Will demonetisationclean-up India?
K B Jandial
The spell of pain and hardship to almost every citizen that was unleashed by PM Modiâ€™s â€œsurgical strikeâ€ on black money is nowwaning with no queues seen in Jammu and shorter ones in rest of Indiaeven though the political war on it within and outside the Parliament continues. Â Modiâ€™s master-strokehas panicked everyonewithin minutes of its announcement around 8.15 p.m. on 8th November, 2016 on DD/AIR that went viral on social media.Every family immediately huddled into their homes countingnotes or searching papers to know the actual extent of possible loss. Their concern was not unfounded. All the currency in 500 and 1000 denominations, hard earned savings, received as corruption or stored after evading tax, was rendered worthless.The corrupt strategized to convert black money into white to extent possible while the others cursed their wives for keeping unnecessary savings out of honest earning. Shock was everywhere.
All political parties including AAP that was born out of a crusade against corruption function with black money. There is reason for them, especially the opposition to cry hoarse on this unexpected move of Modi and targeted BJP of sharing this secret with its corporate friends.Their immediate concern was the money starved forthcoming elections. The Opposition raising ruckus within and outside the Parliament is claiming to give voice to the billions of people who are inconvenienced and some deaths also took place while waiting long in the serpentine queuesin front of banks for currency exchange or not getting treatment in the â€œgolden hourâ€ for want of valid currency.
Â Is the statement of â€œmore deaths due to Modiâ€™s demonetisation than Pak terror strike at Uriâ€ in Rajya Sabha becoming a political issue on the lineof Â â€œGarabihataoâ€ slogan of mid-seventies? Neither the Garabi has been eliminated since then(official data prove otherwise), nor many people have actually died while standing in queues as projected by opposition. But the debate continues and so is the stalling of Parliament.It is interesting that while political parties are up in arm on this move, IMF, world business journals and world media have hailed Modiâ€™s bold decision.
The fact remains that the Govt and RBI have not done their homework well and failed to assess the inconvenience of the different categories of people that would unfold by withdrawal of these two notes that account for more than 86 % of the currency in circulation. To cap it further the Govt started changingits directions on daily basis creating avoidable confusionconfirming lack of its comprehension on its fallout. For example, the Govt allowed use of withdrawn currency notes in Govt hospital and Govt medical stores but didnâ€™t take in account Private hospitals and chemist shops.
Then, it first allowed exchange of Rs 4000 old notes Â per person per at Banks but raised it to Rs 4500 person per day from 14th November Â that was drastically reduced to Rs 2000/- per person from 17th November.Its unambiguous order led to exchange of old notes by same individual every day, at some places many times at different branches. Attributing chaos to multipledrawl of new notes by same person, it has now ordered use of indelible ink on a figure after three days. But when did the Govt actually order exchange facility only for once?
The Govthad painfully overlooked the agriculture and rural sectors that unlike the urban sector is mostly run on cash economy. Sabzi mandis were literally without any business for a week as people didnâ€™t have legal tendered notes to either buy or sell. On eight day of financial chaos, they came up with a package for agriculture sector. Now, old notes are allowed for purchase of seeds.
It is not understood as to why sizes of the new notes were changed that caused greater logistic problems. Each of the 2.80 lakh ATMs in the country has four trays of the sizes of 100, 500 & 1000 rupee notes. With change in size of notes every ATM is now being customized that will take another fortnight, aggravating the hardship of the people. Then, if these notes were to be withdrawn, at least plenty of100 rupee note should have put in circulation few days before with corresponding reduction of higher denomination notes. That would have provided some cushion. Again, instead of launching of new 2000 notes, new 500 rupee note should have first introduced to allow convenient buying as shopkeepers do have sufficient change for 2000 note. Poor planning and lack of common sense!Â .
