How India is Reacting on Demonetization

By | December 5, 2016

Govt warns of action in case of bank account misuse

“Today, if Parliament is not functioning, blame is entirely on the PM who is not ready to address the Parliament due to arrogance”

Delhi deputy chief minister Manish Sisodia detained at Parliament Street police station. He was addressing the crowd gathered at Jantar Mantar to protest against demonetisation

“70 people have died in 13 days on account of demonetisation decision, will PM apologise to those families”

Demonetisation: Delhi high court adjourns hearing of all pleas till December 8.

“PM can speak on TV, pop concert, why not in Parliament”

“If PM Modi is saying that 86% currency in this country is black then it is a very shameful statement: Anand Sharma, Congress”

Delhi deputy chief minister Manish Sisodia detained at Parliament Street police station. He was addressing the crowd gathered at Jantar Mantar to protest against demonetisation

“70 people have died in 13 days on account of demonetisation decision, will PM apologise to those families”

Demonetisation: Delhi high court adjourns hearing of all pleas till December 8.

“PM can speak on TV, pop concert, why not in Parliament”

“If PM Modi is saying that 86% currency in this country is black then it is a very shameful statement: Anand Sharma, Congress

November 21: In case you’re wondering why we haven’t updated this since November 19th, it’s because we thought we’d do something new. We have a new liveblog HERE. Doing the same old thing, just waaay more fun. Seriously. It’s just a click away. Go on. Click here.

November 19

– 12: 28: The New Indian Express has a fascinating profile of a blind sweet shop owner on the Jammu and Delhi highway. Bhisham Das has honed his sense of touch to detect fake notes of Rs 500 and Rs 1000 and even supports the demonetization drive. He added that the government must have added some way for the blind to detect what notes are. He’s right. The new Rs 2000 notes have the following features for the visually impaired:

We are not ready with our notes yet. The Chinese have already made these note rip-off bags. pic.twitter.com/xmug1d06iI
— Harsh Goenka (@hvgoenka) November 19, 2016

November 18

16: 59: Bang goes the Shotgun! Opposition within the ruling BJP party is growing with Member of Parliament Shatrughan Sinha questions the implementation of the demonetization.

Demonetization of Rs 500 and Rs 1,000 currency, a boon to common Indian citizen:

The move to demonetize Rs 500 and Rs 1,000 currency tenders by the union government of India on last Tuesday, was a laudable and historic effort to clean up the decades long corruption and black money. As Indian citizens, we all should be proud of the fact that we elected a government, which was capable of taking such brave decision for the long-term betterment of the country’s economy. Nevertheless, there’s a high possibility that a certain percentage of people might interpret this decision negatively in view of the fact that short-lived challenges are to be seen, which might have a profound negative impact and dethrone ruling party in the coming elections; not everyone happens to be cognizant of the decision’s long-term benefits. If unaccounted or black money isn’t obliterated, it would make the rich richer and the poor poorer. According to SBI, “ Banks received deposits worth Rs 53,000 crore since the government put out of circulation, high-value banknotes in a bid to drain illegal wealth. Nearly 14 lakh crore are held in Rs 500 and Rs 1000 notes now – nearly 86% of the total value of currencies of all denominations in circulation” [1]. Ultimately, government will possess an adequate amount of money to invest in infrastructure, education, agriculture, and all other sectors to build India economically stronger.

The introduction of Rs 2000 note has been controversial in consideration of government’s efforts to suppress black money by eliminating bigger denomination currency, what might be the strategy? It still seems to be a missing part in a puzzle. The present demonetization process has laid trap for smaller rats; it has potential to break all illegal transactions in real estate, gold, and a few other sectors where circulation of unaccounted money has reached saturation point. However the dinosaurs are safeguarding their money oversees; recovering it should be the primary focus of the government. According to Wikipedia, “In February 2012, the director of India’s Central Bureau of Investigation said that Indians have US$500 billion of illegal funds in foreign tax havens, more than any other country [7]. Moreover, certain percentage of unaccounted money stocked in the form of valuable commodities such as gold has been secured in the vaults by certain section of people.

