What’s the Verdict on Demonetisation Data? Q&A With Raghav Bahl
Gimme Two Percent of GDP in One Shot
I am now watching, with equal mortification, the misadventure that Modi is planning to inflict on the Reserve Bank of India (RBI). Frankly, my mind boggles at the audacity of coercing RBI to pay a special dividend of Rs 3.6 lakh cr, equal to nearly 40 percent – pause and repeat, 40 percent – of reserves accumulated over decades.
And if your mind is still not spinning, here’s a nudge – it’s 2 percent of India’s GDP. In one shot. Incredible.
The other day, I got into a Twitter spat with two extremely distinguished gentlemen, one a much feted former CFO of Infosys, and the other a principal economic advisor to the Modi government. For those of you who like their scraps in 280 characters at a time, here are the threads.
I have replayed these two conversations in my mind a million times since then, to understand if I got it wrong. But a million times the answer has come back, unequivocally – what these esteemed gentlemen are saying is intellectually refined stuff; but it’s still a bit of monetary sophistry. Whichever way you cut it, RBI will have to print cash or sell assets if it has to pay this special dividend. All other theories are simply putting lipstick on a pig.
At an instinctive, entrepreneurial level (here, I am trotting out my post-demonetisation hat again), the conundrum is not that complex. The only way I can pay cash to somebody is by either selling/mortgaging my assets, or, if I don’t have enough of that, I could, heaven forbid, just steal it from my neighbour.
Now, since RBI is a God-fearing citizen who has been given a statutory power to print cash, it does not need to steal.
It can pay cash by selling/mortgaging assets, or by printing currency. Any other way is just, well, academic sophistry.