In defence of demonetization

Ramachandra Guha says that history can be written only after at least 30 years have gone by since the event. A 30-year gap is required to digest the impacts of events and acquire the maturity to view the events with the objectivity of a historian. On a similar note, I have been waiting for a 30-day gap before writing on the demonetization move announced by our PM Mr. Narendra Modi. Either that or one of the world's leading proponents of the Art of Procrastination was at it again. Depending on which version you believe, I may or may not have an Oil well to sell to you.

I do not have the burden of being a salary-earning analyst here who has to plan where exactly to sit on the fence. So, let me get straight to the point - I am a fan. I did not vote for Mr. Narendra Modi. I have been underwhelmed by the governance thus far. I have railed against Mr. Jaitley's Economics and been critical of the government's incessant desire to spin everything. But on this move, I am completely with Mr. Narendra Modi and his team. Hell, if they pull off this battle against Corruption I will campaign for them in the next election.

I have spoken to quite a few people on this and not one has faced any serious personal hardship because of demonetization. My sample space is limited to Chennai (although it was across socio-economic strata). Some of the criticism has been absurd and so I have taken it upon myself to rebut them.

Absurd point number 1: Cash is only a small part of the black money problem. So this wont solve the problem
Of course this demonetization will not completely solve the problem. The corruption problem in India is pervasive, it exists in every pore of the Economy. It is so bad in some parts of the system that we have come to internalize it. No single measure can tackle corruption or black money completely. To give an analogy, demonetization is similar to a 200-kg man saying that in a bid to become healthy, he will stop eating sweets. We all know that merely sacrificing sweets is not enough to go from 200 kgs to 80 kgs. But it is better than doing nothing and if he pulls this off and goes to even 180 kgs, there is a chance that he might go further down and do something more as well.

On the face of it, it looks like cash forms a small proportion of the black money problem. But cash remains absolutely critical to the black economy. If demonetisation can cause a mild aversion to hoarding money and take all honest citizens to a more heavily-digital financial world, that will have a role in reducing cash pile in the Economy. If real estate magnates and jewelry business owners start worrying even mildly about the cash they are holding, the trickle-down from this could be huge. And even if it were indeed a small part of the problem, what is the downside to tackling it?

India's opposition politicians have been surprised by this and are therefore reflexively criticizing it. The worst offenders have been Mr. Kejriwal and Mamta Bannerjee & Derek O Brien. Apparently, Nitish Kumar said that it was a good move. Hat-tip to Nitish if indeed this is true.

Absurd point number 2: The really rich will get away anyway
So be it. Let the Mukesh Ambanis of the world not be affected by it. If the corrupt Traffic constables, and unethical Tahsildars of the nation get thwacked by this, that is enough good news. This giant rung of petty-corrupt fellows are the ones that feed into the cesspool of large-scale corruption. We kill this little fish or at least do enough to scare them, the big fish will get choked sooner or later. The  big fish desperately need the little fish to be around to survive and to strangle the system.

This could be our broken windows moment
In the 90s, the crime-rate in NewYork was brought down by tough policing introduced by the Mayor.

The most prominent of his policy changes was the aggressive policing of lower-level crimes, a policy which has been dubbed the "broken windows" approach to law enforcement. In this view, small disorders lead to larger ones and perhaps even to crime. As Mr. Guiliani told the press in 1998, "Obviously murder and graffiti are two vastly different crimes. But they are part of the same continuum, and a climate that tolerates one is more likely to tolerate the other." 

The broken windows theory is a criminological theory of the norm-setting and signaling effect of urban disorder and vandalism on additional crime and anti-social behavior. The theory states that maintaining and monitoring urban environments to prevent small crimes such as vandalism, public drinking, and toll-jumping helps to create an atmosphere of order and lawfulness, thereby preventing more serious crimes from happening.

Let the really rich get away now. But if the small fry whom we have all been tacitly endorsing are trampled, the really rich will slowly feel the squeeze as well.

Absurd point 3: The idea is good, the implementation has been poor.
The banking system has collected more than Rs. 10 lakh crores in old notes. They have printed more than Rs. 4 lakh crores in new currency. Take a 20-second break, write down these numbers and count the zeroes. Our banking system has stepped up wonderfully well.

Demonetization could not have been planned through over years. Our system is notoriously, undeniably leaky. And for a measure like this, the elements of shock and surprise are very vital. The government could not have setup a sub-committee to take 6 months and analyze all possible repercussions before launching this scheme. The team took a leap of faith and for large parts we have been alright.