India Demonetizes Currency After 36 Years:

India’s central bank, the Reserve Bank of India, came out with a surprise announcement today that it will withdraw all banknotes printed before 2005 at the end of March 31, 2014.

This is what the bank said: “The Reserve Bank has also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their customers as well as for non-customers. From July 1, 2014, however, to exchange more than 10 pieces of Rs 500 and Rs 1,000 notes, non-customers will have to furnish proof of identity and residence to the bank branch in which she/he wants to exchange the notes.”.

Source: RBI

This is not the first time this has happened in India, at least technically. Earlier, Rs 1,000 and Rs 10,000 banknotes, which were in circulation, were demonetized in January 1946, primarily to curb unaccounted money.

The higher denomination banknotes in Rs 1,000, Rs 5,000 and Rs 10,000 were reintroduced in the year 1954, and these banknotes (Rs 1,000, Rs 5,000 and Rs 10,000) were again demonetized in January 1978. So that makes it the last time demonetisation was done in India. Almost 36 years ago

This is not the first time this has happened in India, at least technically. Earlier, Rs 1,000 and Rs 10,000 banknotes, which were in circulation, were demonetized in January 1946, primarily to curb unaccounted money.

The higher denomination banknotes in Rs 1,000, Rs 5,000 and Rs 10,000 were reintroduced in the year 1954, and these banknotes (Rs 1,000, Rs 5,000 and Rs 10,000) were again demonetized in January 1978. So that makes it the last time demonetisation was done in India. Almost 36 years ago.

Libya’s central bank started withdrawing old currency in early 2012 in an attempt to restore liquidity after it found that the vast majority of funds are being kept outside banks.

Demonetization, as explained by Investopedia, is the act of stripping a currency unit of its status as legal tender. Demonetization is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.

The creation of a single currency for the European Union over 1998-2000 was of course the largest demonetisation and currency issue exercise, perhaps in history.

Investopedia added: “In order to switch to the euro, authorities first fixed exchange rates for the varied national currencies into euros. When the euro was introduced, the old national currencies were demonetized. However, the old currencies remained convertible into euros for a while so that a smooth transition through demonetization would be assured.”

The objective there was quite different from what India is trying to achieve, one reason could be flushing out black money ahead of elections. And also to trigger a move to a cashless society.

At the stroke of the hour on midnight of 9th November 2016, India lost 86% of its monetary base. The print, electronic and social media has been praising Prime Minister’s masterstroke by which he has reportedly destroyed the base of corruption in India. In this single move, the Government has attempted to tackle all the three issues affecting the economy i.e. a parallel economy, counterfeit currency in circulation and terror financing. There is no doubt that Prime Minister has pulled out a major coop and substantially enhanced his reputation as a strong leader.

Views

The idea of demonetization is good but it has to be taken into consideration that most of the black money is kept in the form of land, buildings or gold or kept abroad. What is in cash constitutes only 4% of the total amount of black money on which taxes are not being paid. Out of this, a lot of money is in circulation in everyday transaction like if someone is building a house; the bill is not paid through banks for sand, bricks etc. This money goes into the other systems though it has been drawn from bank. These things will come under control with this step.

Small farmers, sellers, merchants, daily wage labourers and traders are suffering because of lack of proper planning, intelligence and foresight such as recalibration of ATM machines. There was need to pile up enough 100 Rupee notes and other smaller denomination notes in the market before taking this step. It is being said by critics that this step was taken only to bolster the image of the Prime Minister as he has been unable to deliver on GDP growth, inflation and bringing the black money from abroad.

Demonetization is an established practice in monetary policy to tackle black money. The Prime Minister has explained why this is a financial surgical strike. It was meant to be suddenly implemented. In the past, demonetization has taken place twice but it fails because the idea is to tackle the black money existing in circulation. This is not tackle corruption per se or the Government is not saying that 100% corruption will be tackled. If announcement and time would have been given, this step might not have been successful in controlling black money and counterfeit currency in circulation coming from Pakistan, Nepal or other countries.

