Wednesday, November 30, 2016

S. Gurumurthy On Demonetization at SASTRA: Polemics, Politics and Nonsense

I'm an alumnus of what is now known as SASTRA, a fact that both alumnus and alma mater may wish to forget. I'm often asked, by my fellow alumni, who'd rather remain unidentified in this blog, as to why I'm harsh about SASTRA in my Facebook posts and today I'll give my answer. SASTRA invited erstwhile chartered accountant and now newly christened, by SASTRA, 'Distinguished Research Professor in Legal Anthropology, S. Gurumurthy to deliver a lecture on the burning topic of the day, the demonetization drive launched by Narendra Modi. The lecture brought to the fore my visceral distaste of everything SASTRA has become.

SASTRA is now a Hindutva stronghold and is firmly in the camp of Narendra Modi. Dr S. Vaidhya Subramanian, in his opening remarks, made his admiration for the scheme quite explicit but the lecturer of the evening after dishing out dollops of polemics in the name of economic analyses made some stunning admissions that ran counter to what Dr. Vaidhya Subramanian had said.

The 'Distinguished Research Professor' and the keynote speaker said that the demonetization scheme will cause a contraction to the economy and that those who planned this are well aware of this consequence. The possibility of a contraction is now a widely conceded point. However, Gurumurthy, as he would do throughout the lecture, is playing loose with facts here and that is a major issue in a lecture given by one who carries a title like he does and that too within the aegis of an academic institution in what is supposed to be like an academic lecture. There is no inkling so far from the government, officially or otherwise, that possible economic contraction is factored into their decision making. If it was factored there is no estimation what would be the severity and within what limits that contraction would be deemed tolerable or expected. Essentially, Gurumurthy is just making up facts here and that is an insult to the audience and the academic institution that he now represents.

Two-thirds of the Rs 1000 denomination notes and one-third of the Rs 500 denomination notes do not return to the banking system but sloshes around, probably as black money, said Gurumurthy. A questioner asked then "why introduce a higher denomination of Rs 2000? Would that not increase the hoarding?" Gurumurthy nonchalantly said that the government could not print enough Rs 500 or Rs 1000 and hence the higher denomination and added, rather stunningly, 'this is an interim measure'. The audience clapped without realizing that what Gurumurthy said had no factual basis and the government has not said any such thing. Moreover while Modi is pleading the people to bear pain for 50 days Mr Gurumurthy happily says that this currency crunch will continue for 3-4 months. Modi supporters now need to run for cover.

S.Gurumurthy -- Image Courtesy Rediff (20gurumurthy1.jpg)
Gurumurthy also asserts that one of the key motivations for Modi to carry out this step is to stem the trend of jobless growth and stimulate job growth. That might be news to Modi himself. Gurumurthy does make valid points, about that shortly, on how the Manmohan Singh period, 2004-2014, was fueled by influx of dollar and how that excess liquidity sloshed in the monetary system. Modi's stated reason was curbing the menace of fake currency and black money. Gurumurthy is cooly attributing motives that were not spelled out by Modi and is still only a theoretical possibility. Modi's economy is plagued by jobless growth and that is, no doubt, causing political concern. The roots of that problem will not be adequately addressed by this demonetization.

Gurumurthy cites an 'Economic Times' report that said thanks to the demonetization move life in the the 'fake currency capital of India, Malda in West Bengal, has come to a grinding halt. He snidely hints that this is a Muslim problem. A June 8th report in Indian express cites a now widely referred study which says that nearly 250 out of a million currency notes are fake and that this is largely done through ISI. Of the fake currencies recovered Delhi and Uttar Pradesh account for nearly 43%. Interestingly while the government blames Pakistan's ISI for the problem they signed an MoU with Bangladesh to stem the flow from the Indo-Bangladesh border. Between these two articles the scenario is patchy and information is sparse but our Distinguished Researcher needs only convenient pegs to hang his narrative. Also, fake currency constitutes only Rs 70 crore annually. The big problem is pathetic infrastructure to detect and seize the currency. So while the demonetization program would render the estimated Rs 400 crores, total in the financial system, possibly useless there is no hope that the cycle will be stopped forever. The nation is being subject to torment for a problem that is inadequately addressed by this gargantuan step.

Refuting allegations that construction industry has ground to a halt Gurumurthy quoted a friend of his, this how researchers in Indian universities like SASTRA collect data, to say that it is high value builders who are dependent on buyers flush with black money that are hit hard. He then conceded that this too is a temporary phase for maybe the next 3-4 years. Black money and corruption, the root cause, will remain India's Sisyphean problem.