On the implementation front, the tweaks in the digital world have been amazing. I wont bore you with the details ( I do not know most of them), but will leave you with one amazing point. If you want to transfer money to a villager and he and you both do not know the bank account details, you can transfer money with an App if you merely know his Adhaar card number. If he does not have a bank account, his Aadhar card will be used to create his bank account and the money can still be transferred. Most of this can be done with non-smart phones as well.

Personally, I think the government has deliberately made cash transactions inconvenient in order to force people to build digital infrastructure. Over the long-run, this could be immense

Absurd point 4: I am ok with all this. But the poor in the Country are suffering
This peeve is personal and I have very little data to back this. I think that most people who are making the above claim are the ones who probably do not really know poor people. These comments are made by the armchair Economists who probably do not know how many kids their maid has. These are the people who have no clue about how poor people live. The poor stand in the queue for everything. Standing in queue where the rich are also made to stand in queue is empowering, not demeaning. Most of the less well-off that I have spoken to have very little to complain regarding this. They have brushed aside the inconvenience in a way we rich morons have not been able to. They have accepted payments in old Rs. 500 and Rs. 1000 notes and slipped into a trust-based economy with friendly neighbourhood shops.

I am not trivializing the loss of those who have lost jobs/pay. For the poor, loss of pay for a month can mean poverty for a year. That is a serious problem that we all need to do something to offset.

Schadenfreude matters
For all the suffering the less well-off have gone through there is an aspect of this move that promises more suffering for the corrupt that has been gratifying. Merely imagining a the plight of a college vice chancellor who has Rs. 10 crores stashed in his farm house can make the 20 minute wait in the queue fun. The rich has sought the poor to deposit its own cash into the system. This alters the terms of transaction between India's monied class and the 'other' class, at least temporarily. I am hoping like mad that at least some change will be permanent.

So, what should we do now?
What is the joy in writing a long article if it cannot be followed up with Recommendations. We will definitely have a list of Recos. I am just glad that my recommendations do not have the words Buy, Sell or Hold in them. :-)

First up, have some faith

We have been conned by lesser proposals for many years. Not too long ago, we had a central minister coming on national television and saying that the 2G scam loss was 'notional'. We have had scam after scam affecting our daily life. We have often sat up in despair and craved for something, anything to reduce corruption in our Country. We have fantasized about being the real-life 'Indian' or 'Hindustani'. When something real comes along, we immediately start our Doubting Thomas act. Our Prime Minister has asked for our patience for 50 days. Give it to him. Give it to him rather generously.

If you are still a skeptic, act as if you are hopeful for a while.

Act as if ye have faith and faith shall be given to you. Put it another way, fake it till you make it - Leo McGarry, West Wing

Then, be a friend of the new

In many ways, the work of a critic is easy. We risk very little, yet enjoy a position over those who offer up their work and their selves to our judgment. We thrive on negative criticism, which is fun to write and to read. But the bitter truth we critics must face, is that in the grand scheme of things, the average piece of junk is probably more meaningful than our criticism designating it so. But there are times when a critic truly risks something, and that is in the discovery and defense of the *new*. The world is often unkind to new talent, new creations. The new needs friends. Last night, I experienced something new..... (Go on, Google this)

As I said before, the banking system has transacted give or take Rs, 15 lack crores in 4 weeks. Thats a staggering amount. Marvel at that, feel glad that as a Country we dared to go into this brave new territory, cherish the notion that there might be more where this came from and be a friend of this new. For all his bravado, our Prime Minister probably needs this boost from public opinion and approval to take the fight till the end. On corruption-fighting, give him the benefit of doubt. God knows we need all possible measures to combat this beast.

Talk of the next wave

Real Estate is next, immediately after that is Jewelry business post which we will go after Educational institutions and then government services. All in the next 18 months. Let us talk about the possibilities. One massive advantage of having gone for something out-of-the-box and unconventional first up is the fact that every other move now seems mild in comparison. For the team that pulled of demonetization in 7 weeks, ensuring that Jewelry purchases get accompanied by Pancard details seems like a piffling matter. Merely the environment of fear might compel some of our more brazen brethren to dial things down. And before we know it, we might be close to the tipping point. 

So, if you have heard of the move of tracking 2000 rupee notes with nanotechnology that seems patently like cooked up pseudo-science, pass it on :-) I personally think that the Rs. 2000 notes and the Rs. 500 notes have been printed on such poor quality paper only because the government already has put in place a plan to chuck these out and get new currency in 4 years' time. (Wink, wink!)

