By MADHAV NALAPAT | New Delhi | 18 December, 2016
‘Out of 11 senior bureaucrats who were involved in the planning of the currency switch’, two are still ‘one hundred per cent loyal to the Lutyens Zone’.
India’s “Lutyens Zone” (analogous to the “Washington Beltway”) went into overdrive from 16 May 2014 to ensure that Narendra Modi becomes a single-term Prime Minister or even be forced to quit his office in between, as took place during 1979 in the case of the other PM from Gujarat, Morarji Desai. This strategy cannot be dismissed as impossible to implement. Although Rahul Gandhi has often been dismissed as an intellectual lightweight by several of his peers, according to a credible strategist working in the interests of the Lutyens Zone, the fact is that the vice-president of the All India Congress Committee “has been working to a plan to derail Modi from the start”. According to this source and another highly placed individual who has served as a core planner for the Lutyens Zone (LZ) leadership since the 1980s, the contra-Modi plan was “accelerated to take-off speed after he (Rahul) took effective charge of the Congress in November 2015”. The duo outlined the LZ “plan of action” since the shock collapse of the Congress in the 2014 polls. “We never expected the BJP to get a majority on its own, nor the Congress tally to go below 110”, the two significant sources said, adding that “it took about 19 months after 16 May 2014 before we were able to work out a plan capable of ensuring that the NDA would not return to power in 2019”. Both said that Rahul Gandhi “embraced the strategy fully, unlike those in his party who had been in leadership positions during the Manmohan decade”. These wanted to “continue with the past policy of cutting private deals with the BJP and putting on only a mock defiance of the new government”. From the start of mid-2015, when his grip over the rudder strengthened at the expense of the old guard of the AICC, Congress vice-president Rahul Gandhi “accepted our (dominant Lutyens Zone) view that with Narendra Modi in the Prime Minister’s chair, it had to be total war”, although sometimes cloaked in the language of conciliation. “Rahul understood that India would change fundamentally were Modi to win a second term or to have an unobstructed run in his present term”, the insider claimed, adding that “over the opposition of leadership elements in the Congress, Rahul insisted on a policy of complete opposition to the Modi government” so as to ensure that key measures such as the Land Bill or GST would not get passed early or preferably ever in the term of the Modi-led NDA.
According to them, “part of the strategy was to give misleading signals during Parliamentary sessions to those in the BJP who had been interlocutors with the Congress in the past”. These were informed that compromise was around the corner, when it was actually out of the question. As a consequence, the NDA government hardened its legislative position, especially on GST, in the expectation that “Congress would follow the UPA-period BJP strategy of opposing, but not obstructing” key legislative and other measures. The Lutyens Zone strategy was also to “create an international image at variance with the global picture of (PM) Modi as a reformer and as an individual who could get things done”. Simultaneously, contacts in media, civil society and governments in key countries were briefed extensively in a manner designed to give the impression of a government where minorities and the underprivileged were unsafe, and where crony capitalists were indulged. According to these sources, “the campaign has been successful, as can be seen from the proliferation of negative reports about the Modi government in the international media”. Whether because of a continuation of the “Vajpayee line” (of backroom compromise with the Congress while verbal pyrotechnics abounded in public), or “because (PM) Modi was advised by some key associates friendly to the Lutyens Zone that he should not appear vindictive, but statesmanlike”, the NDA government has thus far done almost nothing to enforce accountability on those UPA-era central heavyweights perceived as having made billions through stock exchange frauds, foreign currency manipulations and through tweaks in government policy. Additionally, senior bureaucrats who had acted as facilitators for senior UPA leaders during 2004-14, were allowed by the NDA government to continue in their posts and were often promoted to still more sensitive positions, as Prime Minister Modi sought to distance himself from any perception of bias or vindictiveness. Needless to say, such adherence to what may be termed a Prithviraj Chauhan strategy has not lessened the overt and covert campaign to hobble him in office and if possible to drive him out even before the 2019 polls.
