96. DEMONETISATION: DEVIL IN THE DETAILS!
Picture: thanks, Times of India.
Demonetisation of currency which constitutes 86% of the value of money in circulation is a stupendous task, in a country like India with a huge cash base, which has a solid preference for cash transactions. Its replacement will not be easy or quick. That so called high denomination notes dominate circulation is a reflection of the continuous erosion in the value of the rupee due to inflation. That is, high denomination, but low value!
But demonetisation is necessary to immobilise stocks of unaccounted money- it is the only way. It involves severe action, and cannot be done by goody-goody talks. Let no one be under any illusion. This is a bloody hard fight against criminals and gangsters. It is not for sissies.
Govt in a Jam?
The govt seems to be in a jam of its own making. The new Rs.2000 denomination notes would not solve the problem, as it would aggravate the demand for smaller denomination notes, due to the velocity of circulation, at every turn.. The FM says today that it would take 6 months to replenish the Rs.500 notes. This statement is a loose sally, and would worsen matters. People thought the situation would improve soon; the FM by his statement has removed all doubts to the contrary! It would only add to the feeling of restlessness and uncertainty. It reveals how unprepared the govt really was for this measure! This statement could have been avoided.
Lack of preparation?
According to newspapers, the printing of the new Rs.500 notes started only after Nov. 10. If so, it amounts to no planning at all. This is indeed a very unfortunate and serious situation.My conviction of the stupidity of officialdom is strengthened.Stupidity could not go farther! [We do not know who in the officialdom was really involved with this measure, if at all and at what level. Obviously, they had no idea in the matter!]
Apparently, somebody felt that the bright new Rs.2000 denomination would meet the immediate needs of higher denomination notes. It would not- for while replacement is a factor, fresh transactions are also a factor, and behind both is the need for smaller denomination notes for day to day transactions in the layers and cycles of daily transactions across the country.
From: The Business Standard
There are ways!
I am not for cursing darkness.
FM's statement seems to be made on the basis of the capacity of the Indian note presses. But in these days of globalisation, this need not be a limitation at all, if one's mind is open. India got its note printed abroad earlier, including the Rs.500 note; it got its coins minted abroad. It can be done again.
I do not blame the govt for lack of experience. In matters of demonetisation, there is no experience to learn from. But I certainly blame the govt for lack of imagination and creative response.
Such a secret operation on such a massive scale could not have been planned with a big team. But with our banking and ATM networks, and information on how much cash flows in and out of the banks, and out of the ATMs each month, we could have fairly estimated the monthly requirement of hard cash, and then worked out the denominations. At least two months' requirements should have been kept ready, before the measure was announced.This is for normal requirements. Notes to replace the demonetised notes are totally separate, as demonetisation would create an abnormal situation and add to the demand. It is not enough to think only of replacement by a higher denomination , which is but step 1; we have to think of the subsequent need for smaller currency in exchange.
Such a secret operation on such a massive scale could not have been planned with a big team. But with our banking and ATM networks, and information on how much cash flows in and out of the banks, and out of the ATMs each month, we could have fairly estimated the monthly requirement of hard cash, and then worked out the denominations. At least two months' requirements should have been kept ready, before the measure was announced.This is for normal requirements. Notes to replace the demonetised notes are totally separate, as demonetisation would create an abnormal situation and add to the demand. It is not enough to think only of replacement by a higher denomination , which is but step 1; we have to think of the subsequent need for smaller currency in exchange.
No one can expect demonetisation to be smooth- no, not all all. But it should get smoother by the day, not rougher. If the govt does not expect the Rs.500 denomination notes supplies to be adequate for six months, you can imagine the chaos that would result!
Demonetisation of the higher denominations is the most effective way to immobilise huge cash balances of unaccounted money. It cannot be allowed to fail.
If this measure fails now, there can never be another fight against the devil of black money at all in this country! Having begun, the govt should not falter. So what can be done?
If this measure fails now, there can never be another fight against the devil of black money at all in this country! Having begun, the govt should not falter. So what can be done?
What should be done?
The govt should immediately get large supplies printed abroad on a war footing. This is not easy, due to constraints of the paper with the required water marks , which are specific to the denominations. But it is not impossible, and we had done it in the past.[ The left parties and their cronies would make noise out of proportion, but they would shout, no matter what you do. Ignore them.] I would say:
1. Indian Presses should continue with the current or planned programs, with three shifts or full capacity. But they should not print more of Rs. 2000 notes.
2. Huge quantities of Rs. 100 and 500 denominations should be printed abroad and brought to the country as soon as practicable.
3. Once these notes are available, Rs.2000 denomination should be taken out of the ATMs. Or, if dispensed through ATMs, people should have a choice as to the preferred denomination.
Don't forget the long term goal
On a long term basis, both the Rs.500 and Rs.2000 denominations should be phased out and quietly withdrawn, with Rs. 100 denomination remaining the highest note. This will indirectly force people to avoid cash transactions of high value.This will also force the govt to rein in inflation effectively, so that money retains its value and the govt. its credibility.
While this will not stop generation of black money, it will make storing it cumbersome.
While this will not stop generation of black money, it will make storing it cumbersome.
This should be the long term goal and should never be overlooked.
Mr.Modi cannot be allowed to falter or fail!
Mr. Modi has bitten the bullet. Now, let him go the whole hog, with no holds barred. If this measure is allowed to falter or fail, not only Mr. Modi fails and falls, but our democracy will succumb to the power of black money for ever. India will become a banana republic- with corrupt politicians, family controlled parties sitting on tons of money, crony capitalists feeding them in bulk, bureaucrats helping them along, and petty corruption overtaking the land.These will be the people who will run the country. This should not be, in the name of the good Lord.
Note:
The Supreme Court is hearing some cases and making remarks. I do not know whether it is proper to comment on it. But the decision to demonetise is govt's (Executive's] prerogative and it cannot be discussed in advance! I would say, cases are in queue in courts, and let the judiciary clear those queues first! How can we fight black money when a black money case against a political leader takes 18 years in our judicial system?
Demonetisation has to be a sudden and surprise move, and is bound to result in some inconvenience . Citizens will have to bear it for some days. This is a war on black money, not a tea party.
All those who have cards or net banking should resort to these. Even groceries can be ordered on line. Those who have bank accounts can withdraw from their accounts, instead of going to the ATM. There are ways conscientious citizens can help themselves, each other and the govt in its mighty fight against the menace of black money. So far we heard empty rhetoric . Now we see action. It hurts now, but it will heal the economy and the country in the days to come.
All those who have cards or net banking should resort to these. Even groceries can be ordered on line. Those who have bank accounts can withdraw from their accounts, instead of going to the ATM. There are ways conscientious citizens can help themselves, each other and the govt in its mighty fight against the menace of black money. So far we heard empty rhetoric . Now we see action. It hurts now, but it will heal the economy and the country in the days to come.
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