The country was taken aback by the sudden decision by the government to demonitise Rs 1000 and Rs 500 notes in order to fight black money. A look into the daring demonetization step as on today.
The cash crunch
The availability of cash still seems to be a problem to the common man. Long queues at ATMs and banks not supporting withdrawal, the looming question of how to satiate cash in hand still prevails. Digital wallet payments have taken over the working class section of the economy, while it might not have penetrated into the lower rungs of the society. As on 21st December, I still had to wait in the queue for about 45 minutes to withdraw a single 2000 Rs note. Speaking to people in the queue, the most common answer I got back was “we are not sure when cash would be required, hence we are withdrawing”.
The mindset of the average Indian is to keep cash for emergency, and that’s what most of the common folk are doing. Withdrawing from the ATMs and keeping cash at home decreasing the amount of currency circulation in the economy. Even if it is Rs 2000/- being stacked in the cupboard, we are talking about a huge population.
The corrupt have found a way around.
The promise of the government was that it will curb black money. Recent raids by the IT department have shown seizure of about 100 crores in new notes and the figure is only increasing day after day. It is evident that the cash hoarders haven’t been impacted at all. The Neta’s and the business class would have had a hassle free process to obtain cash through their clout. It is the middle and the lower classes that were made to run from ATMs to bank shuffling between withdrawing and depositing currency. The hoarders have found their way already.
Would the government claim the recently conducted IT raids as their triumph against hoarders or dwell upon how to eliminate the channels used by these anti-social elements to procure these notes is an area that should be eagerly watched. The ease with which crores have been stashed away by some in new currency versus the difficulty in obtaining a single new note have to be taken into consideration while the government files their report card.
Role of RBI
The timing of the appointment of a new governor and taking these drastic measures sure did coincide, raising a lot of eye brow’s and uncertainty. The notifications issued by the RBI seem to remind one of a school teacher using methods to discipline students in her classroom. As many as 15 notifications have been issued, comprising of increasing and decreasing the withdrawal and deposit limits, daily limit versus the weekly limit, exchange of old notes for the new ones and finally even trying to identify people exchanging notes multiple times by using indelible ink. However their business of running banks hasn’t been affected.
Put into circulation as and when promised, the Rs 2000 denomination proved to be treated as an outsider. With bans on Rs 1000 and Rs 500 notes, a purchase in cash didn’t elicit the right change across the counter. Coming into circulation a little later, the Rs 500 notes marred itself with errors in printing. This made the RBI release a newer version of the notes less than 40 days of introducing it.
The 50 day promise
With only a few days remaining for the “50 day patience” plead by our Prime Minister, all the attention would shift back to what is his take on the ease of availability of cash on the New Year’s Day. With his emphatic promise to curb black money and clean the country Mr Modi has definitely taken a daring step in that direction. According to the government this was a well calculated move, but how did not the think tank align the sequence of events to ensure a smooth transition? Was the RBI put to pressure and made to act like a spokesperson for the ruling party? Was not the planning sufficient enough to give the mint enough time to print currency notes? Or, the secrecy of the decision was kept only to a few big heads marring any scope of formulating a better plan for this mega decision?
Not long ago the EPF tax was rolled back owing to the criticism of the people. The same has been done even by the RBI in accordance with the onetime deposit of Rs 5000. Taking a step backwards, formulating a decision by an apex institution must have come after a strong study of the fundamentals. Making a decision and taking it back because the people aren’t happy with it generates a doubt whether the ground work being done is sufficient or not. The finance minister rolling back the EPF tax could be influenced keeping in mind the political future for the party, but this cannot be same for the numerous economic related decisions by the Reserve Bank.
Come January 01st and the ruling party will find itself answering the opposition parties led by people constantly opposing this move. Moreover the words Mr Modi spoke on the high wire emotional speech given in Goa is worth a recall, where he took it up as a personal responsibility and even said the he was ready to face any punishment post the 50 day period.
With the news channels simultaneously comparing the speech in Goa versus the speech recently in UP where he slightly altered his words by saying the first 50 days would be tough and soon the trouble will subside, it would be an interesting observation to make at the start of the new year.