank disagrees with the common perception about a
downward revision of Indias economic growth; in fact, it has reduced
its estimate of gross value-added growth for 2016-17 from 7.6 per cent in October
to 7.1 per cent now. The decision to not reduce rates was even more surprising
to many given the fact that demonetisation is expected to depress prices further.
RBI, too, expects that inflation, the other crucial variable while deciding a rate
cut, will meet the five per cent target for March-end in 2017. The only possible
way to rationalise the central banks decision is that it is more concerned about
the upside risks to inflation than the downside risks to growth.
It is clear now that RBI will wait for data on the uncertain impact of the ongoing currency exchange on the economy rather than be swayed by pressure
from the financial markets. These data points include the supply disruptions and
demand compression due to demonetisation, the unfavourable base effect on
inflation between December and February, the possible increase in oil prices, a
likely interest rate hike by the US Federal Reserve, the depreciation of the rupee,
and the stickiness of retail inflation, especially on account of education and
health services. These risks are essentially related to the uncertainty that
plagues even the RBIs assessment of the economy. It says, it is appropriate to
look through the transitory but unclear effects of demonetisation and, therefore, it is prudent to wait and watch how these factors play out and impinge
upon the outlook. This is in sharp contrast to the expectations of clarity that
observers had from the policy review, the first one since demonetisation.
Unsurprisingly, both the decision to not cut the interest rate as well as the
unclear outlook have disappointed industry and even leading bankers.
However, there are some welcome features as well in Wednesdays monetary policy announcements. Though the RBI Governor did not offer any further clarity on several critical issues regarding demonetisation, he did say that
~11.55 lakh crore deposits had already come back into the banking system
either by exchanging or depositing old notes. This officially rules out speculations of a windfall from RBI to the government and raises questions on what
will be the tangible gains to the economy at the end of this painful exercise.
In particular, RBI said the incremental cash reserve ratio (CRR) of 100 per cent
of net demand and time liabilities would not be in play from December 10. This
has been made possible by the sharp increase in the limit of Market
Stabilisation Scheme bonds, from ~30,000 crore to ~6 lakh crore for the current financial year, and the CRR move will reduce the burden on banks. RBI
also assured the people that there was enough currency, especially with the
supply of 19.1 billion pieces of small currency notes (~100 and less), which is
more than the cumulative figure for the last three years. On balance, a more
specific outlook from RBI would have helped provide some clarity, just as a
repo rate cut would have helped even if it shored up nothing but sentiment.

Securing digital India

Legal gaps that allow hacking must be plugged urgently

he official twitter accounts of the Congress party and Rahul Gandhi

were hacked recently. Obscenities were posted on the public forum
from both accounts, along with boasts that the private e-mail correspondence of the Congress party would soon be dumped into the public domain. Then, the Narendra Modi voting app was hacked by an activist, who
claimed (with screenshots) he could harvest the private data of some seven million registered users, including phone numbers, e-mail addresses, names,
addresses, interests and locations. Another activist from Australia revealed that
he had found the medical records of 43,000 persons who had undergone tests at
a pathology laboratory in Maharashtra. Those details are freely available in
search engine caches. In October, four million debit cards were hacked, affecting
account holders at several different banks. These incidents are not aberrations.
More episodes of hacking are possible as more sensitive data is placed online.
These security concerns are coming up at a time when public policy in India
is relentlessly pushing for digitisation of all manner of records, linking personal
details to Aadhaar as well as moving towards the goal of a cashless economy. But,
India has poor data security and data security infrastructure. The rewards for harvesting digital data have increased exponentially. What is more, it is not even certain that individuals whose data were exposed have much by way of legal recourse.
Under the circumstances, policymakers appear to be guilty of being careless and
glossing over the potential threats that lie ahead for digital India.
While many people have hailed the concept of going digital in theory and rightly pointed out the conveniences of such a system, it could be terribly vulnerable to
external threats as well as fraud on a massive scale. A malware attack might paralyse normal activity. Every individual within that system is perpetually exposed to
the dangers of identity theft and financial fraud. To take a simple example, it is easy
to directly transfer cooking gas subsidies and MGNREGA payments into bank
accounts; it is equally easy to transfer cash out of those accounts. That is because
India has no clear benchmarks defining data that needs protection. There are no specific norms to be followed on securing sensitive data, let alone demand checks and
inspections to see that such protection is implemented. There are no penalties
imposed for careless guardianship of data and there are no systems for restitution.
In contrast to expectations, the government has argued in a court case pertaining to Aadhaar that the right to privacy is not a fundamental right and that
such data can, therefore, be shared without the individuals consent. Not surprising then that the sharing of data is endemic in practice. The Indian Railways,
for example, intends to share personal data. There are many apps being built by
stringing together bits of data and metadata. A frighteningly complete picture
of any individuals life, including ones real-time location, phone interactions,
website visits, financial transactions, reading interests, musical tastes and medical history can be built quite easily, without either the knowledge or consent of
the individual and without transgressing any Indian law. The government must
urgently focus on a comprehensive strategy, otherwise the entire digital India
edifice will be threatened.

