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I have been disappointed with Prime Minister Modi thus far. Swept into office on the back of a disenchanted electorate, Mr. Modi’s election promised much but delivered little. His victory was a chance to unharness India from decades of nepotism and earn its place rightfully as a global leader. Yet more than two years after Mr. Modi was elected, there has been little to show for it. Frustrated by the devil of India’s regional politics, Mr. Modi was seen hugging international leaders more than delivering to his own people. This was not for want of trying but more for a lack of ideas on how to break free from the shackles of State-run governments, often at odds with Mr. Modi’s vision for a grander India. States were able to push back on unpalatable reforms such as the Tamil Nadu government’s intransigence over the Goods and Service Tax Bill (GST). Added to the impotence of the Modi government’s policies was a sense that the fringe elements of the party were taking over. Mr. Modi kept silent while freedom of speech was stifled, right wing elements got emboldened and a growing sense of unease crept over minorities. For the intellectual, a sense of despair and hopelessness emerged.
But today was the day that Mr. Modi redeemed himself. With a stroke of his pen, Mr. Modi delivered a policy so bold in its vision and audacious in it scope, that one felt a sense of relief that the promise that took Mr. Modi to the highest office in the land, has finally been delivered. One of the few areas where states cannot interfere in India is in the circulation of money. Mr. Modi used this to his advantage in nullifying the vast hoard of black money that is hiding in the vaults, bedrooms, and backyards of corrupt politicians and unethical businessmen all over the country. Effective today, Rs 500 and Rs 1000 notes will no longer be legal tender (the notes most commonly used to hoard black money). Given the scale of the exercise in a vast country, the secrecy with which the policy has been planned and executed should gladden the heart of every honest citizen. The corrupt are scrambling like rats in a sinking ship. Yes, the government will honor their old money in exchange for new ones, but who will dare bring sackfuls of cash to local banks? And going forward, larger denomination notes will have an embedded tracking device, not conducive to storing very large amounts in your basement.
There is no doubt that this policy will be an enormous inconvenience to the common man. Since it was announced, at roughly four hours before midnight, I have witnessed long lines at ATM machines and petrol bunks in Chennai. With banks closed for the next two days India’s vast cash economy will struggle. Everyday workers and India’s large lower middle class, the backbone of its social structure, will feel the burden the greatest. It is difficult to predict the impact of the move on markets, the rupee, real estate prices (which are said to be propped up by black money), and a host of other sectors. But for all its inconvenience, it is hard not to applaud a policy that will strangle the ugly head of corruption, and set the country on a path towards greater transparency. Irrespective of political affiliation and inconvenience, for every honest Indian, this is a time to stand and applaud.
Mr. Modi has delivered!
Prabhu Palani, CFA, was formerly a Managing director and the lead equity strategist at Mellon Capital Management in San Francisco. Previously, he was Senior Vice President and Portfolio Manager at Franklin Templeton Investments and Portfolio Manager at Barclays Global Investors. Prabhu holds graduate degrees from Stanford University and the University of Delaware and is a member of the CFA Institute and the Institute of Chartered Accountants of India.