THE HINDU EDITORIAL-9th November 2017

a) Uncertainty in the Kenyan presidential elections

With a petition filed in Kenya’s Supreme Court against the October 26 rerun of the presidential election, the country risks an intensification of political turmoil. The challenge is the second since the initial elections in August, which were overturned on grounds of alleged discrepancies in tabulation at the polling stations and the computer systems. That unprecedented ruling in September was widely hailed as an exemplar of judicial independence. Since then, President Uhuru Kenyatta has rammed through legislation that circumscribes the authority of the electoral mechanism and legal scrutiny of polls. The sense of intimidation was palpable when most of the judges failed to show up to hear a plea for the postponement of the vote. The outcome of the latest legal challenge is therefore far from certain. If the judges again decide not to uphold the latest victory for the incumbent, the absence of a genuine contest could prove to be a critical factor. The opposition leader, Raila Odinga, had withdrawn from the second race in protest against the new legislation and the lack of material improvement on the ground. Days before the October election, the election commission lost the services of top officials, with one fleeing the country saying she feared for her life. Such a turn of events came as a chilling reminder of the mysterious death of a high functionary of the electoral body just before the elections in August. Moreover, there was considerable scepticism over the credibility of the October vote, as a large-scale revamp of the electoral system was seen to be impossible within that timeframe. This is why there is speculation that the court may see merit in the petitioner’s claim that the polls were anything but free and fair. Both Mr. Kenyatta and Mr. Odinga bear much moral responsibility for the current stalemate and the violence. It is time they negotiated a lasting settlement to restore credibility to Kenya’s democracy. That requires them, especially Mr. Kenyatta, to play by the rules laid down under the 2010 constitution, which provides for greater devolution of powers. Above all, there needs to be an end to the near- monopoly of power enjoyed by the Kikuyu and the Kalenjin ethnic communities since the country’s freedom from colonial rule. Memories of the killing of hundreds in the aftermath of the 2007 elections should underscore the urgency of bringing the current fluid situation within control. For its part, the African Union must exert political pressure on Kenya’s two veteran politicians to prevent the escalation of the crisis beyond Kenya’s borders. This week the government lowered the forecast for GDP growth to below 5%, with analysts blaming the political crisis for the negative sentiment. The social cost of this upheaval would be incalculable. Strengthening the election mechanism against political interference would be an important first step.

b) Demonetisation: the great reset, a year later

Prime Minister Narendra Modi’s flagship economic agenda of demonetisation, that stunned the nation as a financial Pokhran, has been caught in the political crossfire between Mr. Modi and the Opposition from the word ‘go’. When millions (a word that was hyped by the media) were standing in queues before banks and there was hardship caused to diverse people, the Opposition thought that Mr. Modi had found himself in a tornado that would sweep him away. They began a massive campaign against demonetisation and Mr. Modi. With the media feeding the Opposition with news of near financial anarchy, and in turn the Opposition feeding the news hungry media by shutting down the winter session of Parliament, and the two together creating the ecosystem in which the Supreme Court justifiably said there could be “riots”, the opponents of Mr. Modi concluded that his end was very near.

The political angle

But facing the biggest challenge of his political life, Mr. Modi went to the people, telling them that the measure was directed at corruption and black money — the terminology which the masses easily understood — and asked them to bear with him for 50 days. Crores of Indians stunned the media, the Opposition and even the world by patiently standing in queues for days and giving him total support. They endorsed demonetisation by voting for the Bharatiya Janata Party, giving it unprecedented victories in local body elections in Chandigarh, Mumbai, Maharashtra, Gujarat, Odisha and even in the Assembly polls in Uttar Pradesh, Uttarakhand, Goa and Manipur. But the hostile political build-up turned the demonetisation debate into a street fight, with both the BJP and the Opposition appealing to the masses in the language they easily understood; the Opposition using hardship to incite people’s anger against demonetisation and the BJP appealing for their support terming it as a war on black money. The hardship versus black money focus reduced the discourse on demonetisation — a multidimensional venture — to just a single point; a war on black money, which won the BJP the people’s support.