Even the timing of the move is unimaginative.Â The shock was given when marriage season was in full swing. Either the Govt didnâ€™t care forthe people or it treats everyone as corrupt. Now, when most of the marriages are over the wedding families are allowed withdrawal of Rs 2.50 lakh from its account. Is this money sufficient for a marriage? In which world the Finance Ministryâ€™s planers are living? Jaitely very arrogantly snubbed the questioner on TV briefing saying that our â€œsanskarâ€ do not permit ostentatious marriages. Itâ€™s ok to say so but does he mean that nowadays a marriage can be solemnized with Rs. 2.50 lakhs. Then why not fix a limit for marriage expenditure?Â Â It sounds as if the political leadership and the Finance Minister are not in sync with ground realities.Why former BJP Minister in Karnataka Jannardan Reddy has not yet been served with IT notice for spending Rs 500 crore in the marriage of his daughter when people were facing hardship in exchanging notes.
The political commentators are also amazed at the timing of the â€œstrikeâ€. Modi fired his â€œbhramasthâ€ just a week before the advanced winter session of Parliament called to meet the most important GST rollout deadline. Another important event is the forthcoming elections for UP and Punjab assemblies. Are Modiâ€˜s calculations so perfect that he would get immediate political gains in both these states?Time will only tell. It has provided the opposition an issue to forge â€œmahagathbandanâ€ against BJP and risked washing outof yet another session which in all probability would have seen passing of the GST rolloutbill.
Politically concerned by Modiâ€™s shock announcement, opposition parties while supporting the move initially are now criticizing the Government for flawed implementation. They are using peopleâ€™s hardship as ground for lashing out Modi, some even asked for roll back even though the inconvenienced people standing in long queues showing lot of patience and surprise support to Modi for it. From where did the Supreme Court found situation conducive for riots? Even after some deaths while standing in queues, there is no report of violence, attack on the Bank staff or Bank buildings that could hint possible violent uprising. But its other way round. There is peopleâ€™s yearning for a corruption-free society notwithstanding their hardship.
Even though everybodyfrom the PM to lowest Govt. functionary has been reiterating it that the it is targeted against the corrupt and black money hoarders but nobody saw any of the MPs, legislators, minister, politicians, bureaucrats, police officers, corporate leadersÂ standing in queues for exchange of old notes. Everybody appeared to have managed to get the new notesat their home without any hassles. Doesnâ€™t it put a question mark on theÂ Â whole process? To cap it further, there is un-denied information on social media of substantial money exchanged in lump sum by many important people. How the real estate people are still transecting sale purchase of properties with old notes?
Even if the magnitude of the exercise is massiveand incomparable with past demonetisation exercises within and outside India but still some lessons should have been taken into consideration. For the first time, Indian currency was demonetised in January 12, 1946 when the RBI demonetized Rs 1,000 and Rs 10,000 banknotes under an ordinance. However, these two denominations were reintroduced in 1954 along with currency notes of Rs 5,000.Â All the three were again demonetised in January 16, 1978 by Morarji Deasiâ€™s Janata Party Govt. to counter black money in the economy.After the then President N Sanjiva Reddy assented the High Denomination Bank Note (Demonetisation) Ordinance, it was announced through AIR news bulletin and the people were advised exchange their defunct notes till January 24, 1978. The one big difference was that Rs 1,000 and higher value notes were not in the possession of the common man given the value of these amounts then. In 2014, the RBI had demonetised all banknotes printed before 2005.
While earlier both demonetisations in 1946 and 1978 were done after promulgating ordinances but this time the Government did not do so. Why? Congress leader Munish Tiwari has raised this issue but no response has come from Jaitely as yet.
The 1946 demonetisation was done by Britishers in Indiaas similar action was undertaken in several foreign countries, including France, Belgium and the U.K as ways and means of averting the expected slump after Second World Warbut RBI top brass was not happy with the idea. The measure did not succeed, as by the end of 1947, out of a total currency of Rs. 143.97 crores of banned notes, notes of the value of Rs. 134.9 crores were exchanged. So, only Rs. 9.07 crores notes were actually â€˜demonetised which were notpresented.
