A Train Crash and Black Cash Trip India's 'Post-Truth' Moment

This article first appeared on the Riding the Elephant site.

The publishers of the Oxford English Dictionary last week made post-truth their new word of the year.

A few days later, Arun Jaitley, India's finance minister, produced a post-truth moment when he declared that a cashless "new normal" was being introduced by the demonetization of the 500 and 1,000 rupee bank notes, and brushed aside the severe currency shortages and mass hardship it has caused over the past two weeks.

Related: Modi's assault on black money leaves Indians in despair

There was another on November 20 when Suresh Prabhu, the railway minister, tried to obliterate public criticism of a disastrous train crash that killed over 140 people by announcing that "enhanced amount of ex-gratia compensation to the victims of this unfortunate accident: Rs 3.5 lakh in case of death" (about $5,000).

The Oxford Dictionaries website says post-truth is an adjective (though it also works as a noun). It defines it as "relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief."

All governments, of course, rule with such announcements that are intended to fudge reality and stem criticism. In Britain, Theresa May's "hard Brexit" may turn out to be a post-truth if, as some people suspect and many hope, it eventually emerges as a precursor to something softer.

India, however, goes further than most supposedly open democracies in the way that the government expects public opinion to be easily diverted from objective facts.

Narendra Modi, the prime minister, who set the tone for Jaitley and Prabhu on both demonetization and the train crash, excels. "Mr Modi is a master in evoking the emotional reasoning that is the essence of post-truth—as indeed is Donald Trump. Don't confuse me with facts, what I feel is the reality," wrote T.N. Ninan, a veteran columnist and publisher, in his Business Standard newspaper over the weekend.

The objective fact, to use the Oxford Dictionaries words, in the train crash is that India has more disastrous railway disasters than maybe any other country, and seems to do little to stop them. Their appalling frequency was underlined by The Times of India headlining this one as the worst "in 6 years"—not 10 or 20 years, just six!

Every time there is a crash, railway ministers rush to the site, as Prabhu and his deputy did, and immediately deal with emotions by announcing large cash handouts to the families of those killed and injured. An inquiry is ordered that leads to broad-brush reports of what happened, but no report of any subsequent action being taken.

It is a test of how much Modi has fulfilled his general election promise of changing the way the government operates to see whether the hand-outs and promises of action remain post-truths this time or not.

The objective fact on demonetization is that there has been country-wide disruption of the economy and business, plus widespread personal inconvenience and hardship especially in rural areas, following Modi unexpectedly on the evening of November 8 withdrawing from circulation the 500 (about $7.50, £6) and 1,000 rupee bank notes that accounted for 86 percent of the currency, as I described on this blog on November 14.

The move has been described as the "most sweeping change in currency policy that has occurred anywhere in the world in decades" by Larry Summers, former U.S. Treasury secretary and Harvard president, writing in the Financial Times. He is skeptical about the prospects for curbing corruption and says that the "ongoing chaos in India and the resulting loss of trust in government" fortifies his view that the costs of withdrawing notes from circulation exceed the benefits.

The last time there was a big withdrawal of high value currency in India was in 1978, but people then were given a week to exchange the notes, which softened the blow.

The Reserve Bank of India said on November 21 that banks had received 5.45 trillion rupees ($80 billion) in the old 500 and 1,000 rupee notes by the end of last week out of $22 billion in circulation. Banks have issued $15 billion in new 2,000 rupee notes.

The disruption has ranged from farmers' shortage of money to buy seeds (they can now use the old notes) and families wondering what to do with substantial quantities of cash they routinely keep at home, to people not being able to use old notes to pay for wedding arrangements, doctors' fees and other routine expenses. Those who got new 2,000 rupee notes found most shops had not got enough 100 rupee notes and smaller currency to give as change.

While the situation has eased in some areas, there are still long queues at closely guarded banks and at ATMs that have to be mechanically reconfigured for new smaller-sized 2,000 notes that are in short supply. The ATMs also quickly run out of 100 rupee notes that everyone wants.

The post-truth came from Jaitley who talked at an Economic Times conference in Delhi on November 19 about just "initial inconvenience," claiming without any basis in reality that the money queues were now "extremely small."

His bigger post-truth was that demonetization will drastically reduce India's massive "parallel economy" which has been running outside the banking system for the last 70 years. "Shadow or parallel economy had become a way of life. When you have a large chunk of currency outside banking system, the taxation base is narrow and the shadow economy becomes way of life…. Demonetization will set a new normal for the economy," he declared.

Taking 86 percent of currency out of circulation obviously cuts away at the parallel, heavily black, economy. It is also true that many people and businesses are opening bank accounts and switching to credit and debit cards and other forms of e-money.

But cash will build up again as new 2,000 and 500 rupee notes come into circulation if for no other reason than that corruption is endemic in India and relies on cash.

Accommodation Entries

What the government is not talking about are the corrupt methods that political parties, real estate developers, traders, gangsters, lawyers and many others are using to clear their hordes of old notes without falling foul of official inquiries and tax demands.

I have heard that there has been a surge in accountants and bank managers colluding with clients in a system known as accommodation entries, where false loans, names, book entries and accounts are used to launder large quantities of black money.

There are also stories of people in bank queues seeing people carrying suitcases being admitted into a bank while everyone else is kept outside. These and other methods will, reports suggest, involve the beneficiary losing perhaps 25 to 40 percent of the notes' value. Trading is also still taking place using old notes, albeit at a discount.

Despite all this, there does appear to be widespread support for what Modi and Jaitley are trying to do, even though there is growing criticism and impatience over how it is being done and of insufficient advance preparations.

There is also concern that economic growth, and in particular agricultural output, could be hit. Opposition political parties are disrupting parliament in protest.

Modi won the general election 30 months ago partly on the promise of cleaning up the economy and that is why there is a surprising willingness to give him and Jaitley the benefit of the doubt.

The big post-truth questions now are whether Modi will manage to introduce enough further anti-corruption measures to turn all this into Jaitley's "new normal" reality and, in the shorter term, whether he can make his claim that people's inconvenience will last no more than 50 days become an objective fact.

John Elliott writes from New Delhi. His latest book is IMPLOSION: India's Tryst With Reality (HarperCollins, India).

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