As the world turns

2016 has been a tumultuous year of political economy, not
economics, springing surprises for many around the world

n this final column for 2016, I am struck by the

embarrass de richesses that commentators such
as myself have enjoyed this year. From January
till May, my home was in The Netherlands, where
the main concern was and remains the future of
Europe. Punctuation marks in this narrative have
been the outcomes of the referendums on British
exit from the European Union in June and on Italian
political reform this past weekend.
Since June, Delhi has once
again been home. The rush of
events in the past five months has
been breathtaking: The appointment of a new Reserve Bank of
India (RBI) governor; a major corporate row in the countrys largest
conglomerate; parliamentary
approval of constitutional reform
to permit a major overhaul of the
system of indirect taxation, and
most recently, a major and still SUMAN BERY
unfinished currency reform.
Casting its shadow over both
the European and the Indian narratives has been
the arc of the US presidential election, with its
capacity to shock and surprise over the entire year.
My wife and I arrived in Washington on the evening
of November 8 as polling ended. We experienced, at
first hand, the discomfiture of both the media and
much of the political establishment at the unexpected outcome. Through the fog of partisan commentary that I absorbed in the days that followed,
a few impressions have remained.
One is distrust of experience. As one American
commentator observed, in his march to victory
Donald Trump annihilated two political dynasties
the Clintons and the Bushes. Much of this was art-

A WORLD APART

BOOK REVIEW
HASAN SUROOR
The crisis in Islam has fuelled a boom in
the so-called Islamic literature amid a
growing popular interest in a subject,
once regarded as the preserve of specialists. Its not just the readership that has
gone mainstream; more and more books
are being written by generalists media
people, rights activists, even ordinary
concerned Muslims bringing diverse
perspectives to the issue. Which, of
course, is a good thing but publishers,
eager to cash in on the boom, are up lapping up anything that comes their way.
Inevitably, theres a lot of chaff to be separated from the grain.
The two books under discussion are