If we can go even two steps towards believing that the system can be corruption-free, we might scare some of the behemoths off. Once we remove the brazenness from the system, combating the underlying might be far easier. The second biggest problem facing our Country is corruption. (The biggest was, is and will be the quality of our Primary education). Let us give a confidence boost to the measures the government takes to combat this. 

Demography is destiny

About 5 years ago, I had written a rant titled "India and I". Based on largely anecdotal evidence, I had painted a picture of an Economy of a trillion dollars and billion people. Basically before writing the piece, I spoke to myself, number one, because I had said a lot of things :-)  Getting opinions from a sample-size of one, spouting Truthisms and dissing experts have all become fashionable in the political climate now, and where politicians go MBAs cannot be far behind, can we?

This brings us to the idea of the follow-up piece for the original rant. In grandest MBA traditions of sharing the blame and getting the disclaimers early, I must state clearly that I am compiling a follow-up under duress. In a moment of madness, at a time when spirits were high and equivocating seemed uncalled for, I had told a friend that I would send across an update to him. Said friend recently bid goodbye to his consulting career and was perhaps wistfully looking back at his armchair- pontification days and thus pinged me to deliver. So, here goes -

Demography is destiny, or is it?

Demography is destiny is one of those fabulous catch-all phrases that can bend to suit any narrative. Japan's economic downturn, India's growth potential, democrats' election prospects are all explained with the idea that 'demography is destiny'. The numbers-are-vital storyline forgets one vital point - the quality of the constituents. It is this quality of the demography that I worry about the most.

I have spent most of my career in the education sector and recently have begun engaging with school students and teachers. The teachers I have interacted with have all been wonderful and are delivering the curriculum with enormous amounts of diligence and meticulousness. If that is the case, what exactly is my peeve?

I think we are achieving the wrong set of objectives. The entire pedagogy is  linear and rule-based; we care more about the mechanics than the fundamentals, more about processes than about conceptual depth. The best students are keen, they are willing to learn, and thanks to the law of large numbers, we frequently have break-out students who are brilliant. But the system is not gearing students for the skills that will be required in 2035.

In my mind, the entire education system should be about the processor, whereas it is currently about the apps. We add layer after layer of rules, technologies, factoids to young brains without spending the time on building their ability to process. It is akin to Google recruiting 10000 people and taking 3 years to teach them the Syntax of C, C++, Java, Fortran and the like.

The results are already there to see. As a country, we get whipped in PISA rankings. All the IIT and IIM professors talk about these days is how the quality of intake has fallen. We can attribute some of these anecdotal points to the 'rosy retrospection', but the truth probably is that our students have definitely not improved over the last two decades or so. The rest of the world has not been static - the math textbooks followed in Singapore are fabulous, Finland has a wonderful teaching system, the US is continuously investing on pedagogy and technology. In a world that is probably approaching a discomfiting level of compassion-free meritocracy, we are in danger of being left behind.

India's original sin
Jawaharlal Nehru gave this Country a lot of wonderful things - the most important of them being articulation of the idea of being Indian. But even his biggest fans will concede that he made one vital error, one that would haunt India for a long time. He completely, dramatically, spectacularly undermined the importance of primary education. India spent ridiculously small amounts on this most crucial of growth drivers and we never realized the price we were paying. Missionaries, the private sector, middle-class India's fetish for the 'degree' have offset this somewhat. But with every passing year, the primary education deficit is becoming pitifully obvious to see.

Recently, I read the watermelon story from Mr. Manohar Parrikar, and one passage struck a chord with me like none other. In seven years, Parra’s best watermelons were finished. In humans, generations change after 25 years. It will take us 200 years to figure what we were doing wrong while educating our children.

According to me, we are doing a great deal wrong with educating our children.

On the positive side, technology is a great leveler. It reduces teaching costs like no other tool that has gone before it. I fervently hope that we crack the code and give the next generation sound online learning options. There perhaps is a window of opportunity  where we can do something meaningful and bypass the rot that has set in our formal learning system.

What has changed in the last five years?
I promised my friend an update and so I am duty-bound to have to tick some boxes in the richest "then vs. now" traditions.

On governance, I think this has improved reasonably. From the bar UPA 2 had set, it could hardly get any worse. My beloved state Tamilnadu has become worse, but I think that issue is more local.

