'Come December 31, we will be a better nation'

'This wipes out the entire black money in the nation in one stroke. Ninety per cent plus of the black money is kept in Rs 500, Rs 1,000 notes. What they have done is a brilliant move.'

'There is no other way to do this. When you do something like this, you will get it 95 per cent right and five per cent wrong. I think the pain that the five per cent go through for betterment of the 95 per cent is worth it.'

Ravi Subramanian has been a career banker and a financial services professional for over two decades.  

Subramanian, whose passion for writing has seen him author eight books, beginning with the bestseller, If God Was A Banker, believes Prime Minister Narendra Modi delivered a masterstroke a little before 9 pm on November 8 as he launched his war against black money.

Though India may initially reel from the impact, the IIM Bangalore alumnus believes that "come December 31, we will be a better nation".

He spoke to Savera R Someshwar/Rediff.com soon after watching Modi’s stunning address to the nation on November 8.

As a banker, what is your reaction to Prime Minister Modi’s strike against black money?

It's brilliant. It is going to create some amount of chaos in the banking system in the next few days.  The stock market will react. But I don't think this could have been done in any other way.

People will question the secrecy. They will question the timing just before the Uttar Pradesh elections (the state is expected to go to the polls between February and March next year, shortly after the presentation of the Union Budget). All that is rubbish. Any time is the right time to do this.

The government gave a couple of opportunities to declare undisclosed income till September 30. If people did not take advantage of that scheme and are now crying that they have no opportunity to exchange cash, then it is their problem.

This wipes out the entire black money in the nation in one stroke. Ninety per cent plus of the black money is kept in Rs 500, Rs 1,000 notes. What they have done is a brilliant move.

It is the first big, bold, dramatic move by the Modi government in the last two years. It hits where it hurts.

It may not permanently kill the black money problem but when you are bleeding to death, this is like stopping the bleeding completely and stitching up the wound. Going forward, you have to make sure that the stitches don’t come apart.

To ensure that this does not happen is in the government’s hands.

What do you think is going to happen next? People are already panicking. 

People will panic. On Wednesday, banks are closed and that will cause further panic. ATMs will not function. People will struggle for cash. 

For example, I have only thousand rupee notes at home. When I withdrew money a few days ago, the bank gave me only 1000 rupee notes. 

A foreign friend just SMSed asking what he should do with the Rs 1,000 notes he had just withdrawn from the ICICI Bank.

In fact, I don’t know if the government has considered the foreign nationals and tourists in this country who have cash on hand. 

But there is no other way to do this. When you do something like this, you will get it 95 per cent right and five per cent wrong. I think the pain that the five per cent go through for betterment of the 95 per cent is worth it.

What about the impact it will have on the day-to-day life of the aam janta?

Look, it’s going to be difficult for a while. For example, my driver wanted Rs 4,000 tonight because he has a payment to make. So I gave him the money in Rs 1000 notes. But I had to tell him to exchange the notes somewhere because this will not be legal tender on Wednesday morning.

For him, the notes that he is holding is very critical, so how will he manage it? But, as I said, there is no better way to do this. Irrespective of what you do, you will not be able to think though 100 per cent of the issues.

For example, consider the local, small shopkeepers who buy and sell in cash. They go to a bigger merchant, buy from him in cash, come and sell to the households in cash... how will they operate? They don’t have a bank account, they don’t have a debit card, they don’t accept a credit card, so how do you operate with them? You’ll not be able to. 

Whether you do it now or six months down the line, that challenge will always be there. 

But, if you don’t keep this a secret, if you discuss this policy before announcing it, it will lose its impact. Though there will be a little bit of pain now, come December 31, we will be a better nation. 

How will it impact the middle class?

It will definitely not impact the salaried class except for some logistical issues. It will impact the corrupt in the salaried class who hoard cash, which is fine.

It will impact the middle class in a way that a few transactions will be affected on Wednesday, but they have actually thought through many of the factors in terms of petrol, in terms of hospitals, in terms of crematoriums... who will continue to accept the older notes for some time.

And it is not that the ATMs will not work. For a couple of days, there will be a problem but I think from the weekend onwards ATMs will again start working.

Overall, I don’t think the middle class will be impacted.

There will be two segments which will be impacted -- the merchants who live on day-to-day earnings and daily wage earners who’ll not get their money upfront. Not immediately.

For example, labour contractors pay their labourers in cash. But they will not be able to withdraw cash from the banks. So how will he pay his labourers?

Those parts of any business that run on cash will get impacted. These things might create a commotion.

Those who live at the grassroot level will get impacted. The middle class, in the worst case, can always manage reasonably comfortably for the next 15-20 days with their credit and debit cards. If your street corner kirana shop won’t supply you with stuff because you don’t have cash to pay him, you can always go to a larger store and buy things using a card. So even if you don’t give them cash, it’s fine.

The super rich, who have hoards of cash and who would, I am assuming, not have known about this, will suffer.

So it is the top end and the bottom end... the bottom end, because they will suddenly not have cash to survive; the top of the pyramid, simply because they will lose out on a lot of money.

Do you think the banking system is geared up to handle something like this?

That is why they are shutting the banks on Wednesday, to prepare them for this.

As a banker, I am concerned because a lot of these self-employed who have taken loans often use the cash to pay their EMIs. Now, suddenly, this month and next month, it will start impacting the banking system. You will see a little bit of a spike in your retail non performing assets. Credit cards bills won't get paid.

Do you think the banning of Rs 500 and Rs 1,000 notes is enough to remove black money from circulation?

Maybe not, because black money will circulate again when the Rs 2,000 notes come in. But they (the government) are doing at least something. They are saying they are going to control the number of Rs 2,000 notes in circulation.

Till now, 80 per cent of the notes in circulation were in Rs 500 and Rs 1000. They are going to control and make sure that more Rs 100 and Rs 50 rupee notes are in circulation than Rs 2,000 notes.

When that change happens, it will become difficult to hoard money. And if it becomes difficult to hoard money, then you will end up becoming a largely a card based or a banking system based economy.

He has particularly mentioned real estate transactions.

Real estate transactions will struggle.

Real estate transactions have been traditionally been high on cash, especially in bigger cities.  

I would love to see what impact this has on real estate.

How will this impact political parties?

The political parties will be a great, great, great casualty in this entire thing because they thrive on cash. They will struggle hugely.

So it is a brilliant move before the UP elections.

It is a brilliant move before the UP elections, no doubt about it... calculated timing, execution yet to be seen but full marks to him. It’s like knocking off five players in the England cricket team before the Test match begins tomorrow.

I just wish he had allowed people to pay back their delinquent bank loans using Rs 1,000 and Rs 500 notes. The non-performing assets problem faced by the banks would have been solved.

How long will it take for the situation to stabilise for the economy and the aam janta...

Once the new notes come out and the restrictions on the Rs 10,000 a day cash withdrawal are removed, the system will bounce back. 

Secondly, you don’t have an alternate fulfilment mechanism in place for places which used to accept cash in the past. These things need to be dealt with. 

The credit card companies will be very happy. Visa, Mastercard, American Express and all the plastic companies will be really, really, really thrilled with this.

There will be tremendous pressure on Modi to reconsider his decision.

He has taken the high moral ground on this so there is no chance of him rolling this back.

Representative Image: Reuters