The writer is former member, Prime Ministers Economic

Advisory Council

The reluctant young voter

L

ast week, Quartz (qz.com) quoted a study by tions was slightly above 40 per cent. And, Delhi is
a Harvard researcher and a political scientist supposed to have the more politically conscious
at the University of Melbourne as saying that electorate. This makes it clear that the new avatar
an entire global generation in stable liberal democ- of social media, which is now widely regarded as
racies has lost faith in democracy. They have also an effective political tool for mobilising the young
become more cynical about the value of democ- population, isnt translating into more footfalls in
racy as a political system, less hopeful that any- the polling booths.
thing they do might influence public policy and
Heres an example from other parts of the counmore willing to express support for authoritarian try. In the run-up to the elections in 2014, Bangalore
alternatives.
and Hyderabad saw hectic political action internAccording to another national poll in the US ships, which attracted youngsters from diverse
just before the recent Presidential elections, only backgrounds such as engineering, media and law.
one in five of young adults conThe interns were exposed to elecsider themselves politically
tion campaigns of key parties,
engaged and active. In the UK,
opinion poll surveys, manifesto
British Social Attitude survey
analysis and interactions with
data suggest that only one in 10
experts etc. Many commented
of 1825 year olds are interested
that Bangalores youngsters were
in politics.
eager to change the perception
The situation should have
about the educated young midbeen better in India. After all,
dle class and their apathy
with 50 per cent of its populatowards the political system.
tion below the age of 30, the 2014
Expectations were a majority of
Lok Sabha elections saw around
them would vote for the first time
150 million new voters, between
in a general election, representthe ages 18-23. According to data SHYAMAL MAJUMDAR
ing the educated youth eager to
from the Election Commission,
join politics and make a differalmost 90,000 such voters were
ence.
eligible to vote for the first time in each Lok Sabha
At the end of it all, it was found by an urban anticonstituency. This underlined the importance of corruption party that only 150,000 had registered. In
the young voter for all parties.
the age of social media, these urban types are obviBut how many of them actually voted? That ously influencing their country cousins as well.
can be a tricky question. Anecdotal evidence sugThe same is the situation in other cities such as
gests the number of young people willing to vote Bhubaneshwar, Chandigarh etc.
has been coming down steadily. According to
Experts say not voting can be the result of disillureports obtained from the national capitals chief sion (the view that it makes no difference who wins);
electoral officer, close to half of those aged 18 in apathy (the lack of interest in politics); impact (the
Delhi did not enrol themselves to vote in the last view that an individual vote wont make a differAssembly elections. That doesnt gel with sugges- ence); alienation (the view that politics is not for
tions of growing political awareness and activism young people); knowledge (not knowing enough
among the young. In Delhi, the turnout among about politics to cast a vote); and inconvenience (votyoung voters (age group 18 to 21) in the last elec- ing is too time consuming).

POWERPOINT

Contests over Muslim identity

among the more serious contributions to
the debate; and meant for two very different audiences. While Sarah Khans
study of the turmoil in British Muslim
communities is aimed at general readers,
Amir Alis take on South Asian Islam and
British multiculturalism is a rather dense
academic enterprise for eggheads. Both
write with a great deal of passion and are
not shy of being polemical. Especially Mr
Ali who, for most part, sounds like playing the Devils advocate (the devil
being Muslim fundamentalism) as he
rails against metropolitan liberals over
what he sees as their patronising and
sneering attitude towards ordinary, less
educated, unsophisticated and inarticulate Muslims unable to argue their case
in propa'h English before the western
media.
Ms Khan, a British-born rights campaigner, has witnessed Muslim extremism from close quarters while her coauthor is a journalist and
counter-extremism consultant with

ful presentation, as president-elect Trump is

arguably drawn from the same privileged coterie as
those two families, and by birth (unlike the Clintons,
or indeed the Obamas). Trump exploited a strong
desire by at least half the electorate to break China
and defy political correctness.
Beyond the shock of the presidential outcome,
what was striking to me was the overall robustness
of the Republican party across the
land, among governors and state
legislatures. Thirty one of the 50
US states now have governors
drawn from the Republican party,
many with both chambers also
controlled by the same party. My
earlier impression was that by
alienating blacks, Hispanics and
women, the Republicans had condemned themselves to political
oblivion. I conclude that determined grass-roots organisation is
at least as important as vote-bank
or identity politics.
A final reflection is on the relationship between
the media, populism and oligarchy. As has been
widely remarked, Trump overcame a significant
financial handicap against Clinton both by ensuring
free attention from the mainstream media, and by
exploiting social media directly and through his
more rabid supporters. By any standard he ran an
anti-establishment, populist campaign. His policy
positions are as yet largely unknown. Based on his
Cabinet picks so far, though, it is difficult to see
much evidence of a desire to drain the swamp of
an inbred, revolving door, court-like Washington
culture. To be fair, this was unlikely to be on offer
under a Clinton presidency either, and President