People are facing problems because the limit of withdrawal has not been kept at a higher level. If this would have been kept at a higher level, there were chances that the recycling of black money might begin. The ideal money in circulation has to come to the banking channels.

It is also being said that what is being attempted is replacement of currency and not demonetization itself which was unnecessary. This is a terrible setback for the international standing of the Indian economy. At this time, the economy is struggling with slowdown. There is demand sluggishness in the economy leading to practically no private sector investment and stagnant industrial growth. If we look at the farm sector, this is the harvest time. Farmers generally deal in cash and India is also largely a cash economy. The cash transactions in this economy are far more than the total number of electronic transactions done on a daily basis. In the tribal heartland of the country, the poor people through middlemen are getting their currencies exchanged for Rs.300 or Rs.400 because of lack of proper information which is hitting them.

The stock of the black economy constitutes a major part of the GDP is significant. Even if 50% of this amount is withdrawn, the kind of relief that RBI will get on its liabilities and the sort of deposits commercial banks will get will lead to a rise in the deposit and later on there will be decrease in lending rates plus fiscal deficit. The black money in circulation is like a steroid in the economy which keeps the demand going gives a feeling that everything is working well. The problem is that investment is not taking place in the economy and the rate of growth of capital formation is down. The only way to bring this up is to divert more funds into investments which will happen when the cost of capital comes down.

Conclusion:

So far, it can be said that this is a historical step and should be supported by all. One should look at the bigger picture which will definitely fetch results in the long term. This is what the people have been asking for a long time which has finally happened.

The Trouble With India’s Demonetization Gamble

On November 8, Indian Prime Minister Narendra Modi announced the surprise demonetization of the Rs500 and Rs1000 notes of Indian currency. Less than two weeks since the derecognition of these notes as legal tender, the country is in an uproar. While this is not the first time that India has attempted to demonetize in a professed bid to tackle the issue of black money in the country, unlike the last time under Prime Minister Moraji Desai in 1978, this time the Reserve Bank of India’s governor Urjit Patel is in full support of the decision and has called it a bold move that “addresses the growing menace of fake Indian currency notes.”

However, opinion on this decision is very far from a consensus in both the expert and the non-expert realm. The first question raised against this move is the significance of cash as a component of the money laundering networks in India. Economists have argued that this move has left the biggest chunk of black money untouched – the stacks that lie in undisclosed accounts in Swiss Banks.

While former RBI governor Raghuram Rajan has not made an official statement regarding this move, he has expressed reservations in the past about the effectiveness of demonetization as a means of tackling money laundering, possibly indicating that he too might be in this camp of skeptics. The IMF has made a statement supporting Modi’s efforts, but has also very clearly indicated the need for prudence in managing the transition to new notes, given the pervasiveness and importance of cash to the economy.

The chief ministers of the states of Bihar, Andhra Pradesh, Odisha, and Telengana have openly expressed both support and appreciation for this move in the long run, while the chief ministers of Uttar Pradesh, Karnataka, Maharashtra, and West Bengal have expressed varying degrees of criticism and worry at the potentially very harmful short term impacts. Members of the Congress and the Samajwadi Party have violently opposed this move as well.

New Delhi’s Chief Minister Arvind Kejriwal has been vocally critical of the demonetization, stating that the experts he has consulted have not indicated much confidence in this move as a means of getting rid of black money. Drawing upon his own election promises to weed out corruption, he has in fact accused the government of having strategically informed its friends and allies (who might have hoarded black money) in advance – thus effectively only complicating the life of the common man with this move. BJP President Amit Shah has retorted, asking for skeptics to provide concrete reasons for their opposition, and implied that only anti-social elements have a cause for worry as a result of this move.

The next question that may be raised is the preparedness of the government and the banks regarding implementation of a move of this scale. The argument provided for why this move was announced and administered overnight is that it denies hoarders of black money the chance to dispose of it. While that may appear to be sound logic, it has also apparently impacted the banking system’s ability to ensure a smooth transition. Several ATMs across the nation continue to be useless by virtue of not having enough fresh notes, while the ones that are refilled are attacked by painfully long lines and eventually emptied at once.