On the sense of entitlement, I think this has gone down substantially. There is nothing like a tough economic environment to knock people of their perches. The real estate market becoming sane has had one lasting impact - it has stopped generating notional wealth for property-owners. There is no automatic get-rich scheme available and people have realized that this is the new normal.

I have come to love this new normal. Like Salmad Rushdie in Midnight's Children, I have become wary of collective optimism in the Indian Economic context. The behavioural excesses from that optimism wear me down. This is why I have been such a skeptic on the supposed E-commerce wave, but that is a post for another day.

On the issue of politics of jingoism, things have taken a turn for the worse across the world. Trump, Nigel Farage, Indian media's war-mongering are all clear instances of this turn. The voices being raised against this are currently weak and burdened with their own history of parochialism. So, any stab at statesmanship looks like partisanship in another garb. When Hillary Clinton, Tony Blair and NDTV are enlisted for the good fight, the whole damn thing looks like a bloody joke. India desperately needs the grand old Congress party to become strong again. For the long-term health of the republic, this right-ward lurch has to be offset by a sane centrist voice.

Currently, India's rightward lurch is not(yet) alarming. It is probably a mild reset that the Country was screaming out for from years of left-leaning lunacy. Importantly, the Indian public now gets to see the full colours of the excesses of the right, which will automatically make the left-center seem palatable. So, the current reset is probably the equivalent of some blood-letting that will result in long-term peace. At least, this is what I am hoping for.

On the economic front, things are mixed. The world economy is playing a much bigger role than at any point of time in India's history. The 2008-10 recession, low fuel prices, easy money are all factors on which India has had little control. Our finance minister has done some random things - he picked a fight with the RBI governor for no reason, and he seems to believe that tax-increases are the 'in' thing these days. But so far he has done little to really screw the economy. And with Mr. Jaitley as the finance minister, this is perhaps the best we can expect.

Education - this should be the holy grail
I read this piece on the Cuban Education system and became very jealous. Completely free till 9th grade, free food and care before and after school, and a teacher-student ratio of 1 : 20. I fervently wish we have an education-fanatic somewhere higher up in our governance hierarchy. Estonia has recently overseen a technology revolution that  one can only marvel at.  All their schools were online by 1998!

Any long-term thinking about India should begin and end with - How are we going to educate our current 2-year olds? If we get this right, everything else will become irrelevant.

Any reader should note that I am a primary education junkie. If you take the previous generation's education-fetish and multiply it ten-fold, you would still underestimate the importance I would place on sound primary education. I do not care much for degrees, I do not hold much store on fancy colleges and big campuses. But on primary education, I am of the view that the Indian budget should take its budgetary allocation and double it, and then double it, and then double it about 5 more times.

To put it another way,

Education is the silver bullet. Education is everything. We don't need little changes, we need gigantic, monumental changes. Schools should be palaces. The competition for the best teachers should be fierce. They should be making six-figure salaries. Schools should be incredibly expensive for government and absolutely free of charge to its citizens, just like national defense. That's my position. I just haven't figured out how to do it yet. 

This was written by Aaron Sorkhin for yet another fabulous episode of The West Wing. The exact dialogue can be seen here.

If any of you knows anyone in the Union Government (this one, the next one, or the one after that) and you carry some sway over creating/appointing a minister for primary education, you know whom to call. I guarantee that I will make gigantic monumental changes, and by using technology well I will do this without ratcheting costs as well. :-)

From expectation to hope

When I was in class VIII, our school got a new principal, a mild-mannered gentleman who had been our Math teacher in class VI and taught us fabulously. We had adored him in his previous avatar as he simplified life for us really well. We were full of hope.

He also turned out to be a good egg. He retained his mild-mannered behavior, kept things chugging along smoothly, brought some nice incremental changes and although the school did not do spectacularly well, things were steady all around. Importantly, the correspondent stayed away from the day-to-day affairs and seemed to have given the Principal a free rein. Late in the academic year, the Principal also got us into a tie up with a really good international school in the area that promised to supply us with some infrastructure. All was humming along fine when the year drew to a close.

The next year things turned ugly rapidly. The correspondent started interfering by collecting donations from all and sundry, which really harmed the School's reputation. Senior teachers started slacking, and once they realized that the mild-mannered principal did not once pull them up for their poor performance, they practically switched off after the mid-year. Some also dabbled in donation-collecting and currying favour with the Correspondent. Things took a turn for the worse when the brazenness of a few teachers surprised even the correspondent. Students lost all motivation. A few kids now thought of themselves as 'big boys' and engaged in unruly behavior as well. All in all, discipline was completely out of the system and it was nightmarish all around. We could not wait for the year to get over. We got the feeling that the Principal was tired of it all and he could not wait for the year to get over as well.

