id=”mod_42692734″>Demonetization in India
The decision of demonetization of Currency notes of Rupees 500 (US$7.40) and Rs. 1,000 (US$15) denomination was taken by the Government of India on 8th November 2016. These paper currency banknotes of the Mahatma Gandhi Series have thus ceased to be the legal tender in India. This accounted for 86% of the total currencies in the system.
Televised Address of Prime Minister
In an unscheduled live televised address at 20:15 IST on 8th November, the Prime Minister of India Narendra Modi announced that the aforesaid currency notes would become invalid after midnight of the day. He declared the issuance of new notes of Rs.500 and Rs. 2,000 denomination to replace the old notes. The banknotes of Rs. 100, 50, 20, universal press release 10 and 5 of the Mahatma Gandhi Series and Rs. 2 and Rs. 1 remained legal tender and were unaffected.
Explaining the reasons after the official announcement, the Governor of the Reserve Bank of India, Urjit Patel and Economic Affairs secretary Shaktikanta Das, said in a press conference, that during the period between 2011- 2016, the supply of notes of all denominations increased by 40%, while that of Rs. 500 and Rs. 1,000 increased by 76% and press release 109% respectively. This was due to forgery and such fake currency was being used to fund terrorism in India. Patel said that the decision was taken six months ago and the printing of new currency notes had already started.
Objectives of Demonetization
The government claimed that the decision of demonetization was taken due to the following four reasons.
1. To stop counterfeiting of the current banknotes.
2. To choke the funding of terrorist activities.
3. To crack down on black money.
4. To check corruption, use of drugs, and smuggling.
History of Demonetization in India
History of Demonitization in India
It was in January 1946, that the British Government demonetized the banknotes of Rs. 1,000 and Rs. 10,000 denominations.
Thereafter Jawahar Lal Nehru Government introduced new notes of Rs. 1,000, Rs, 5,000 and Rs. 10,000 denomination in 1954.
The Janta Party coalition government led by Morar Ji Desai demonetized the currency notes of Rs. 1,000, Rs. 5,000 and Rs. 10,000 on 16 January 1978 to curb counterfeit currency and black money.
RBI Increasing the Estimate of Demonetised Currency, to Prove the Success of Decision
Annual Report of RBI on 31st March 2016
Value of total bank notes in circulation Rs. 16.42 trillion (US$240 billion)
Total bank notes of Rs. 500 and Rs. 1,000 denomination Rs. 14.18 trillion (US$210 billion)) Nearly 86% of total Currency
Total banknotes in circulation in terms of volume 24% (around 22.03 billion) of the total 90266 million banknotes
Total banknotes in circulation on 28th October 2016 Rs. 17.77 trillion (US$260 billion).
More than 90% of the Banned Currency Deposited in Banks
The demonetization was intended to end the black money which was estimated to be a parallel economy. It was assumed by the government that the honest man will deposit the money and the black money would not come back.
But demonetization has completely failed. Almost the entire black money has become white as it has been deposited in the banks. Black money has transformed itself into new currency notes.
Out of total Rs 14.18 Lakh Crore or 14.18 trillion (US$210 billion)) of demonetized currency in circulation till March 2016, consisting of 15,707 million of Rs 500 notes and 6,326 million of Rs 1,000 notes; more than 12.6 Lakh Crores have been deposited in different banks by 3rd December, and the remaining will be there by 30th December 2016. This huge deposit raises doubts about the success of demonetization.
So where is the Black Money? Just few thousand crores seized by the authorities, for which more than 100 people died. This is going to be the most devastating decision of the Indian Government.
Black money is not an Indian malady. It is a universal problem. Even developed countries could not eradicate black money.
Now the next option will be to reuse the demonetized currency to save the printing cost of new notes. Due to the carelessness of the authorities, the move became more a currency conversion or currency swap than demonetization. It turned out to be an exercise to convert black money into white.