Obama has disappointed many of his original supporters by his own establishment instincts.
If I may be permitted reference my former employer Shells New Lens Scenarios (www.shell.com/scenarios), the Trump victory conforms to what was there
labelled the Mountains scenario. In a Mountains
world, power remains in the hands of an elite, which
successfully co-opts the lower orders with a few symbolic actions which serve, protect and preserve their
primacy. What the Trump victory has demonstrated
is that in the hands of a master, old, and even more,
the new media are effective tools to throw up the
required smoke-screen. The Mountains scenario is
also consistent with a world of prolonged moderate
fossil energy prices, as constraints on exploration
are eased, particularly on unconventional gas. The
recent agreement by the Organization of the
Petroleum Exporting Countries (Opec) to restrict production, and indeed our own Petrotech conference
this week are markers that key players in the energy
world are reaching similar conclusions following the
Trump victory.
The consequence of being in the US on
November 8 is that I missed being in India for our
own earthquake, the exchange of old high-value
notes for new. Despite considerable effort, I found
it impossible to make sense of this from nine thousand miles away, and have only personally experienced its effects on my return a week ago. While a
number of motives have been cited for this brusque
action, here I will focus only on the monetary and
fiscal aspects.
In the literature on public accounts for emerging markets, there is a lively debate on how to
define the public sector, and the related issue of
state solvency. This is a literature to which our current RBI Governor has made distinguished contributions in the past. Two points are relevant. The
first is that the stock of currency held voluntarily by
the public is a gift to government. The technical
term for this is seignorage: It is like a revenue
stream over the course of the year. It accrues in
the first instance to the central bank and is then
transferred through profits to the exchequer. Any
action that reduces the willingness of the public to
hold currency therefore represents a fiscal cost.
Fiscal gains resulting from better tax compliance as
a result of the recent measures have to be offset
against potential loss of seignorage. Both of these
are unknown magnitudes at this point. Only time
will tell.
The second point is a balance sheet point. Press
reports talk of windfall gains accruing to RBI in
case the note exchange is less than the total previously outstanding. Central bank accounting is technically complex, made more so in the case of RBI by
the separation of Issue and Banking balance sheets.
My working assumption is that any reduction in
currency outstanding will ultimately find its way
into the RBIs capital position. In a situation of weak
commercial banks, a massive shock to currency
demand and a fiscal position under stress, the RBI
balance sheet is the best place for these windfall
gains to be sequestered, rather than being raided for
a handout as has been rumoured in the press.

whom she has worked on de-radicalisation programmes. I have witnessed how

Islamist extremism has wreaked havoc
on the lives of British Muslims....I have
seen at first hand how this ideology has
ripped families apart, she writes.
Being an insider, hers is an authentic and credible voice that will resonate
with Muslims everywhere. Her book is
packed with information both in
terms of statistics and anecdotal evidence. It is noteworthy, as she points out,
that 68 per cent of Britains nearly three
million Muslims are from the Indian subcontinent; and theyre particularly prone
to extremism. Some might find Ms
Khans account of the scale of the problem alarming, but as someone who has
closely tracked the spread of British
Muslim extremism for well over a decade
I think shes spot on though I hesitate to
endorse her enthusiasm for the governments contentious counter-extremism
Prevent programme, which regards
every Muslim as a potential suspect.

