Demonetisation: Godavari Daheje had returned to her one room shack from a tedious day at work some time back. She was now preparing for tonight’s meal when her elder son came in looking shocked. Somebody had told him that 500 and 1000 rupee notes had ceased to be legal tender. Godavari’s initial reaction was similar to that of her son: disbelief. The humour was soon wiped off from all their faces as they sat looking awestruck at their neighbour’s television set.
On the night of November 8, 2016, Prime Minister Narendra Modi had unveiled the circus of demonetisation in a televised address to the nation. The Prime Minister had utilised special powers vested with him to tackle the unseen forces of corruption, black money and foreign funding of terrorism in one big jolt: Demonetisation. It was also announced that new currency notes of Rs. 2000 and 500 would be introduced. The Government of India had given all its citizens a period of 50 days to deposit all notes of Rs. 500 and 1000 into the banking system. The demonetised currency amounted to 86% of the total currency in circulation in a market that largely stood on cash flow. This unleashed controlled chaos throughout India.
The initial response came from the stock markets. BSE and NIFTY 50 stock indices flunked drastically on the following day. The manufacturing, retail and agricultural sectors were left paralysed. “There was a mad rush at banks. There was no change. There was no money in the ATMs. We could only get Rs. 2000 notes and notes of smaller denominations weren’t available at all. Our business went down by at least 50%.”, says Sheetal Patil who runs a general store in suburban Mumbai.
Demonetisation had come at a time of the Rabi sowing season wherein farmers from all over the country take loan to buy and sow seeds. This was a full-fledged institutional attack at the backbone of our agricultural economy of the country. Godavari Deheje reveals, “The inflow of money in rural areas was meagre. Lines were longer in banks and the burden on farmers, immense.”
The GVA (gross value added) fell by 110 basis points to 6.7% from 7.8%. Finance, real estate and services sector registered growth collapse from 10.4% to 3.1%. Construction weakened from 3.2% to 2.7%. The common man was compelled to stand in infinitely long queues to deposit and withdraw his own hard earned money. There was no system in place to tackle the massiveness of the chaos that had been generated.
The Reserve Bank of India came out with a set of rules and regulations periodically with 58 changes in 50 days; each superseding the previous one and nurturing more disorder. The figure startlingly signifies the order of mismanagement.
The banking staff was insufficient to handle the tremendous inflow of cash and organise the outflow of new currency. ATM machines all over the country had not been recalibrated to fit the newly designed 2000 rupee notes. The Billion Dollar Indian Wedding Industry also took a massive hit due to demonetisation. “Caterers and decorators refused to be paid wholly by cheque. We pushed the wedding ceremonies to evening because my daughter and I would be standing in queues in the morning to withdraw money. It was a complete mess”, says Mr. Pradeep Arora whose daughter was married on November 15.
Finance Minister Arun Jaitley described the demonetisation move as a push for ‘Digital India’. He highlighted the government’s aim to make the economy ‘Cashless’. 45% of India’s economy lies in the informal sector. A large chunk of the country does not receive 24-hour electricity let alone internet and digital infrastructure. Government offices, ironically, aren’t themselves advanced enough to be digitised to carry out online transactions. “There are millions of downtrodden people like me who are uneducated. We do not have even the most basic of facilities. Demonetisation was a good move but it was trouble for us. The country cannot progress without the progress of it citizens who are still fighting for bare necessaries,” says Godavari Daheje.
Digitisation comes with an infrastructural cost. Banks and private entities will surcharge every transaction that has used the online gateway. Sheetal Patil explains, “The state needs to view in the practicality while implementing ideas. If I sell a loaf of bread today, I earn only 2 rupees. The government is asking me to bear a further 2% charge for a cashless transaction on my already meagre profit margin which is unacceptable.” Digitisation also requires technological awareness and education. “I can’t even sign, I have to use my thumb for it. How do you expect me to use an ATM card? So, I threw it away.”, adds Mrs. Godvari.
Demonetisation aimed at freeing the country from the shackles of black money, terrorism and forgery. The question we need to ask is: at what cost? It is only a matter of time that fake currency of the newly introduced notes makes its way to the markets. Back dated bank entries, alleged leak of information, bulk gold purchases, hawala transactions et cetera were the methods used by the rich and powerful to scrape through this menace. The burden of this exercise was borne by the common man.
It did manage to attract a certain segment of the population within the formal banking sector. It generated tremendous capital for the banking system. It was a bold step and there is no denying of the good that came out of it. However, one needs to evaluate the pros and cons of every move; especially the one that affects every citizen of the country. Secrecy cannot overshadow consultation and discussion.
Development needs to be followed chronologically. One of the ways to tackle black money effectively is through the introduction of RTI in political party funding. A cashless economy can be established only in a phased manner through the development of basic amenities and infrastructure. Government offices and public transactions need to be made digital first to set a precedent for other industries to follow suit. Infrastructural costs of online platforms should be mitigated to make it on par with cash transactions.
Demonetisation was a premature leap at tackling non-urgent issues that did not calculate the burden it envisaged on better half of India’s population and economy. It was indeed a circus running at the whims and pleasures of the ring-master.