Black money is back in new notes

It is official. Black money is back. Cash sharks — doctors, businesspeople, hawala operators, lower court practitioners, brokers, transport operators, shopkeepers, traders and agents of all sorts — have returned to their respective dealings in cash, mocking at the government's much-orchestrated purpose of demonetising high-value notes to strike hard at black money hoarders. Last week's tax raids in Bengaluru unearthed Rs. 5.7 crore, all in new high-value currencies. An Enforcement Directorate (ED) raid found over Rs. 10 lakh in cash, also in new notes, from a physician’s chamber in Kolkata. They showed, if anything, black money operations started across the country probably from the very next day of demonetisation. It seems demonetisation generated little impact on black money operators while the poor continues to suffer the most for cash. Part-time workers are losing jobs. Many senior citizens have lost their lives. Not many bank branches have enough cash to meet demands from depositors. Cash withdrawal limits continue. Of over 2,00,000 ATMs in the country, only 35,000 are reportedly working.

Post-demonetisation, low salaried workers in small and medium industries (SMEs), employing less than 20 employees, had to put up with a difficult situation on their first monthly salary day on December 1, as the employers could collect only Rs. 50,000 each in cash from their current accounts to pay monthly wages to their employees despite the fact they may be having deposits of over lakhs or crores of rupees in their bank accounts. Most of the employees had to remain satisfied with cheque payments this time. These employees don’t shop in malls, department stores or big groceries. They need cash to buy their daily dire necessities from small shops, roadside hawkers and local market vendors who may not have even seen a PoS machine. The payday appeared to be a day of agony for most of these people.

The raids in Kolkata and Bengaluru also suggest that demonetisation is hardly the right medicine to free the society from the menacing diseases of black money operation, fake note circulation and terror funding.  Incidentally, a bunch of terrorists, or maybe Pakistani militia, managed to enter an Indian army officers’ mess in Jammu & Kashmir, killing some seven persons, including two senior military officers, also within three weeks of demonetisation. It not clear if they were also carrying new Indian currency notes to bribe their way into the well-planned armed adventure. No one is sure if fresh fake notes have surfaced already. The government has banned private chartered flights landing in small airports without the permission and knowledge of the local police to prevent the unauthorised private transfer of substantial cash after one such case was lately detected in the north-eastern part of the country. The cash shortage from conventional official sources such as banks and treasuries has made life miserable for most citizens. For the unaccounted cash rich, life has remained almost normal.

Cash shortage has hurt micro-economy badly. Available economic data show a sharp decline in production and consumption of most commodities — industrial or agricultural. The wholesale rates of fruits, vegetables and other perishables have crashed. Retail prices are dipping for want of regular small buyers. Banks and their employees are fully stretched. Reserve Bank and the government are issuing circulars almost daily. Obviously, they weren’t sure about the multiple microlevel impacts of demonetisation. Banks are getting increasingly worried about public anger and system hackers. Some banks and ATMs have already been attacked. Now, large ones such as SBI, ICICI Bank, HDFC Bank and Axis Bank are gravely concerned about an unexpected surge of debit card transactions that might tempt swindlers. They are said to be consulting professional firms for fraud risk management. According to Fidelity National Information Services (FIS), debit card transactions have surged 300-400 percent. FIS operates a payment network for 75 banks and manages over 12,000 ATMs.

The simultaneous government push for a less cash economy has made public and private sector banks rush to procure point-of-sale (PoS) machines to supply these card swiping terminals to merchants. They have placed orders for lakhs of terminals with PoS procuring and manufacturing companies such as Ingenico, Verifone and Atom Technologies. Currently, there are about 1.5 million PoS terminals in the country. Bankers say one million terminals are likely to be installed in the next six months. The government is said to have proposed an out-of-the-box solution to address cash shortage in rural areas by employing Aadhaar merchants. They are to be located in every rural village to facilitate small payments such as grocery or medical bills or even open bank account using biometric authentication. The light-hearted demonetisation is causing a major cash management problem.

Ironically, the cash shortage has hit the common man much more than the rich, for whom nothing has changed despite the fact that demonetisation has junked 86 percent of currency in circulation. Patience is running out as the cash-starved economy has taken a heavy toll on the income of wage-earners and farm workers. The common man’s struggle for survival with little cash in hand may grow in the coming weeks and months as the government refuses to recognise the fact that cash serves as a lifeline to the rural economy and urban poor. India may need years or even decades to become a primarily cashless society. And, for that, India needs literate public and a well-coordinated digital economy and not demonetisation. Unfortunately, India stands far behind even many smaller countries in Asia in broadband connectivity. No one knows this better than India’s Telecom Authority (TRAI) chairman R.S. Sharma. The government seems to be totally confused about the link between demonetisation and digital economy. Paradoxically, neither works as an antidote to black money and fake currency. The easiest way to locate and punish black money hoards is to conduct a property census and link one’s declared income with assets held.