Ceasing to be economic

The reductionism diminished the debate to a sole test of the quantum of demonetised notes returned to the Reserve Bank of India (RBI). But the demonetisation project formed a much larger landscape. Its fundamental aims were many. It terminated the asset price-led, spurious jobless growth and averted a crisis in the making. The rise in the share of high denomination notes (HDNs, Rs.1,000/Rs.500) in the total currency from 47% in 2004 to 78% (2004-10) fuelled unprecedented asset price rise — gold, stock and land prices rose by 10 times in the six years over the previous five years (1999-2004). The high GDP growth (8.5%) in six years (2004-10) was largely led by private consumption powered by the financial and real estate sectors — both driven by cash. The rise in private consumption (60%) in these six years over the previous five years was directly sourced in the rise of 69% in finance and real estate in that period. Thus, the high growth (8.5%) between 2004 and 2010 was fake, yielding only 2.7 million jobs as against 60 million jobs which the moderate growth of 5.4% between 1999 and 2004 had produced. Here is an example of how the asset price-led growth had hurt real growth. Liases Foras indices of housing affordability and prices (both equal at 100 in January 2005) peaked in March 2014, with the index of price curving steeply to 529 and affordability slowing at 173. This huge affordability gap, of almost three times, was due to cash driving up land prices and secondary housing market that constituted two-thirds of housing buys. With a 95% shortage in affordable housing, this wide gap virtually killed real housing growth since 2011. Demonetisation is an effort to reverse this dangerous trend. Had this intervention not taken place, by 2021, HDNs could have touched as high as Rs.36-40 lakh crore, which would have dynamited the real economy through asset price inflation — much like subprime lending did in the U.S. before the 2008 crisis.

Multidimensional correction

Had the government aligned demonetisation with the Income Declaration Scheme, 2016, it would have fetched a minimum of Rs.2-3 lakh crore as tax upfront. By unintelligently separating them, it is now chasing demonetisation depositors for tax. Yet, the black money agenda of demonetisation is no failure, though ill-executed. Black money of Rs.45,000 crore has been uncovered and Rs.2.9 lakh crore of cash deposits are under tax probe. Against this whopping Rs.3.35 lakh crore, yields in previous disclosure schemes have been minuscule. Following demonetisation, there are 56 lakh more assessees, advance tax receipts have gone up by 42% and self-assessment tax risen by 34%. It has also led to an attack on benami assets. Even as intelligence agencies note a 50% drop in hawala-related calls post demonetisation, nearly 2.24 lakh shell companies that have been used for hawala have been uncovered; 35,000 have been found laundering Rs.17,000 crore; one of them, Rs.2,484 crore. Demonetisation means much more. The currency to GDP ratio is down from 13% to 9%, post-demonetisation. Household financial savings have risen and savings in currency form crashed. Interest rates are down, with the RBI cutting rates by 25 basis points, and banks by 96 basis points. According to a study, digital payments have accelerated by 93% between January and June 2017. Without demonetisation, it would have just grown by just 21% — by a fourth of it. Demonetisation has forced the extra cash floating around into term and time deposits, which have risen by Rs.17 lakh crore. A huge formalisation of the informal economy, which generates half the nation’s GDP and 128 million jobs or 10 times the jobs in the formal sector, is under way. Demonetisation is an effort to bring about a fundamental shift in the economy.

