Demonetisation: Yes and No

On November 8 when I was driving home, at about 8pm, I received a message on Whatsapp that Rs1,000 and Rs500 notes had been de-monetised with effect from midnight that night. I thought it was a hoax till I got home and put on the television.

I paused for a minute to think about how a mammoth operation of the kind, which had obviously been in planning for months, had been kept reasonably covert. I say ‘reasonably’ because there has been hearsay that certain “friends” of the government who were tipped off before the announcement had already taken remedial steps to protect their fortunes.

The emphasis of Modi’s speech was on the need to tackle black money and fumigate the economy. If that be the objective, the reason for the government to reissue new Rs1,000 and Rs500 notes is unfathomable, and issuing even higher value Rs2,000 notes, puzzling. I don’t see the impact as being permanent. It will be a matter of time before liquidity is restored and people begin accumulating cash all over again after this one-time cleanse. It is also pertinent to note that most people who have amassed sizeable black money either hold it overseas or convert their existing cash to foreign exchange, gold, bullion and real estate through brokers and middle-men who unduly flourish in such times.

I don’t want to sound completely dismissive or cynical about the move. Clearly, it has its pros and cons. Those hoarding undeclared cash face some form of punishment for the first time. But if punishing the guilty is the real plan, why has the government still hidden the names of Swiss bank account holders despite promising to make them public? That is a big credibility hole.

Anyhow, minutes after the initial euphoria surrounding Modi’s announcement had subsided, reality set in. Those who espoused that change introduces temporary inconvenience but results in long-term benefits, promptly took back their words when fights erupted on streets and in banks. It wasn’t good to see the country queuing up endlessly outside banks and ATMs in search of a few thousand rupees to survive. Rural India and small towns, who are victims of inadequate information and means, have been the worst hit. Most of those living in these places do not even have an identity card. It has been heartbreaking to see them depressed, helpless and teary-eyed on national television. The only silver lining perhaps is that thousands of people will finally begin using banking or electronic payments, creating possible long-term benefits for themselves and the economy at large.

I am not slamming demonetization, I am taking it with a table-spoon of salt; debating its motive and efficacy in achieving what it was envisioned to do. It also seemed like political posturing to demonstrate that the government is capable of taking radical steps to supposedly cure the country of its evils. But given that the ones most penalised have been the poor who form the core voter base, the next election will reveal how infuriated and offended they were.

The unpreparedness of the demonetisation scheme has stripped open the inherent inefficiencies of the Indian banking system. Things could have been far better handled. City banks were and are struggling in terms of available resources and bandwidth, so one can only imagine the plight of the village banks. The markets are deserted and economic activities are at a bare minimum. Things are on the edge. I fear the emergence of a parallel black economy and our Defence Minister who went to the extent of saying: the violent fall in Kashmir protests was a result of turning the tap off on terror funding. By that logic, we should expect no further hostilities. Sigh!

Published in The Express Tribune, November 17^th, 2016.

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