When banks are awash with cash

In an environment characterised by slowing growth, poor investor sentiment and NPA-strapped banks, the government has its task cut out. When private investment is skittish, public investment must step in

There are many lessons to be learned from the two months of turmoil that we have witnessed since November 8, but one stands out. The government not only underestimated the capacity for inefficiency and wrongdoing of our commercial banks, but also appears to overestimate their ability to turn around a shocked economy. Up until the deadline of December 30, from across the country, we have had reports of money meant for release to the public in exchange for the old notes being siphoned off to the influential and those with the capacity to pay for this. So, while the ordinary citizen queued for hours over days, India’s rich and powerful have had the newly issued currency notes in multiples of crores delivered at their doorstep. This could not have happened had bank officials not collaborated in this sordid exercise. On this score, the demonetisation, held out by the government as a means to ending corruption, faltered at the very outset. The diversion of notes meant for the public is only a variation on a theme that we have long witnessed in India whereby a commodity in short supply is cornered by those in charge of its distribution and sold to the highest bidder. During the Second World War it was food, then as the Indian economy quickened it was cement, and now, with the government reminding us that it is the fastest growing economy in the world, it is something as easy to manufacture as paper money.