Currency Demonetization In India
Demonetization, the very word makes everybody lower their eyes in shock, disbelief and fear. The honest ones will shrug it off as most of them are in private or public sector jobs which ensure that you are neither too rich nor too poor. For them, this exercise is an unnecessary headache which may or may not bear the prospect of low prices, easy credit. Experts believe that prices will return to their normal levels in 14 months and this is just a temporary relief.
Insurgents Reeling in shock
Since 50 day window has been given for converting all cash balance into bank balance to defaulters; only the naxalites, insurgents are affected who cannot deposit this money in bank anymore as they got their money from Pakistan in gas cylinders through havala channels. Now it will take 4-5 months for this network to be rebuilt. But unless government finds a political solution to insurgency affected areas, these movements will resurface.
Some say it was coming: Only we could not see it.
• At the start of the term, tax payers were asked to link their pan with aadhar card and bank account. And this was done by the lure of subsidies. The smarter ones and this includes millions of high net worth individuals refused subsidy to avoid being caught.
• Old-age pension, MNREGA and other benefits were linked to bank account through direct benefit transfer scheme. 7 crore accounts were opened through Jan dhan Yojana in order to disburse MNERGA workers their wages post Demonetization India.
• Treaties were signed in countries where unaccounted money goes through hawala and most cases in IT-deptt which had gone beyond appeal stage were withdraw.
• Last chance was given through the voluntary income disclosure scheme ushered by Raghuram Rajan who had different views on demonetization and he was chucked out by PM Narendra Modi who did not renew his three year term. .Time was given till 30th September 2016 and it brought 45,000 crores. Since the government was not happy with the response, they went in for the kill after dismissing former RBI Governor Raghuram Rajan who was opposed to the move which was a replica of the 1978 Morarji Desai demonetization when notes of 1000, 5000, 10,000 were demonetized It affected a very small section of the people as most people had not seen 5000 or 10,000 notes even. A 500 rupee salary was good enough ad gold traded at 300+ rupees per ten grams as compared to 30,000+ today. He said in his parting shot that the RBI should be able to say a no to the government and no one could decipher that he was talking of the impending demonetization.
The Chaos and Pandemonium
The government should have told the banks and recalibrated the ATMs beforehand. Complete panic, chaos ruled in most parts of the country and even in airports where baggage wrappers refused to accept anything but cash and refused to issue boarding passes. ATM’s at airports did not function and neither in shopping plazas, railway stations causing more anarchy.
For some time, it was believed that we might be staring at a situation of complete shutdown as the government went on the defensive in a bid to hid e its errors and the prime minister went on a junket to japan miffing voters even more.
Most salaried people could not go to work and had to take short leaves. People could not pay for travel.
Unwanted deaths that could have been avoided through proper preparation
Petrol pumps refused to take old currency and there were reports of two people dying as valid currency were not offered at the time of admission.
Some senior citizens also died while waiting in queue and this prompted many Sikh organizations to come forward and help people with food, water, tea and coffee. Khalsa panth has been known to help in some exigencies like natural calamities like earth quakes, landslides floods in the past also.
Entertainment Industry Suffers…
Movies like Rockon2 suffered heavily at the box office and so did the regional language films which could not get the critical mass of buyers as audiences have refused to venture out. Staying at home and working from home, till the situation improves is the only way out. Atm’s will be recalibrated but there are over 2 lakhs automated teller machines owned by banks and third party ATM’s service providers. Re-programming them will take a lot of time and it’s easier said than done.
Retailers Making Smart Moves
People were borrowing essential commodities like milk, cold drinks, medicines from retailers who offered generous credit to retain their customers. The smarter ones were taking these notes if you purchased goods above 300.
• Some of them were taking 500 or 100 rupee notes only if you take goods of the same amount as the notes would go to the distributor who might find a way out to convert old currency into new currency by discounting in bulk through money changers in India.
• Even in slums, 500 rupee note was fetching only 300 but in cities people were getting deals at 400 or 450. Rich people tend to discount their income and make repeated deposits and with drawls to conceal their income.
Fix the Disease not just its Symptoms
BJP came to power on the strength of funding which came in through black money from traders and small businesses. And it has now alienated itself from its core customer base in a bid to acquire pan-India appeal. This is a big risk which the government has taken and this gamble may or may not pay off as the rich will find a way out. Politico-bureaucratic-industrialist nexus is too strong to be broken.
Post Nov 8, almost 47,000 crores came in through deposits in the first 4 days and the figure is expected to increase tenfold by Dec 30. There were reports of industrialists knowing about this scheme in advance and they had revised their income statements and started depositing cash in huge numbers before demonetization in India. Old notes are being accepted to pay for undeclared taxes, fines in an effort to boost revenue collection which has seen a seven fold increase.
No significant monetary benefit for the common man is seen as the rich have found ways to circumvent the new legislation by using fake id proofs from their employees’ record section. Telecom companies, utility companies are hand in glove with agents who are supplying fake id proofs to convert black money into white at the rate of several lakhs per hour. And now they have 50 days for it. No wonder banks have run out of cash even though huge stacks of new currency were being supplied to banks without telling them what they were being used for.
Unless, the criminal justice system is fixed and the source of corruption which generates black income is plugged. No real improvements will happen.
Though the government finances have improved through this surgical strike, only time will tell whether it was a good move or a stunt to show that development is taking place by putting new hard currency in the hands of users in India and create a perception of change.