Demonetized Currency (One Crore = 10 Million)
Number of banned notes of Rs. 500 denomination 1571 Crore
Number of banned notes of Rs.1000 denomination 729 Crore
Total number of notes banned 2300 Crore
Capacity of all printing presses to pint notes in numbers 2600 Crore of any denomination per year
Number of Printing Press in India 2 of Central Govt at Nasik and Devas and 2 of RBI at Mysore and Salmoni
Time to print 15,000 Crore currency notes in Rs. 500 denomination 7 Months
Time to print 300 Crore currency notes in Rs. 2000 denomination 3.5 Months
Recklessness of Reserve Bank of India
The new notes could not fit into the ATM as they are smaller in size. There are 2, 20,000 ATM in India. The ATM contain 4 cassettes of different sizes in which the notes of the different denomination are loaded. The new notes of Rs. 500 and Rs. 2000 denomination are not of the usual size of banned notes of Rs. 500 and Rs. 1000 denomination, while they should rather have been similar. So the immediate need of replacing 4, 40,000 cassettes of ATM appeared. This delayed the relief to the people and the new currency became less available. Still, all the ATM have not been re-calibrated.
It will take more than 120 days for all the Currency printing Press, universal PR working day and night to replace the total demonetized currency and the PM of India just demanded 50 days. This is the height of carelessness about such a sensitive matter.
The replacement should have been planned. The people should get their money. The currency should have fitted into the ATM.
The RBI Governor has declared that by 21st December, the new notes of 5.92 Crores have been released since the demonetization of 8th November. The Bank has just replenished one-third of the banned currency. Ironically this time he did not disclose the actual figure of the banned currency deposited in the banks.
But on 3rd December 2016, the RBI declared that Rs. 12.6 Lakh Crore had been deposited in different banks.
Inactive RBI Governor
Urjit Patel, the new Governor of RBI did not react on demonetization, while not only the consultations but the strong recommendations of RBI is mandatory to take such a decision of great financial importance.
The people have the right to know when money will come so that the queues may end.
Allegations of Favoritism
It has been alleged in media that, before demonetization, several Union Ministers had declared that they were holding large amounts of cash. Even the Finance Minister is reported to have more than 65 Lakh rupees in cash. It is still a mystery about where and when they had deposited their cash.
LRS Increased Foreign Remittance
During the tenure of previous government, the maximum limit in Liberalized Remittance Scheme i.e., universal press release to send money overseas was US $ 75,000.
But the present government increased this limit in the very first week of coming into power to US $125, 000 and then increased to US$ 250,000 on 26th May 2015. This decision has increased the remittance of Indian money to foreign countries.
Mauritius Route Treaty
Everyone knows that the black money is in Swiss banks and Panama. But for the last five years, more than 33% of FDI in India is from Mauritius Route as a participatory note. It is in the form of Benami or pseudonym Shares of Companies, where the black money of Indians come back after traveling overseas and gets legalized. This route should have been stopped.
But is is very strange that 3 days before demonetization, this Mauritius Route Treaty was extended.
Prior Leakage of the Decision of Demonetization
According to the RBI Governor, only the top government officials, security agencies, and RBI were aware of the move. But the media had already reported about the introduction of Rs.2, 000 denominations way back in October 2016, well before the RBI announcement.
This version has caused great controversy, as six months earlier; the RBI Governor was Raghuram Rajan, not Urjit Patel. And the new banknotes have the signature of the newly appointed Governor. How the latter had started signing new notes before assuming the post.
In April 2016, Akila, a Gujarati newspaper published the news about demonetization, two months time for exchange of old currency and the release of new notes of Rs. 2000 demonetization. Later the newspaper claimed that it was a prank on 1st April.
A fortnight before the official announcement, the Hindi daily Dainik Jagran quoted RBI sources about the release of new Rs. 2000 rupee note alongside withdrawal of old Rs. 500 and Rs.1000 notes.
The Chairman of the State Bank of India made a public statement about the coming demonetization way back in April 2016.
The Communist Party of India (M) alleged that the BJP unit of West Bengal had prior universal press release information about demonetization and they deposited money in banks just before the announcement.
Arvind Kejriwal, the Chief Minister of Delhi also claimed that the decision was not a secret. He said that Sanjeev Kamboj, a local BJP leader in Punjab, posted the pictures of new Rs. 2000 notes days before the official announcement and a sudden increase in bank deposits between July and September 2016 was due to the leakage of the news.
The Congress party demanded a probe into this huge jump in bank deposits before the demonetization.
Arvind Kejriwal, Nitish Kumar ( Chief Minister of Bihar) and Rahul Gandhi ( Congress) alleged that the ruling BJP made large purchases of land in Bihar ahead of the demonetization due to prior information of currency ban.
Total Bank Deposit Increased in September
The Scheduled Commercial Banks of India surpassed the previous records of deposits of last two years in September 2016.
As per RBI details Rs. 102, 08,290 Crore Or 102 Lakh Crore arrived in the banks.