Choking off terrorism financing and the supposed reduction of stone throwing against Indian army soldiers in Kashmir is all attributed to this scheme. Gurumurthy explains how terrorists, with meager funding, could wreck havoc on a large economic scale as was done during the Mumbai attacks. But, by his own logic then the terrorists need only small funding and having no need for large funding this demonetization will, if at all, only put a dampener for a very short while. The horrific 9/11 attacks, also a very low cost operation, cost the US economy hundreds of millions of dollars, possibly billions. Demonetization is the most ineffective tool to fight terrorism. Kashmir's problem is a long festering one and runs way too deep to receive a body blow from this step. This is laughable premise and one that only a chartered accountant turned researcher can offer.

The reasonably good part of the lecture was when Gurumurthy talked about how Manmohan Singh sought to manage the humongous inflow of dollar by making low-interest imports possible and which in turn strained domestic manufacturing. Gurumurthy is also correct in labeling the dollar influx as 'hot money'. From 2004-2014 dollar and FDI inflow was on a scorching pace as the global market was hunting for higher returns in emerging markets as the US market teeter from 9/11 and dot-com bust first and then in 2008 the debilitating near fatal financial crises. Also, in that period US based offshoring soared exponentially bringing FDI with it.

While Gurumurthy was on solid ground talking about the problems created by excess liquidity he then took a leap into name dropping Thomas Piketty and tied "Piketty Bubble', a term referring mostly to wealth inequality driven by Capital, to "asset price inflation". Also, Piketty's own conclusions are now being increasingly questioned. A notable paper by an MIT grad exposed some flaws in Piketty's approach to curbing wealth inequality. The paper also showed some problems with current approaches to curbing excess liquidity by crimping growth. This is exactly where a true academic rather than a lumpen polemicist would have shone through with illuminating arguments. Alas, this is SASTRA and he's Gurumurthy and we cannot expect anything better.

The partisan polemicist in Gurumurthy came to the fore when he very tenuously tried to connect the dots between how Manmohan Singh's government managed excess liquidity and the black money crisis that Modi is purportedly addressing with this demonetization process. Note that according to a white paper authored by Pranab Mukherjee, now President, in 2012, cash component of black money accounts for only 3.7-7.4%. 93% of black money is not held as cash. The FDI inflow (3.6 billion dollar in 2004 reached a peak of 43.4 Billion dollar in 2008 and then tapered to 27.4 Billion dollar in 2010 and touching 44 billion in 2014) and dollar inflow, the prime drivers of excess liquidity, could not seep entirely into the financial system as black money. The connecting dots that Gurumurthy claims he researched, remember 'distinguished', were not published in any peer reviewed journal. That somebody could claim what can be charitably called 'back of the envelop calculations' as research and get applauded in an academic forum speaks volumes about the standards of Indian Universities. Interestingly, when Gurumurthy said that Manmohan's management of the economy was "monumental mismanagement" the audience enthusiastically clapped. One wonders why would an audience clap when a 10 year government led by an economist was labeled a 'monumental mismanagement". But this is a crowd that came to SASTRA to hear Gurumurthy speak, their political allegiance is no mystery.

For someone billed as researcher Gurumurthy is heavily dependent of anecdotes and even tweets that he had noticed as sources of data. So why does SASTRA patronize such a mediocre guy? Gurumurthy's politics of militant Hindutva completely dovetails with the current philosophical bent of SASTRA. What can one expect from a University that conducts a technology conference centered on Mahabharata and publishes a blog by a computer science student claiming that In-vitro-fertilization technique was well known in the mythical era.

Seeking to buttress his theory that India has ways to cope with draconian surprises like the demonetization scheme Gurumurthy again anecdotally claimed that vegetable vendors in popular bazaars operate on 'relationship' basis and are adapting to this temporary inconvenience by forgoing immediate payment. Then he proceeded to contrast this with 'contract' based western model and said "if Walmart had entered India this would not be possible". I'd love to know from this researcher of legal anthropology if Reliance Fresh, a mega grocery chain run by the Ambanis, friends of Modi, would sell vegetables to the common man on 'relationship basis?