The future and a caveat

That GDP growth would slacken for a year is implicit. But it was not as bad as when Paul A. Volcker, as U.S. Fed chief, applied Milton Friedman’s monetary theory and contracted bank credit, a kind of demonetisation for the U.S. That led to the U.S.’s GDP, far from rising, turning minus 3% in 1982, though it later vaulted to 6% in 1983 and 8% in 1984. But despite the fact that demonetisation would slow the GDP, the government, under attack by economists and the Opposition alike, was in denial mode. Now, the RBI expects growth to improve in the second half of (calendar year) 2017. The rise of the Index of Industrial Production (IIP) by 4.5% in August 2017 over August 2016 and 8 core sector IIP (this consists of eight core industries data) for September by 5.2% seem to signal high growth ahead, though the intervention of the goods and services tax may delay it for a while. A caveat at the end. Demonetisation has robbed the informal sector of non-formal credit; the formal credit assured to them through the Micro Units Development and Refinance Agency (MUDRA) formula has not been fulfilled as yet. MUDRA was premised on the assumption that banks cannot reach credit to the informal sector and need last-mile private credit intermediaries, which the RBI opposes. The government must convince the RBI on the need for MUDRA as conceived. Subject to this, demonetisation, in sum, is a fundamental corrective to the economy much like liberalisation was in 1990s. Sadly, this vital aspect is missing in the current discourse.


1) Intensification

Meaning: The action of making or becoming more intense.

Example: “the intensification of the conflict”

Synonyms: Escalation, Augmentation

Antonyms: Abatement

2) Turmoil

Meaning: A state of great disturbance, confusion, or uncertainty.

Example: “the country was in turmoil”

Synonyms: Turbulence, Tumult

Antonyms: Calm, Peace

3) Discrepancies

Meaning: An illogical or surprising lack of compatibility or similarity between two or more facts.

Example: “there’s a discrepancy between your account and his”

Synonyms: Difference, Disparity

Antonyms: Similarity, Correspondence

4) Unprecedented

Meaning: Never done or known before.

Example: “the government took the unprecedented step of releasing confidential correspondence”

Synonyms: Unequalled, Unmatched

Antonyms: Normal, Common

5) Hailed

Meaning: Praise (someone or something) enthusiastically.

Example: “he has been hailed as the new James Dean”

Synonyms: Acclaim, Praise

Antonyms: Criticize, Condemn

6) Exemplar

Meaning: A person or thing serving as a typical example or appropriate model.

Example: “the place is an exemplar of multicultural Britain”

Synonyms: Model, Ideal

7) Rammed

Meaning: Roughly force (something) into place.

Example: “he rammed his stick into the ground”

Synonyms: Force, Thrust

8) Circumscribes

Meaning: Restrict (something) within limits.

Example: “the minister’s powers are circumscribed both by tradition and the organization of local government”

Synonyms: Restrict, Limit

Antonyms: Liberal

9) Palpable

Meaning: (of a feeling or atmosphere) so intense as to seem almost tangible.

Example: “a palpable sense of loss”

Synonyms: Perceptible, Visible

Antonyms: Intangible, Imperceptible

10) Incumbent

Meaning: Necessary for (someone) as a duty or responsibility; the holder of an office or post.

Example: “the government realized that it was incumbent on them to act”

Synonyms: Obligatory, Mandatory

Antonyms: Optional

11) Fleeing

Meaning: Run away from a place or situation of danger.

Example: “to escape the fighting, his family fled from their village”

Synonyms: Escape, Abscond

12) Mysterious

Meaning: Difficult or impossible to understand, explain, or identify.

Example: “his colleague had vanished in mysterious circumstances”

Synonyms: Peculiar, Curious

Antonyms: Straightforward

13) Speculation

Meaning: The forming of a theory or conjecture without firm evidence.

Example: “there has been widespread speculation that he plans to quit”

Synonyms: Supposition, Guesswork

14) Credibility

Meaning: The quality of being trusted and believed in.

Example: “the government’s loss of credibility”

Synonyms: Reliability, Integrity

15) Colonial

Meaning: A person from another country who lives in a colony, especially as part of its system of government.

Example: “a rebellion by Dutch-speaking colonials”

16) Aftermath

Meaning: The consequences or after-effects of a significant unpleasant event.

Example: “food prices soared in the aftermath of the drought”

Synonyms: Fall-out, Issue

17) Exert

Meaning: Apply or bring to bear (a force, influence, or quality).

Example: “the moon exerts a force on the Earth”

Synonyms: Apply, Utilize

18) Tornado

Meaning: A mobile, destructive vortex of violently rotating winds having the appearance of a funnel-shaped cloud and advancing beneath a large storm system.