Some leading Bank Unions have criticized the move as having been improperly planned – resulting in a severe shortage of Rs100 notes that in turn ensures that the large tender of the new Rs2000 notes is rendered useless for routine everyday transactions. Rajya Sabha MP Subramanian Swamy of the BJP has alluded to a lack of a proper contingency plan on the part of the government. At an all-party meeting, the Lok Sabha’s speaker said that the demonetization had become chaotic due to implementation issues.

On November 15, the Supreme Court sat down to hear multiple petitions and four Public Interest Litigations regarding this move – some of which requested a complete rollback of this policy due to its severe impact on everyday citizens. The court decided not to stay the decision right then and instead will examine its legal validity before making a decision. After asking the government to file an affidavit justifying its notification, the court adjourned the hearing to November 25. Meanwhile, government authorities were also asked to ensure that the average citizen was not deeply impacted by this policy.

This in turn is the third major question raised against this policy – who is affected the most? The removal of large sums of legal tender unquestionably affects all individuals who need to engage in cash transactions in some form. Those with access to plastic money are less directly impacted even in the short term, but in both the long and short term, specific sections have been disproportionately hit. Disenfranchised groups who lack the access to ID documents are chief among these.

The rural poor who lack the infrastructure to set up deposit accounts and who currently hold all their money in cash form have been directly hit. Even those who do have access to accounts among them struggle with ill prepared banks and post offices, small and dispersed in number, and the need to take off several crucial hours from work – sometimes in vain. It is also difficult to estimate the numbers of women across the board who will be potentially irrecoverably impacted by this policy – women who do not inform their families of hidden stashes of cash, who are otherwise fully dependent on male members of the family and who stand to lose years of savings because they cannot confess to their presence.

Refugees who lack the requisite documents to create accounts are also now seeing months of savings potentially vanish, as they still lack mechanisms to access the banking sector. Socially ostracized communities who are again disproportionately cut off from the banking systems – like transgender communities and sex workers – are other immediate victims. This is in addition to the fact that reports indicate that the government may have over-estimated the existing levels of connectivity to banking.

Modi, in a rousing rhetorically rich speech, requested the nation for 50 days to launch this self-labeled war on black money. He asked the people to make short-term sacrifices in the interest of long-term gains by virtue of all the money that will be seized from hoarders. Both the activist and the non-activist sections of social media have equally raved about or ripped apart this rhetoric. While it is too soon to declare whether the long-term gains are indeed forthcoming, the “short term” sacrifices have been more than just significant. They have been immensely painful.

Reference Site:

http://timesofindia.indiatimes.com/pm-modis-address-to-the-nation/liveblog/55315325.cms

Demonetization of Rs 500 and Rs 1,000 currency, a boon to common Indian citizen

Live blog: As demonetization kicks in, here is how India is reacting

Demonetization of Rs 500 and Rs 1,000 currency, a boon to common Indian citizen


http://www.hindustantimes.com/india-news/rs-53-000-crore-received-in-deposits-after-demonetisation-move-sbi/story-VVhqIw0tz6kag77t1F0anK.html
http://indianexpress.com/article/india/india-news-india/the-un-real-estate-demonetisation-process-100-500-rupee-note-narendra-modi-black-money-4372286/
http://www.newindianexpress.com/nation/2016/nov/08/fake-currencies-black-money-and-terrorism-modis-ban-on-rs-500-rs-1000-can-stop-them-all-1536461.html

His Passenger Had Only Rs 500 Notes. So This Delhi Cab Driver Did Something Noteworthy.


http://www.newindianexpress.com/nation/2016/nov/13/modi-warns-of-further-action-against-black-money-1537929–1.html
http://www.newindianexpress.com/business/2016/nov/10/deposits-over-rs-25-lakh-to-attract-penalty-on-mismatch-govt-1537017.html
https://en.wikipedia.org/wiki/Indian_black_money
http://www.indiaspend.com/special-reports/india-demonetizes-currency-after-36-years-75606

The Big Picture- Impact of Demonetization

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