The RBI Governor was opposed to it even in 1978 but the first non- congress Govt in which BJPâ€™s parent party- Jan Sangh was in the Govt., went ahead primarilybasing it onWanchoo Committee recommendations of early 1970s which suggesteddemonetisation of higher denomination notes to check the menace of black money. However, it was widely perceived to target huge unaccounted money Indira Gandhi and her family alleged to be in possession.Moreover, the higher denomination notes demonetised hardly constituted 0.8 % of the total currency in circulation as compare to 85 % now. Out of total value of Rs. 9170.1 crore of the currency in circulation, notes of value of Rs. 73.1 crore were demonetised.Rs 10,000 note was barely used. So, there was hardly any impact on the economy even though there was lot turmoil in the public for exchange of currency forcing the Govt to extend the 3-day period to a week. It failed to give any tangible gain.
Now, it is linked to the fifth report of SIT submitted to the Supreme Court in July 2016 in which banning of notes of higher denominations was among the several recommendations to curb black money.The SIT felt that a large amount of unaccounted wealth is stored and used in form of cash. It suggested to â€œput an upper limit to cash transactionsâ€. It recommended that there should be â€œa total ban on cash transactions above Rs. 3, 00,000â€ and an Act be framed to declare such transactions as illegal and punishable under law. It also suggested that the above limit of cash transaction can only succeed if there is a limitation on cash holding. It suggested an upper limit of Rs. 15 lakhs on cash holding. And requirement of exceeding this limit can be permitted by the Commissioner of Income tax of the area on solid justification.
These two notes accounted for 86.40 % of the total currency in circulation. It estimated that on 28 October 2016 the total banknotes in circulation in India wereÂ Rs.17.77Â lakh crore.AKotak Securities report claims that currency notes of Rs 17.74 lakh crore were in circulation on November 4, 2016, of which Rs 15.34 crore were the value of these two notes. Against it, in the first ten days, currency notes of about Rs 5.44 lakh core have been received back by banks, including Rs. 33,000 crore currencies exchanged and Rs. 1.03 crore new currencies withdrawn.
It was officially stated while the supply of notes of all denominations had increased by 40% between 2011 and 2016, the Rs.500 and Rs.1000 banknotes shown rapid increase of Â 76% and 109% respectively in this period owing to forgery. This forged cash was then used to fund terrorist activities. This is one of the main justifications for notes ban given by the Govt. It is believed that Pak ISI has stashed Rs 500 Crore worth high value Indian currency notes which to be rerouted and sent to Kashmir for swapping with new currency notes. Surprisingly, while Jammu and rest of India is in turmoil over notes exchange, Kashmir is totally peaceful as markets are still accepting banned notes right under the nose of all Govt. agencies.On Tuesday, security forces recovered from two slain terrorists in Bandipore two Rs 2000 new notes.Â It contradicts the claims of the Govt. of choking the avenues of funding terrorism.
The former RBI Governor Subharao said that how much money will come out due to this action is a matter of conjecture as there is no credible data of black money with RBI. Much of the black money is in real estate, stocks, gold & foreign currency and not in cash. The political motive of checking blatant use of unaccounted money in coming elections is the major reason for Modiâ€™s salvo.
PM had forewarned of action while launching the Income Declaration Scheme on September 30, 2016. He had said people having unaccounted money had the last chance to come into the mainstream. â€œNo one should blame me if I take tough decisions after the 30th Sept.â€ The scheme has yielded more than Rs 65,000 crore against expected return of Rs 29,400 crore.
The advantages of this bold movewill be felt only in the long-term. While formal modes of payments such as debit and credit cards, net-banking and digital wallets should get a boost in near future, this will take a long time to be felt because the proliferation of these is still slow among the poor and Â in rural areas, for whom cash is still the predominant mode of transactions. The curious part is that despite all hardship and loopholes, people by and large stand by PM Modi for it.Modi is so sure of support of honest Indians that he has launch survey through an App to literally go for referendum unnerving the opposition.If people can stand in queue for hours for a free Jiosim, why not for making India black money â€“free, reposing full faith in Modi for cleaning India.