On November 8, Prime Minister Modi announced that, at the stroke of midnight all the 500 and 1000 rupees notes in circulation would no longer be considered legal tender, and needed to be exchanged for the new 500 and 2000 rupee notes. This move was taken by the government to weed out ‘black money’ associated with tax evasions, counterfeiters of money, corruption, terrorists, drug traffickers and smugglers. This was an unprecedented move and perhaps the boldest policy intervention taken by the Indian Prime minister till date. The government’s demonetization of Rs 500 and Rs 1,000 banknotes — constituting over 86% of the total value of currency in circulation — is remarkable because it hasn’t been undertaken in response to any hyperinflation or loss of confidence in the rupee. The rupee has actually been quite strong, both in terms of its internal as well as external value. Annual consumer price inflation was just 4.2% in October, while the rupee has held steady at Rs 66-68 against the dollar for the last one year and more. In real effective terms — against a basket of 36 currencies after adjusting for inflation differentials vis-à-vis the countries concerned — the rupee’s average trade-weighted exchange rate in October was the strongest since July 2011.
Though the demonetization does not follow the conventional logic of a currency ‘stabilisation’ measure as the Indian economy is hardly suffering any hyperinflation or run on the rupee today to even remotely warrant such an action. But then , it has been projected as a ‘structural reform’, targeted at reshaping public attitudes towards currency with a view to move towards a cashless economy. That, by itself, is a laudable goal. In India, most economic transactions take place in cash outside recorded market channels and hence go largely untaxed. This — apart from fostering a parallel ‘black’ economy with obvious security implications — prevents the government from investing sufficiently in public goods to pursue long-term growth and equity objectives. Demonetization, if anything, sends out a clear message that cash is no longer cool and should, perhaps, also be seen with the other planned big reform — of instituting a nationwide goods and services tax regime, which is also ultimately aimed at raising the country’s abysmally low tax-GDP ratio.
The move of the government has been welcomed in a positive note all across the country, especially by the common people, who have braved several difficulties since then, to cope with their day to day expenses, medical payments and even organizing wedding ceremonies. Unlike the common people, this decision has caused severe heart burns to the leaders of the opposition, who have been behaving antagonistically since day one of this announcement. Leaders of the opposition expressed their sympathies towards the common people by joining them in the ATM queues and lending their patient ears to listen to their problems.
It is quite true that cash is king in India. It is used in an estimated 78 per cent of transactions, compared with 20 per cent to 25 per cent in industrialized countries like Britain and the United States. Many people do not have bank accounts or credit cards, and even those who do often must use cash because many businesses don’t accept other forms of payment. Further , there is a severe cash crunch all across the country and most of the ATMs are without cash like the wells during the summer season in our country. And even if they are replenished with cash, they run dry in no time due to the huge demand. The government has said that the withdrawn Rs 500 and Rs 1,000 denomination notes will be replaced with new currency with enhanced security features. But that’s easier said. To start with, printing itself — the total demonetized banknotes numbered 2,300 crore pieces — may take 5-6 months, according to various estimates. Even after printing, the new currency has to be delivered to bank branches and ATMs not just in Delhi and Mumbai, but to even places like Robertsganj, Dantewada, Nabarangpur, Leh, Cherrapunji and Kohima.
There is an additional aspect that needs highlighting. Out of the Rs 17.54 lakh crore worth of outstanding notes in circulation as on October 28, only Rs 4.84 lakh crore, or 27.6%, was held by scheduled commercial banks as cash in hand and balances with RBI. The remaining amount would have been mostly with the public, repeatedly changing hands, and with each transfer resulting in a good/service getting produced or exchanged. 86% of such circulating money being suddenly immobilised is a huge thing, especially when every Rs 500 or Rs 1,000 note gets used for not one, but several transactions. If one considers the whole cycle — from printing and transporting the new currency across the length and breadth of the country, to its being actually withdrawn by people — it could take at least a year for liquidity, expressed as both quantity of money and velocity of circulation, to regain its pre-demonetisation levels.
The other day a leading daily’s editorial by a reputed author said that demonetization is like chemotherapy to a cancer patient. It is very painful, it requires a lot of patience and perseverance, and at the same time it has adverse effects on the patients like loss of hair, gut complications and even at times, death, if the doctor doesn’t have counter remedies for the patient. The author meant to say that instead of gloating over its bold move, the government needed to think about the common man’s problems, chalk out definite strategies and mechanisms to fight out the challenges, recalibrate the ATM machines as soon as possible to ease out the problems and also think and plan about the various other problems which would crop up because of this situation. The author also reported of certain deaths due to lack of cash and accompanied struggles of the people . The foreign media too has been quite harsh towards this move of our Prime minister. As per the Bloomberg, “What seemed at first to be a masterstroke by Prime Minister Narendra Modi now looks like a grave miscalculation… What’s changed in a week? Well, for one, it’s become clear that the government was simply too cavalier in its planning. Now that 86 percent of India’s currency is no longer valid, the central bank has struggled to print replacement denominations — and the new notes are the wrong size for existing ATMs. Modi’s asked people to be patient for 50 days, but the process could take as long as four months.”
“Few villagers have access to an ATM. Most have to trek to a bank branch to change their cash, which means losing out on crucial days of labor. Many Indians, particularly women, still don’t have an active bank account. Finance Minister Arun Jaitley wondered aloud how many poor people would even have 1,000-rupee notes — probably a rhetorical question, but surely it shouldn’t have been. Someone should’ve sought the answer before shutting down India’s financial system,” it said.
Agreed , and quite true. But what about the crores of rupees lying in the coffers of the dishonest people, the corrupt individuals who have plundered and looted the hard earned money of the people; the crores of rupees being used to feed the terrorists and the manufacture of their lethal weapons and who in turn spill the blood of the innocent; huge sums of money being counterfeited in foreign lands to disrupt the life in the silent and beautiful valleys of Kashmir. We had been sitting on these pile of questions with practically no answers to them and so was the case with all the previous governments, who watched everything silently. In this scenario, we should give credit to the prime minister for taking such a bold step. Change is the law of nature. To be complacent, and static is to be like the dead. A moving air can cause a storm and also cause rains. Similarly , in governance too, one needs to be dynamic who holds the reins of the country. The former Prime minister, Dr. Manmohan Singh criticized bitterly the government for bringing in this plight to millions across the country and also went on to the extent of saying that it was a tyrannical move to steal and plunder the country in an organized manner. But Mr. Singh forgets that he had a ‘do- nothing’ approach, which he followed shamelessly for ten long years, nodding his head only at the instructions of his Godmother, so much so, that in the policy corridors of the country huge cob webs had formed, the air had gone stale enough to take the country thousands of years back. Wasn’t that silently and slowly poisoning the system, wasn’t it pricking mother India with millions of small needles, and wasn’t it stealthily polluting the air with life threatening chemicals?
Let’s be with our leader and the government. United we stand and divided we fall. The winter session of the parliament has hardly seen any productive working since its commencement. Instead , our leaders of opposition are busy fighting and protesting bringing the things to a stalemate and also closing their eyes to host of other significant issues which ought to be taken up. A constructive and responsible opposition is there to cooperate and collaborate with the government , and also lend its suggestive and healthy views in matters of governance, and this is what perhaps their assigned role by the constitution. Instead we see a highly disrupted house, a pandemonium of a situation, and a hostile opposition with swords drawn at the government and the policy making body. The antidote of the current situation has to come from the people of this country , the government at the centre and the leaders of the opposition- all need to work together to steer the ship out of the storm and also curb the menace of ‘black money’.