According to the Lutyens duo, “out of 11 senior bureaucrats who were involved for 17 weeks prior to 8 November in the planning of the currency switch”, two are still “100% loyal to the Lutyens Zone” and therefore gave the government “advice that will boomerang on the government”. An example was the decision to replace the Rs 1,000 denomination note with a Rs 2,000 substitute. This “went against the logic of the metric system, where the deferred number mathematical theory points to 1, 2, 5 and 10”. It was pointed out by the strategists that throughout the globe, 1, 2, 5 and 10 (i.e. 10, 20, 50 and 100 or 100, 200, 500, 1000) are used to fix the value of currency. “By arbitrarily fixing 2000 and 100 as the two effective bands, the first has become useless in several transactions, while the latter is being hoarded”, a Lutyens Zone strategist pointed out, adding that the particular civil servant who recommended the Rs 2,000 note and withdrawal of the Rs 1,000 note “would get a Governorship when we take office by mid-2019 latest”. It was pointed out that the Rs 100, Rs 500 and Rs 2,000 bands are too far apart for ease of everyday transactions and would impact these even should currency supply normalise after ten months. The Lutyens strategist added that they “have been helped by the fact that a few officials are given wide discretionary power in the current administration, so much so that their recommendations are seldom re-examined before being implemented”. Another googly embedded in the policy, according to the sources, was the “hyper-high penalties for concealed income, which ensured that the grey market, rather than the exchequer got the benefit”. The source claimed that “our people in the system have consistently argued for high penalties so as to ensure the failure of disclosure schemes”. However, such claims of internal sabotage through toxic policies are impossible to verify, as the officials concerned would not implicate themselves by admitting to any role other than that of civil servants loyal to the government of the day. The two civil servants named as Lutyens moles by the strategists talked to are known for their efficiency and thus far, the absence of serious controversy.
The calculation of the anti-Modi brigade is that the manner in which the 8 November currency policy that was accepted by Prime Minister Modi after being strongly recommended by no less than 11 key officials and advisers, “will lower tax collections by stunting growth”. Consequently, “raids will rise and summary assessments multiply” as the government seeks to lower its deficit through squeezing taxpayers. This is expected to anger the middle class and the trading community, both of whom were significant parts of the Modi coalition in 2014. The expectation within the Lutyens Zone is that the present currency shortage will continue well past mid-2017 and result in lower growth for several quarters, perhaps even for years, thereby allowing the opposition to claim that Modi failed to generate growth and employment during his term in office.
They say that their supporters in the government have told them that there are several known bottlenecks in the process of printing of currency, “such as that there is only a single intaglio machine” at each printing centre, thereby slowing down considerably the output of fresh notes with even low grade security systems embedded in them. “All this was known (to the officials consulted in the matter), but not revealed to the Prime Minister”, these sources claimed, adding that “a highly-placed mole convinced the PMO that universalisation of digital modes of payment in a short time-span was possible, when in fact it is impossible”. He pointed out that e-wallets are less than 4% of GDP, and as for overall black money, “our estimate is that the total is around 18% of GDP” or around Rs 27 lakh crore. This includes cash, assets and foreign holdings routed through banks and hawala. Cash in Indian currency forms the smallest component. Hence the overall effect on black money of the 8 November measure would not be substantial. About the official who persuaded the government that cash equals black money and hence needed to be 85% drained out of the system in a single blow, “He will be given a constitutional position when we take office”, the source said with a smile. As for counterfeit currency, even when added to terror funding, the total comes to less than 1% of the currency value withdrawn on the midnight of 8 November 2016. Although it is impossible to verify whether Lutyens Zone moles were deliberately ensuring the sabotage through distortions in detail of Prime Minister Modi’s hugely consequential scheme, it seems clear that unpardonable errors have been made in both the conceptualisation as well as the operationalisation of the details of the swap of Rs 500 and Rs 1,000 notes for new Rs 500 and Rs 2,000 notes, as well as in calculating its after-effects.
As daily cash hauls testify, more than the wealthy it is the common man who has been hit hard by the 8 November move. Should daily consumption fall by 30% (the present situation, according to field reports), GDP will fall by even more than the 2% calculated by former Prime Minister Manmohan Singh, who must be a happy man these days, in that errors made during his years in office have now been forgotten in the flood of reactions to the 8 November extinguishing of 86% of India’s currency. As for the unorganised sector, which accounts for more than 90% of the total of jobs in India, that has been severely affected by a brilliant decision implemented in a less than satisfactory manner, although it is impossible to verify the claims made by Lutyens Zone strategists that several of the errors were deliberate and aimed at sabotaging Modi’s bold plans. Rules and restrictions have been changed nearly 40 times, while tax rates and penalties have been altered at jet speed. Overall, the impact of 8 November on trust and credibility in the banking system as a reliable store of value, and in the Reserve Bank of India as its guarantor, seems to be long-lasting.
If there is even a 15% chance that the two Lutyens Zone strategists are speaking the truth about moles in the present dispensation, the necessity is for a comprehensive investigation into who and how key decisions on operationalising the Prime Minister’s move were made that have subsequently turned out to be problematic. Those responsible for making recommendations that have subsequently become toxic, need to be checked out. More than any outside force, it is those on the inside who have the highest potential for inflicting damage on the Modi administration, and this may nowhere be clearer than in the manner in which the 8 November decision approved by Prime Minister Narendra Damodardas Modi has been implemented thus far, although knowing his strong personality, Prime Minister Modi is likely to continue to stand by his entire team despite increasing political fallout from the manner in which his 8 November 2016 announcement has been tweaked and implemented.