Demonetization: Modi’s November 8 Declaration
Mohinder Bir Pal Singh
Demonetizing in economic terms means the scrapping of old currency notes and divesting them of their status as legal tender. In general, such an action takes place when an old currency is replaced by a new one. It is a standard procedure practiced all over the world. The last example was when all the currencies of various countries of Europe were replaced in all those countries by a single pan-European currency, the Euro, which became the legal tender in all member nations of the European Union. This demonetization was done in a phased manner and the entire exercise was successfully executed over a specified time frame without causing any hardship or loss to the individual economies, the joint European economy or the public in any of the countries involved.
On the 8th of November 2016, the Government of India, through an address to the nation by the Honorable Prime Minister, Shree Narendra Modi, announced the demonetization of existing currency notes of Rs 1000/- and Rs 500/- denominations, scrapping them with effect frommidnightof that same day.
However, the situation in India was utterly unlike the European Union, where the proposed demonetization was in the news for years before it was actually implemented. Ample time was given for the transition, when old money was exchanged for new, and all measures were taken to ensure a smooth process. In India, the announcement was a bolt out of the blue. The transition period was shockingly short, and the preparations painfully inadequate. While many “black money” hoarders probably did lose their ill-gotten wealth, too many of the innocent were also penalized severely and undeservedly. People were robbed of their money almost overnight. Above all, 85 percent of India’s money assets and flow consisted of cash money stored or traded in these denominations! India and its citizens were in trauma! All the money that people held in in hand was now nothing short of scrap paper. And because there had been no real planning or action on supply of replacement money, money held in the banks was also as good as non-existent.
Three reasons for taking the monetization step were cited by the Government. The first was to weed out corruption, which had taken solid root within the system at all stages of all administrations, whether centre or state! The second reason was to flush out “black money”, or illegally obtained and hoarded wealth, which has been the bane of this country since ages. And finally, to stop the funding of anti-national elements within the country who received money through dubious means, especially fake currency notes printed outside, smuggled into the country and pumped into the economy as a means of destabilizing it. Over the years, the quantum of fake currency that had gained circulation within the economy had achieved huge proportions.
While the merit of these objectives can be debated, there is no doubt that the total inefficiency and even indifference of implementation threw the entire country into turmoil. Everybody needs cash for daily, petty expenses. Daily wagers need to be paid every evening. Grocery had to be bought for kitchens. Farmers had to be paid their dues to enable them to begin sowing the next crop. Daily commuters, car and cab owners, and even the public transportation commuters were suddenly rendered unable to meet their small but essential expenses, and became clueless as to the next step to take!
The entire onus of resolving the chaos fell upon the government, and swift action was the need of the hour. The first announcement to decrease the burden upon the people specified certain amounts of counter or ATM withdrawals per day, with a set limitper week, and promised to ease the situation within a certain period of time. However, as almost none of the ATMs (Automated Teller Machines) in the banking system were calibrated to the new notes, and therefore, the proposals were useless. While efforts were undertaken on a war footing to get ATMs recalibrated and functioning, these steps were a classic instance of too little, too late for the huge number of people that populate this country.
To overcome an impossible situation of its own making, the government allowed the use of old currency notes at petrol pumps, hospitals and several other institutions, and set aside toll at all highways. People were now being urged to use plastic (credit and debit cards) and online payment apps to ease the situation further. Though the situation is now, almost two months later, showing signs of improvement, most ATMS remain closed and the queues outside those ATMs that do get recharged remain more or less the same. The farmers are the most affected because of paucity of cash money. They are not getting paid for the crops that have already been procured from them, because there is no means of paying them. The co-operative banks have been left out of the primary aspects of the transition exercise and these institutions were the main suppliers of money to the farmers. These are severe problems that needed forethought and careful measures. But as the ball has already been set rolling, and the public has come to accept that demonetization is here to stay, time should take care of most issues. These pains and tribulations can be termed the “pangs” of demonetization.
Coming back to the three objectives, it is almost certain that there has been significant reduction in corruption. The government has said that it would try to remain two steps ahead of the corrupt and will take necessary steps as and when required to tackle those who try to go around the system to indulge in nefarious practices. The entire process of cash flow will begin afresh with the new currency, and there is a strong possibility that this menace can be tackled. But huge stashes of new currency have been found in the wrong hands, and much more has probably have escaped the eyes of the law and the public. The government will have to take serious steps in this direction or it might affect the demonetization endeavour adversely.
Black money has been exposed to quite an extent, as most unaccounted money has been uncovered or rendered useless. By encouraging electronic payment tools, the government might succeed to some extent. But the people are not too happy with online systems, as there is no guarantor against cybercrime. This is a serious matter that too need in depth study and effective preventative and remedial measures.