Next year, we had a complete change. We had a Principal who was an absolute disciplinarian. He was the correspondent as well so there would be no confusion (though his friend helped him with correspondent duties). Several new teachers were recruited and discipline was the buzz word. All the students, teachers and administrators had to turn up on time, be in proper uniform and be generally well-behaved. The Principal himself was an absolute beast. He not only traveled across the Country to meet other Principals and gain insights from them, he prowled the corridors and devoured reports from teachers and administrators. Students who had grown so frustrated with the brazen uncaring teachers were enthused by this new attitude. The school even began participating in competitions against the bigger school nearby and even some of the international schools from across town. We still lost, but it felt good to be at least competing now. Some of the internationals schools from across town were interested in how we were doing and wanted to start some exchange programs with us. We all felt that we were moving in the right direction.

We were all in a good place when the annual revision exams were held. These are held across the town and with one standardized paper. That year the paper was tough but we all thought we had done really well. The Principal and the Vice Principal were confident that we would come out on top. The only one voicing caution was the academic secretary who had originally spent time with the international schools and knew their strengths well.

The results were out, and although we had done better than before, the improvement was marginal. We were still way behind the international schools across town and some way behind our not-so-friendly bigger friend close-by. The Principal and Vice Principal were happy though and continued to be optimistic. But the truth remained we had taken a hit and some doubts had begun to creep in.

Students did some introspection and we could cull out three factors 1) Teachers were more disciplined and punctual, but perhaps truth was that they were not all that good in Math and Physics. They dotted the i's and crossed the t's but were not really effective. 2) The school had instituted a uniform for teachers as well and there was also now a brigade that used to bellow out the national anthem. These measures were constricting some of the older teachers who liked their creative freedom while teaching. Now they had all to sing from the same hymn sheet and this was definitely taking something away. They were also aggrieved that the teachers were not assessed by the impact they had but on attendance and punctuality metrics. 3) The Vice Principal had instituted a fee increase. This was cruel. This new team was supposed to be hyper-efficient and brilliant at extracting more from the system. In fact they had spoken of 'Fewer administrators but better administration', and this gentleman hiked fees when the going was tough as it is.

Added to this, there was now a brigade that wanted to make a virtue out of discipline and dedication. They wanted us to be happy that we were clean, hard-working and dedicated. All that was fine, but come the board exams if were last in the town we would have to settle for middling jobs once again. If the results are not good, all this chatter and chest-thumping amounts for pish tosh is what we students felt about all this.

So, here we are at a crossroads again. We hate the disaster that was our class IX, it still gives us nightmares. But we have to accept that our class X, although mildly better is not that great. Every passing day we are struggling to figure out what makes our Principal and VP so optimistic. (And dont even get me started on how they feel about how our school was 50 years ago, it makes me nauseated)

We are yearning for a time where the smart people can be given some room, where merely not being late is not considered a virtue, when some of these loudmouthed but limited people would be asked to shut up.

It would also be great if we could have our old Principal as our math teacher again. He was fabulous and is miles ahead of our VP (who is doubling up as a math teacher) who seems to think that if we collected 18 percentage of all numbers given in the question and put it into a box it is a good year.

A few months ago, the Principal got this idea that if we tossed away our old notes and started on a clean slate, this would dramatically improve our performance. The academic secretary, the sane old gentleman that he is, insisted that the old notes were not really the problem and our pedagogy was the key issue. He stated unequivocally that merely chucking away old notes and replacing them with fresh new ones was not going to change much. A tussle ensued and the academic secretary bid adieu. We did not think much of that previously. But now that we students see that our new, fresh notebooks contain pretty capture the same mediocrity that our old notes did, we think more wistfully of that brilliant academic secretary.

Any way, hope springs eternal. All is not lost. May be we will have good results after all. Although I must confess that quite a few of my friends who are very intelligent and hardworking have expressed the hope of joining one of the posher schools across town.

Perhaps our Principal is right. Perhaps we were blinkered in expecting everything to fall in place in just three months. Perhaps things are moving in the right direction, although a little slowly.

Perhaps, perhaps perhaps.... One thing we can say for sure over the past 3 months is that we have transitioned from expectation to hope. And I am less hopeful with every passing month.