Ms Khan also deals with the broader

global crisis in Islam, but its her focus on
British Muslims a major recruitment
target for militant jihadi groups in Syria
and Iraq that is the real meat on the
bone. Good on information and analysis,
it is an important book that deserves to
be read widely.
Mr Ali teaches political theory at
Jawaharlal Nehru University and his
book derives from the research he did
while he was a visiting Fellow at Oxford
University. It is not for the uninitiated,
and lay readers are likely to struggle.
Shorn of the minutiae and repetitive academic jargon, the book is a stinging critique of Western, especially British, liberals for their allegedly condescending
attitude towards Muslims. Indeed, they
almost come across as part of an unstated agenda to undermine Islam and
humiliate its followers. Which includes a
campaign to impose values of European
Enlightenment on what liberals regard
as unenlightened and undemocratic
Muslim migrants, the book argues.
Basically telling them: If you wish to live
here, better do what we tell you to do.
Mr Ali spends a lot of time on the

The apathy adds to a tidy pile of evidence suggesting that young people in India see the future
theirs and the countrys as only loosely tied to the
whims of politicians. In a world where everything is
digital, fast-moving, and easily connected, the voting
booth feels like an archaic institution as out of touch
as the politicians on the ballot.
In the internet age, they have information and
opinions at their fingertips; they have a political opinion on Twitter, even if that opinion is I don't care.
Compared to older generations, millennials perhaps
take the power of voting for granted.
While the apathy towards the political system is a
fact, the real reason seems to be that the young generation just doesnt care about anything outside their
immediate ecosystem. In 2013, Time magazine had a
cover that showed a teenager posing for a selfie with
her smartphone. The text that accompanied the picture said, Millennials are lazy. Such commentary
has given rise to the perception of millennials
defined broadly as people born in the 1980s and 1990s
being careless and self-absorbed egoists who are
almost impossible to manage; who treat loyalty to any
system as an alien word; and who are permanently in
chill-out mode. In short, they are just the me-me-me
generation, as Time coined it. The fact is that millennialswho came of age up in a world of Google,
Wikipedia and social mediahave an unrealistic
expectation of accountability.
Many suggest one way out could be to make voting mandatory as is the practice in 11 countries. Its
unlikely such enforcements will work in a country
like India. The Narendra Modi-led Bharatiya Janata
Party government in Gujarat tried this in 2009, but
did not receive the assent of the Governor on the
ground that the Bill violated Article 19(1) (A) of the
Constitution, which guarantees freedom of expression that also included the right not to vote. Its
unlikely that Mr Modi as prime minister would repeat
that experience.
Perhaps we need to create a hashtag and
Instagram our ballot.

Rushdie affair as an example of what he

sees as liberal intellectual arrogance and
insensitivity towards Muslim religious
sensitivities hurt by Satanic Verses. He
accuses them of distorting the debate by
reducing it to a free speech issue disregarding, he says, even the possibility that
Muslims might have been genuinely
hurt. As I remember, the liberal position
was a lot more nuanced. It was not that
they didnt recognise the Muslim hurt;
the issue was whether it gave the protesters the right to incite violence and hold
the entire society to ransom.
As a liberal myself, I found the
Muslim reaction a touch hysterical and I
opposed the Indian governments ban on
Rushdies novel. Not because I believed
in the sanctity of absolute free speech, or
didnt care for Muslim sensitivities, but
precisely for the reasons cited above.
Plus the danger of setting a bad precedent. Were still paying the price for that
ban in the form of competitive clamour
for censorship on grounds of religious
sensitivities.
Finally, on multiculturalism, the
books big hook, there are few fresh
insights. For example, the Deobandi

influence on South Asian Muslim

migrants is well known and has been
widely debated, especially in relation to
extremism. The only new element is the
connection it seeks to establish between
multiculturalism and the pattern of
interaction between Deobandi Muslims
and the colonial British state in the 19th
century.
Ultimately, though, my big disappointment is that perhaps without
meaning to, the author ends up rationalising the obsessive Muslim sense of victimhood that has prevented them from
any serious introspection.
The reviewer is author of Indias Muslim
Spring: Why Is Nobody Talking About It?

THE BATTLE FOR BRITISH ISLAM

Reclaiming Muslim Identity from Extremism
Sarah Khan with Tony McMahon
Saqi Books; 256 pages; 14.99

SOUTH ASIAN ISLAM AND BRITISH

MULTICULTURALISM
Amir Ali
Routledge; 159 pages; ~595