Amidst the public backlash against the Centre’s move to abruptly demonetise Rs. 500 and Rs. 1000 notes, Prime Minister Narendra Modi urged the people of the country to bear with the temporary inconveniences (50 days) for a greater cause.
“I know the forces up against me, they may not let me live, they may ruin me because their loot of 70 years is in trouble,” he said. The Prime Minister also affirmed that the Centre would attack all holders of black money and that the decision to do away with the high-value currency notes was a big move in the fight against undeclared cash in the country.
“If I commit any mistake, I am ready to face any punishment the country will give me”, and added that he had sacrificed his family and home “for the nation”. By some measures, the scheme seems to have worked. Those holding unaccounted wealth in cash have been affected. But according to recent data based on tax raids from 2012-13 onwards, only six percent of the undisclosed income seized from tax evaders have been recovered in cash.
This move would do little to unearth black money hoarded by the rich who park their cash in different asset classes. By eliminating high denomination, high-value notes, the government seeks to make it harder for those pursuing tax evasion, terror finance and corruption. As argued by many economists, high denomination notes are rarely used in most legitimate transactions and scrapping them would enhance financial transparency.
So if that was the government’s intention, why has it reintroduced new Rs 2000, Rs 1000 and Rs 500 notes? In some cases, the Rs 2000 notes have been introduced without the adequate security features. Once the current cycle of illicit wealth in the form of cash has been drained out, another will begin. What’s worse, the banking system seems totally unprepared to deal it. The cost of this scheme on the common man has been disproportionate.
Millennium Post reported on Sunday that the demonetisation decision would continue to paralyse the common man in the coming days since it would take another 2-3 weeks time for banks to recalibrate ATMs to dispense new banknotes. The government’s decision to call an emergency meet on Saturday with the country’s top bankers three days after the Prime Minister’s announcement reeks of poor and insensitive enforcement.
Till the ATMs are recalibrated to dispense new notes, people will have to wait for several hours in serpentine queues for withdrawing their money from different branches of banks and post offices across the country. Manufacturing new currency holder trays and recalibrating the 2 lakh ATMs all over the country may take at least a few weeks.
Some reports indicate that the Reserve Bank of India had sent soiled notes back to banks just to ensure short-term liquidity. The government’s insensitivity to the common man’s plight was on display at the press conference held after the emergency meet. Finance Minister Arun Jaitley urged people not to flock the banks to exchange the now-defunct banknotes, asking them to stagger it over the 50-day window provided by the government for the purpose.
The Finance Minister seems to have forgotten that fifty days is a very long time when the vast bulk of the economy stands totally disrupted. He only needs to stand in the line to understand the troubles faced by everyday people. With 86 percent shortfall in currency and ATMs in a mess, this is not a case of “making sacrifices for a few days”.
For those in rural areas, the impact is even more severe. Those aware of the realities in rural India know of the poor coverage of commercial bank branches. They are also conscious of the inadequacies of regional rural and cooperative banks and how inefficient post offices are in disbursing money. Like most services, bank branches and ATMs in urban areas will be attended to first and rural areas later, and the remote regions last.
Meanwhile, on Saturday, the Delhi Police reported nearly 4,500 complaints of violence at bank branches and ATMs. There were reports of skirmishes between people who had queued up to exchange or deposit their old and now defunct 500 and 1000 rupee notes and bank officials over the long wait and banks falling short of cash.
Even if most of these lines were orderly, the inconveniences faced by the elderly, the daily wager, the differently-abled, have been immense. Is it any surprise that many people are losing their patience? This newspaper had also reported on Sunday that less than 40 percent of the ATMs were operating in the country and they too ran out of cash within hours.
With few takers for the Rs 2000 currency notes, the problem now is an acute shortage of Rs.100 and smaller notes. It is another instance of poor planning. Shopkeepers with perishable goods are taking a huge hit. Daily wage labourers are sitting idle, and in most of their homes, the cooking fires are being left unlit. Kirana (convenience) stores are giving food items on credit to some local customers but at higher rates.
Small traders without the luxury of internet-based payment services, especially those outside the major metro cities, have to either forego business or open credit lines. Farmers are finding it increasingly difficult to pay for daily wage labour. Vegetable markets are under severe financial strain. In other words, the move to demonetise the Rs 500 and Rs 1000 notes has dealt a big blow to the purchasing power of those in the middle and low-income bracket. Basic household purchases have taken a hit too.
Economic activity has taken a severe beating in the short term. Not everyone has the luxury of a debit or credit card. By outlawing high-denomination banknotes, which account for 86 percent of the Rs.16.4 trillion of currency in circulation, the government has sucked out liquidity in the short-term. Is the government’s scheme worth ruining the sowing season or not being able to pay medical bills? The benefits better be worth it.