I fully endorse the Indian Prime Minister Shri Narendra Damodaradas Modi’s decision to demonetise the two currency notes of high denominations (Rs.500 and Rs.1000) from the midnight of 8th November 2016. This financial-economic measure was long overdue, but could be possible only now. Had any other government been on the saddles or any person other than Mr. Modi been the PM, it is nineteen-to-twenty that a bold decision of this kind would not have been taken. The step, called the ‘Operation Black Money’, is directed towards the hoarders of very large sums of black money running into tens and hundreds of crores of Indian rupees
(Ref: Click here as published on 9th June 2016). The exercise can aptly be compared to blood-transfusion in human body. A successful and risk-free transfusion requires a balance between the outgoing and the incoming quantity of blood. Instead of human blood we have the currency-blood. This step is the beginning of country’s march towards a ‘corruption-free’ society. Other effects of the measure are: stoppage of flow of fake Indian currency from across the borders of Pakistan, Nepal and Bangladesh, boost to making payments electronically, reduction in terrorism and in terror-related activities.
Side by side, conversion of black money to white, through purchase of gold and foreign currency, temple donations, using people as money mules, giving loans to the poor, depositing into Jan Dhan accounts, using bank note mafias for note-badli, paying advance salaries to employees in private companies, booking and cancelling train tickets, using professional money laundering firms, opening back-dated FDs in co-operative banks and credit societies, depositing cash into banks, making payments to farmers and to political parties, is actively on. So far, ‘Demonetisation deposits’ have reached nearly 450,000 crores. On the negative, exchange rate of Indian Rupee against US Dollar is worsening.
There are fears in certain quarter that, this action by Shri Modi will result in loss to the Indian economy. This will not happen because an equal or greater amount of money will eventually be put back to the monetary system as will be taken away. The process will continue till such time, a new steady-state equilibrium level is reached in the currency-domain and it will not be well before the New Year.
I have seen and heard one Congress politician telling in camera on Television screen a few years ago, that the loss to the exchequer due to the 2G Spectrum scam and others (Ref: Click here as published on 24th February 2016) would be nil. If that is true, how can there be a permanent loss to our economic system due to this remedial action by the present government at Delhi? New currency notes are being printed and put back to the system through various channels as fast as possible. 2000 rupee notes are already there and many new crisp 100 rupee notes too. 500 rupee notes are in circulation in Delhi, but not in Mumbai as on 19th of November 2016. I saw yesterday (19/11/2016), on the page of the Mumbai edition of The Times of India, a Thane-based trader of Mumbai displaying one new 500 rupee note. The new 1000 rupee notes are on their way.
Yes, and that is the only and the most unfortunate part of this exercise: lot of chaos, that has been created, could have been avoided without compromising on secrecy which was an absolute must. Even I, a retired very senior officer of GOI, have been greatly inconvenienced. I have gone to the ATM of both SBI and PNB thrice and returned empty-handed as there was no money.
Had I been in a similar decision-making position, I would have foreseen almost all the after-effects of this action, and would have planned with much more care and well in advance. Only after satisfying myself with the preparations, I would have made the announcement. The implementation of the scheme would then have gone smoothly and the present chaotic situations resulting in untold harassment, hardships and ordeals to the citizens would largely have been avoided. This style of not acting in haste, when there is time, has the advantage that unnecessary controversy and disturbances do not occur. This is particularly significant for the present regime in as much as the opposition parties are waiting to pounce on Mr. Modi at the slightest opportunity. He seems to be one fighting against many. I do not think, there is room to worry much.
The clouds of cash crunch will soon clear. The first signs of the easing of the situation (shortening of queues, adequate cash flow in rural areas and to farmers, restoration of pre-demonetisation price level to a number of agriculture products whose prices have plummeted by as much as 30%, etc.) will be seen on 23rd November 2016; by 30th November, situation will considerably improve and by 10th of December, normalcy should return. These are my estimates.
Provincial politicians can not dictate to the Government of India on a matter of such great national importance as the current demonetization which has been done in the larger and long-term interests of the country, and give threats of creating law and order problems. If they do, they will bear the brunt. I hope wisdom prevails and they continue to do their work in their respective states and union territory by concentrating more and more on what they are doing in their present positions of responsibilities. Let the majority of India’s populace say ‘no’ to BJP-led government’s decision on demonetization. Government of India will surely then respond, I believe.
We have by now seen and experienced the immediate effects of the demonetization. The real interesting effects will be the short- and the long-term consequences. First is the politics. Legislative Assembly elections to the 7 Indian states of Uttar Pradesh (403 members), Gujarat (182 members), Punjab (117 members), Uttarakhand (70), Manipur (60 members), Himachal Pradesh (68 members) and Goa (40 members) will be held next year, that is in 2017. Five of the above 7 states will vote in the first half of 2017. The short-term effect will be significant reduction in the role of black cash in these up-coming polls. This will produce many interesting results. The long-term impact will be seen over years and will be of economic nature. Whether the advancement of the 2017-2018 budget to 1st February 2017 is linked to this demonetisation policy or not, readers should decide.
By Dr. Sachidanand Das