I'm sick to my stomach of these upper middle class Marie Antoinettes patronizingly recalling how the maids and other laborers they use refuse payment or accept payment at a later date in the national interest. National interest, my foot. I cannot think of doctors or medicine shops or diagnostic clinics or marriage halls ready to accept payment at a later date. If these Antoinette's don't have cash how do they expect the maid who cleans their kitchens to have cash and these maids would not have plastic cards to buy at Reliance Fresh. I'm being told "oh there's paytm", "there's ATM". Banks are struggling to dole cash that the government says should be available to customers. This is reality. Gurumurthy speaks of an auto-rickshaw guy who refuses Rs 50 in payment. I wonder how the auto-wallah found money to pay for gas. In a nation where corruption has eaten into the body politic like cancer am I to believe that its citizenry suddenly found their soul and moral uprightness the moment Modi the messiah waved a wand? Bollocks. Bull Crap.

This Twitter Exchange Went Viral and Captures My Sentiments Exactly.
When Gurumurthy, who once extolled about the virtues of Varnashrama Dharma in SASTRA, praises 'relationship' based economy I shudder. It is not without reason that Kancha Iliah, Dalit activist, supported the move to allow Walmart into retail sector in India. Retail sector in India, like everything else, is caste ridden. A 'contract based' free market dependent Walmart will be a boon to Dalits. But that might irk Gurumurthy, a Brahmin. Also, let's not forget that Gurumurthy was once the flag bearer of an organization called 'Swadeshi Jagran Manch' which harped on self-reliance. Ironically Modi, his supporters believe, is a free marketer open to inviting foreign capital. Modi has assiduously courted foreign investments in his frequent foreign jaunts.

In typical uppity manner Gurumurthy that he often talks to his "security fellow because he's from a village". Would Gurumurthy refer to anyone on the stage or in the audience as 'fellow'? And is someone coming from a village a lab rat that his royal highness distinguished researcher seeks to study like they are guinea pigs?

Gurumurthy fulminates that the RBI sets monetary policy and is "arrogant" and does not kow-tow to the government. He wonders if in the world any where else such an institution exists. The guy SASTRA identifies as 'eminent columnist' (is that a degree now?) has not probably heard of America's Federal Reserve and its autonomy.

Only a partisan political hack like Gurumurthy will compare Raghuram Rajan to Gandhi and say that Rajan, unlike Gandhi who was instructed by Gokhale to learn India by touring, did not understand India because he was an American academic. Rajan did not come to India to start a political revolution or to find a bride for himself. Rajan, a legendary academician who crossed swords with the even more legendary Alan Greenspan, came to run the RBI because of his experience at IMF and for his knowledge of capital markets. But then this is SASTRA and he's Gurumurthy.

Dr S.Vaidhya Subramanian deserves special mention. I had to cringe when the Dean of planning refers to a memento as "momentous momentum". The opening remarks are a showcase in mediocrity and illustrates what ails Indian academia. Unfortunately for me my father did not own an university else I too might have a Ph.D and carry a title exceeding my abilities. Trying to rise up to the occasion the heir apparent plumbed the depths of ridiculousness. He said the scheme had elements of geography, since people asked "what about Modi's promise of bringing money from Switzerland and other tax havens abroad"; elements of physics, since "there were equal and opposite reactions to the scheme"; elements of chemistry, since relationship "between god and devotee changed, employer-employee relationship changed". I wish Dr. Vaidhya Subramanian the very best and my sincere prayers that one day he may indeed grow up to the title he carries today.

One Mr Mahalingam was called upon to present some remarks and moderate the question answer session that was to follow Gurumurthy's lecture. Alas, Mr. Mahalingam had no such thing to do. If moderating a question answer session is taken as reading written questions then yes he did moderate. He probably went home wondering what was he invited for.

Finally Gurumurthy. SASTRA has conferred an ill defined but very high sounding honorific title, "Distinguished Researcher in Legal Anthropology". First of all Gurumurthy is none of that. He's not at all a researcher much less a distinguished one and even less in something as esoteric as legal anthropology. By the way he's neither a researcher in law or, for that matter, anthropology let alone 'legal anthropology'.

What a waste.


World Bank Data for FDI inflow

Piketty Bubble

The disconnect between jobs and growth

"Where are the jobs" -- India Today article-

MIT student challenges Piketty


anilkurup59 said...

You have ripped apart the facade that this gentleman Gurumurthy walks about with. Good piece of analysis.

K.R.அதியமான் said...

And the following is an excellent rejoinder to Gurumurthy's idiotic article in The Hindu about growth and black money during UPA 1 ; Gurumurthy is an auditor and not a economist. But he pretends to be one !! :