About a
decade & half back, I was working with HSBC Saudi Arabia as Senior Credit
Analyst (see http://tinyurl.com/osq7rvt). Since there is a rule in Saudi that all foreign banks shall begin their name with
the word ‘Saudi’ it is known as Saudi British Bank (you thought prohibition of 'women drivers' is the only strange rule in Saudi? you won't be disappointed! there are many!). At that time, one of my seniors, Tariq was from Pakistan. He
was very jovial and friendly and used to tell interesting events that happened
in an undivided India, as told by his grandfather. Tariq’s family was basically
from Patna, India and during the partition, migrated to Pakistan because his
father was educated and was practicing as lawyer. He ‘understood’ the
advantages of the move to newly created theocratic Pakistan ; while many of his
father’s relatives who were not that educated, did not move to Pakistan.
According to Tariq, now his father deeply regrets his move to Pakistan as their
relatives in India is far better off and living in a peaceful, modern and
progressive environment compared to the ‘Islamic Republic of Pakistan’, which
as the majority opinion goes, is a failed experiment.
Lipton Tea
Now let us
come back to the interesting story during undivided India. During the early
1900s, Lipton tea was expanding its operations in India and wanted Indians to
consume tea. Unfortunately, tea was not so popular in Patna. One fine day, the
police of Patna distributed free cup of tea to all people moving around in
Patna city. The catch was that after taking the tea, the person will be led to
a counter manned by policemen, who forced the person to buy a half kg pack of
Lipton tea. Well it looks like the efforts paid off as tea is now a prominent
drink in north India (south India still prefers coffee ‘e.g. Tamilnadu’s filter
coffee’). As with typical Indian fashion, the tea has been indianized as we
have ‘karak tea’, ‘masala tea’ etc.
It is sure
that Patna people likes tea and ought to be thankful that it is introduced to
them. Probably, their only wish may be that Lipton could have found another
way to introduce tea!
Withdrawal of currencies
Just like
the forceful imposition of tea in 1900s, I think Prime Minister Modi is trying hard
to bring in banking culture in India, by pursuing demonetisation, although it
has some additional benefits (i) stopping counterfeiting of the current
banknotes both within and neighbouring countries (ii) crack down on black money
in the country and reduce corruption, etc. While the counterfeiting, black
money hoarding may come back again and corruption in India is likely to continue (1757
Battle of Plassey is the best example of corruption – Robert Clive paid bribes
to a rival General to turn the tables in favour of East India Company and it
worked!), the everlasting advantage will be the increase in the number of people
using banks and bank facilities.
Advantage Banks
Heads of e-commerce
companies and IT experts have hailed the demonetisation as it gives an impetus to
bank based digital payments. The demand for point of sales (POS) or card swipe
machines has increased manifold across India while more people are using
E-payment options as well. Many leading retailers have stated that debit and
credit card transactions doubled since 9 November 2016.
Moreover,
more than eleven lakh crores currencies have been deposited in Indian banks, making
the banks cash rich. One Deputy General Manager of leading bank in India told
me (when I was in India in Nov) that even a massive deposit drive would find it difficult to bring
half the amount into his bank! No wonder banks are fully supportive and working hard without complaints even
into the mid night! Advantage banks.
Many sharp
critics in India and abroad state that Demonetisation has become demonization for
common man in India who are forced to stand in ques overnight and postpone
purchase of land and other properties & even marriages! But, for Banks it
shall be a good news in the long run.
Despite,
criticisms, Financial Thoughts believe that the move will bring in long term
advantages, if implemented correctly and intelligently.
Is it similar to Pavlov Reform?
Although
many are quick to point out about the failed Demonetisation reform of 1991 in
the erstwhile USSR ( i.e. Pavlov Reform), the Indian context is different and
the circumstances of USSR will not happen in India – e.g. anti-Gorbachev
factions led a military Coup in 1991 and Ukraine decided to get out of the
USSR; such things will not happen in India thanks to Pandit Jawaharlal Nehru,
the freedom fighter and the first prime minister of India, under whose
direction the Constitution for Indian Union was drafted (delegated to a team
led by Ambedkar) and sealed.