Synonyms: Cause, Effect

19) Stunned

Meaning: Astonish or shock (someone) so that they are temporarily unable to react.

Example: “the community was stunned by the tragedy”

Synonyms: Astound, Amaze

20) Build-up

Meaning: A gradual accumulation or increase, typically of something negative that leads to a problem.

Example: “the build-up of carbon dioxide in the atmosphere”

Synonyms: Increase, Growth

Antonyms: Decrease

21) Hardship

Meaning: Severe suffering or privation.

Example: “intolerable levels of hardship”

Synonyms: Deprivation, Destitution

Antonyms: Prosperity, Ease

22) Discourse

Meaning: Written or spoken communication or debate.

Example: “the language of political discourse”

Synonyms: Discussion, Conversion

23) Diminished

Meaning: Cause to seem less impressive or valuable.

Example: “the trial has aged and diminished him”

Synonyms: Denigrate, Deprecate

Antonyms: Boost

24) Spurious

Meaning: Not being what it purports to be; false or fake.

Example: “separating authentic and spurious claims”

Synonyms: Fake, False

Antonyms: Authentic, Real

25) Indices (plural form of index)

Meaning: A sign or measure of something.

Example: “exam results may serve as an index of the teacher’s effectiveness”

Synonyms: Guide, Indication

26) Affordable

Meaning: Inexpensive; reasonably priced.

Example: “affordable homes”

Synonyms: Less expensive, Low rate

Antonyms: High rate

27) Intervention

Meaning: Interference by a state in another’s affairs.

Example: “the government was reported to be considering military intervention”

Synonyms: Involvement, Intercession

28) Dynamited

Meaning: Something that causes or may cause great shock or excitement.

Example: The issue of unemployment is political dynamite (= could cause big political problems).

Synonyms: Explosive

29) Fetched

Meaning: Achieve (a particular price) when sold.

Example: “the land could fetch over a million pounds”

Synonyms: Raise, Realize

30) Whopping

Meaning: Very large.

Example: “a whopping £74 million loss”

Synonyms: Huge, Massive

Antonyms: Small

31) Hawala

Meaning: a traditional system of transferring money used in Arab countries and South Asia, whereby the money is paid to an agent who then instructs an associate in the relevant country or area to pay the final recipient.

32) Laundering

Meaning: Conceal the origins of (money obtained illegally), typically by transfers involving foreign banks or legitimate businesses.

Example: “$123,000 had been laundered through Geneva bank accounts”

Synonyms: Conceal

33) Accelerated

Meaning: Increase in rate, amount, or extent.

Example: “inflation started to accelerate”

Synonyms: Increase, Advance

Antonyms: Decelerate, Drop

34) Implicit

Meaning: Suggested though not directly expressed.

Example: “comments seen as implicit criticism of the policies”

Synonyms: Implied, Indirect

Antonyms: Explicit, Direct

35) Denial

Meaning: The action of denying something.

Example: “she shook her head in denial”

Synonyms: Contradiction, Refutation

Antonyms: Confirmation

36) Caveat

Meaning: A warning or proviso of specific stipulations, conditions, or limitations.

Example: “there are a number of caveats which concern the validity of the assessment results”

Synonyms: Warning, Caution

37) Last-mile

Meaning: The last stage in a process, especially of a customer buying goods.

Example: One major problem of online shopping is “the last mile” – the delivery to the customer at their home.

38) Convince

Meaning: Cause (someone) to believe firmly in the truth of something.

Example: “Robert’s expression had obviously convinced her of his innocence”

Synonyms: Persuade, Satisfy

39) Conceived

Meaning: Form or devise (a plan or idea) in the mind.

Example: “the dam project was originally conceived in 1977”

Synonyms: Frame, Invent

40) Liberalisation

Meaning: The removal or loosening of restrictions on something, typically an economic or political system.

Example: “the government’s policy of economic liberalization”

Synonyms: Remove

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THE HINDU EDITORIAL – 8th November 2017