There has been a perplexing amount of controversy about the recent demonitisation of 500 and 1000 rupee notes by Mr. Modi. Demonitisation in India meant that 500 and 1000 rupee notes were no longer legal tender; and by doing this, the Government removed 86% of the money in circulation. Funnily enough, most people in the country seem to approve of this drastic (and rather unplanned) measure taken by the Prime Minister.
“Only those who have black money will disapprove of this plan!” chants the BJP as all the villagers appearing on the news swallow down their disapproval and talk, instead, about how it’s ‘manageable’.
The purpose of this act, of course, was good – it was meant to eradicate all the black money in the country in a single night. PM Modi announced the demonitisation at around 11P.M, a time when all banks had shut and exchanges couldn’t be made.
This one measure led to a vicious cycle.
1. Initially, there was a date of two weeks set for the exchange of notes. Now, a month later, the deadline is still under it’s “extension.” The Government was so unsure about what they were doing that there were new rules every 2 days – sometimes even twice a day.
2. Banks and ATMs ran out of money. Unable to get value for their money, poor people started committing suicide, and the lines outside banks stretched on for miles. Due to the cash crunch, there was no liquidity in the system. This led to decrease in the purchasing power of the people, which led to a fall in demand, which led to less production, which, in turn, resulted in lesser demand for labour. Hence, demonitisation adversely affected employment.
Moreover, the cash crunch led to people not having money for emergency medication, weddings and funerals.
3. The GDP growth fell from 7.5% to 6.5%, and is said to fall to 3.5%.
4. Rumour has it, all the big officials either got all their money out prior to the plan (due to a leak), or had all their assets in Swiss bank accounts. The main aim of this measure was to reduce corruption. However, this did not happen. Most of the black money remains unaffected. 14 lakh crores in old notes are back and only 75,000 crores are out of the system, contrasting with the Government’s estimation of 3 lakh crores of black money being out of the system. It is people’s white money that is being adversely affected. Moreover, corruption has not been curbed because it is the political parties that are the most corrupt. Political parties are allowed to receive upto 30,000 rupees per person and keep its origin ambiguous. Mayavati deposited 124 crores claiming that she got the money from the ‘people’ – and of course, the ambiguity was not questioned.
5. Receipts and data was needed for the exchange of money – this, of course, was a good step to eradicate the black money.
6. The maximum amount of money each person could withdraw in a week was 4 thousand, and more than 2 lakhs couldn’t be deposited without being questioned.
7. The Government did not consult with RBI officials or experts on the matter – if they had, they would have realised how all of them were blatantly against this act. The ex-RBI Governor, Raghuram Rajan, did not agree with demonitisation and resigned under his own terms. Currently, the RBI Governor is a BJP man – which is ironical because the RBI is supposed to be a separate entity, not controlled by the government. Moreover, it is actually illegal to print 2000 rupee notes; there is a clause in the RBI that states that the maximum denomination can be a thousand ONLY. PM Modi did not bother to change (or probably even read) this clause.
8. The number of taxpayers have not increased because people have found a way around the system. For example, a person does not have to pay taxes on the selling of a product he has made a loss on. This is regarded as a ‘non-taxable’ account, and the poor face a similar situation – which has resulted in no real increase in the number of taxpayers.
9. Demonitisation has lead to the windfall of the Government. Suppose the RBI has issued 500 and 1000 rupee notes of 14 lakh crores. This money is “I owe you” money which is guaranteed to the people by the Government. If 4 lakh crores do not come back into circulation (like in demonitisation), it is a profit for the RBI, who can then give a dividend to the Government. The Government can then use the dividend on reduction of taxes, improved infrastructure and social services. This is the windfall of the Government.
10. Digital transactions have resulted in transparency of the system. In India, there is a different dialect every 100 kilometers. There will always be language barriers because each city has a state language and a local dialect. Along with these barriers, people living in the rural areas do not know how to operate smart phones, much less be educated about cyber security. “Digital India” has led to an increased risk of fraud.
11. According to the Government, foreign nationals and NRIs have until June 2017 to change their money. However, if you go to the RBI, you will see and endless queue of desperate foreign nationals (my aunt included) because the RBI is refusing to change the money of non-Indian passport holders. This is a big problem for the NRIs and foreigners visiting our country, whose hard earned white money has now been deemed worthless by the Government of India. As of now, foreigners, poor people and farmers are extremely sour about the Government and hasty decisions.
12. Rural India faced – and is still facing – the most problems. Most villages do not have banks. The people of these villages are forced to walk 10, 15, even 20 kilometres to travel to the nearest village equipped with a bank (they have to walk because they don’t have the notes to pay for car fare). Upon reaching said village, they are forced to stand in a never ending queue, in the scorching heat (with people getting heatstrokes by standing in line), only to find that the banks only have enough money to provide for one hour’s worth of demands. This leads to many people camping out on the road, hoping that they get a glimpse of valid currency the next morning.
13. Farmers work the whole year to grow their crops. Due to demonitisation, the last harvest (rabi season) suffered. People had no money, which led to the fall of vegetable prices. The farmers cost of production was probably more than their selling price, which led to massive losses. People tend to forget that India is still mainly a rural economy, and the farmers are the ones suffering the most.
The most appalling thing I find about this point is that the BJP completely avoids it. “The poor people are not facing any trouble, watch the news!” These ignorant statements lead the whole nation into a state of oblivion, while a majority of our country is starving and dying. I have seen people crying because they’ve stood in the same line for days,unable to get the money to buy medicines for their dying significant other at home. I’ve seen and heard absolutely heartbreaking stories.
For me, the plan of demonitisation could have been a brilliant one if it was simply executed in a better way, with more provisions for the poor. Obviously, it was an ingenious step towards attacking terrorism, with the terrorists owning hundreds of crores in hard cash, unable to exchange it with validity; more pros include the end to the fake currency racket, the decline in black money and the chance (finally) for fair and just elections – since a lot of black money was used in campaigning.
In conclusion, demonitisation had the potential to be a mindblowing scheme; but with the GPD growth crashing to 6.5% (with 86% of the currency value coming from 500 and 1000 denominations) and the hundreds of people suffering, I think that it is more of a bane than a boon.