It was a bolt from the blue. Prime Minister of India, Narendra Modi, appeared in television to address people of the country. Currency notes of 1000 and 500 rupees, which constitute eighty six percent of legal tender in the country, were declared invalid. The intention behind the move, stated unambiguously in his words, was to break the back of black money, corruption and terror financing. A proud Indian can’t help standing behind these intentions and any pragmatic action to make them real. So, not raising any counter rationale to Modi’s arguments, I too felt backing it up.
But everyone will sit back and think over what s/he heard, saw and read. Any country which aims to fly sky-high in the wide expanse of growth requires prudent thinking from its people who are not easily motivated by rhetoric. Political and nationalistic rhetoric centred on “good intentions” would engender a culture of subservience. That is why every democracy is proud of sharply critical fourth estate.
I am not going to repeat oft-stated arguments regarding black money, especially the point that the percentage of black money hoarded in the form of liquid cash is minuscule when compared to the black financial activities, assets in the form of non-liquid wealth in foreign tax havens as well as in the country, benami holdings, and stakes (both in India and in foreign countries). We can hope that the Prime Minister would take steps against these in future as he has already alluded to the same in one of his subsequent speeches. I am going to weigh in the pluses and minuses of some fallouts and alleged benefits of the Prime Minister’s decision.
1, Transition to Plastic money: Paper money is not ideal. It is hoardable and hence convertible to illegal asset. Plastic money would be a dream come true. But this oft-stated benefit of the move is inherently disingenuous, because the government has come up with higher denominations of 2000 and new 500 notes. Any prudent move would have been only no higher denominations than 100 and a fresh printing of 100 rs in as many numbers as the liquidation of the legal tender now requires (though that would be a huge challenge, the government should take as much pain for its hasty decision as the people who stand in queue.
Also, how prepared are we for plastic money? Take the case of Indian Railways. People can be seen standing in queue there. Even giving change is too difficult. So how can people stand there in queue for longer time for each transaction to be complete. Before making such announcements, the government should make the preparatory ground for the same. Plastic money would be there in future. But it is idiotic to unfold umbrella now in case it would rain in long future.
2, Higher denomination: It is not difficult to hoard 10 lakh rupees in 2000 denomination. All I need is 500 notes. Also, See the fallout of 2000 denomination. It is not breakable. You can’t easily get it divided into smaller notes. The result would be deleterious for small scale sector, especially vegetable merchants and hoteliers, unless they have a healthy credit system and their customers are credit worthy. But the economy is stagnant and no better economic activity is going on in this country than standing in queue before cashless ATMs. This would have serious ripple effect in the life of all people. I have seen a troll where ‘non-performing asset is defined as a scientific name of the new 2000 note. Joke aside, there is the truth that value and worth of money would come down in future.
3, Banking sector: As Former Prime Minister Dr Manmohan Singh has clearly pointed out, nowhere in the history of the country, or of any country for that matter, has the trust of people in banks so seriously damaged. Newer conditions and policies are coming up every day. The very decision of demonetization flies in the face of the sacred trust that people reposed in the reserve bank governor who promised to pay them the value of the currency. As days followed, it has become difficult (not minor inconvenience) for people to withdraw their own money. Daily ATM withdrawal limit is 2000; withdrawal limit for cheque transactions is 24999 per week. You need the sanction letter of superintendent of police to have at least 2.5 lakh from bank for your daughter’s wedding. When I write this the date fixed for replacing old currency with new notes has well been over. Many ATMs remain closed, especially in the rural sector. Also, the government has not given cooperative banks authorization to receive old currency notes. This would have serious consequences in the unorganised sector especially in states like Kerala, where cooperative banks have made enviable strides
So what can I do? Nothing. Wait just like every Indian, as in a long queue, till the D-day of December 31.