This amount was was 5.89 Lakh Crore more than that received in August 2016.
It amounted to an increase of 13.5 %, which raises the doubts of leakage of the decision of demonetization as alleged by the Chief Minister of New Delhi.
Guidlines for the Exchange of Demonetized Curency
The RBI laid down a detailed procedure for the exchange of the demonetised banknotes. Following are the key points:
The banned currency could be deposited in any office of the RBI or any bank branch till 30 December 2016 to credit the value into respective accounts.
Only Rs. 10,000 per day and Rs.20, 000 per week per account could be withdrawn from 10 to 13 November 2016. This limit was increased to Rs.24, 000 per week from 14th November.
Old banknotes could be exchanged for the new Rs.500 and Rs.2, 000 notes as well as Rs.100 banknotes in the bank branches by giving valid Identity proof and filling up a requisition form till 30 December 2016. This limit was fixed at,
Rs.4, 000 per person from 8 to 13 November 2016.
Then Rs. 4,500 per person from 14 to 17 November 2016.
Then Rs. 2,000 per person from 18 November 2016.
Then all exchange was abruptly stopped from 25 November 2016.
The indelible ink used on the fingers of the people in the banks from 14th November 2016.
One person could exchange the notes once from 15th November 2016.
The old notes of Rs. 1000 to be deposited in banks only from 1st December 2016.
In the beginning, all ATM dispensed only Rs. 50 and Rs. 100 and press release ATM cash withdrawals restricted to Rs.2000 per day from 14 November onward.
Re-calibrated ATM to dispense new Rs. 500 and Rs. 2000 notes with a maximum withdrawal of Rs. 2,500 per day, while other ATM dispensing Rs. 50 and Rs.100 notes had a maximum withdrawal of Rs. 2000 per day.
The petrol / CNG and universal press release gas stations, government hospitals, railway and airline booking counters, state government recognized dairies and ration stores and crematoriums were given relaxation to accept the old Rs. 500 and Rs. 1,000 banknotes until 11 November 2016.
This relaxation modified till 14 November 2016.
Again extended till 24 November 2016.
International airports to exchange total notes of Rs. 5,000 from tourists/ passengers.
All these relaxations were withdrawn from 22 November.
The Rs. 500 notes would be accepted here until 2nd December.
On 17th November 2016, the families could withdraw Rs. 2,50,000 for wedding expenses from one KYC compliant account. The farmers permitted to withdraw Rs.25, 000 per week for the crop loan.
On 21st December 2016, the limit for depositing old currency in the banks was restricted to Rs. 5000 per person subject to an explanation that why the money was not deposited so far.
On 22nd December the previous restriction was waived.
The Government of India, Finance Minister, and RBI remained confused about the rules of demonetization and total 59 instructions were issued; some modifying the previous ones, others overruling the old ones and some were novel. The assurances of PM too were overruled.
50-50 Scheme
The people at Mumbai exchanged old notes @40% commission. At Bangalore, it was 10%, while some bank managers were doing the same at 10%. The government gave an option of 50% tax and penalty plus surrendering interest on another 25% of the deposit for 5 years, which amounts to 12% at prevalent rates. The people will not pay 62% to convert their black money.
Reasons for the Change of Exchange Rules
The people devised novel methods to exchange the demonetized currency.
1. The people circumvented the restrictions on exchange and made multiple transactions at different banks. Then the indelible ink was used, press release but the Election Commission of India objected to its use in banks.
3. As per relaxation, the people used old currency to pay outstanding / advance taxes of municipal and universal press release local bodies. A record collection of Rs 1.6 billion (US$24 million) of Hyderabad Municipal Corporation was reported.
4. A large surge appeared in the booking of 1A and 2A classes of Railway tickets to claim cancellation refund. Late the Railways denied cash refund of Rs. 10,000 and above with a condition of cheque or electronic payments.
5. The backdated accounting was carried out by several business establishments, co-operative banks, jewelers, I Phones sellers etc.
6. The black money was being exchanged on commission basis @ 10% to 40%. The game of black money confined to few corrupt people became a cottage industry throughout India. Then the Government of India also jumped into the competition and tried to earn something in the process. The PM again announced the 50-50 scheme for black money.
The Income Declaration Scheme (IDS)
This scheme of Government of India remained open from 1st June 2016 to 30th September 2016. Here the black money holders could declare the assets and pay 45% tax and penalty to get it legalized.
Bank Loans of Big Business Houses Written Off
After demonetization, the Indian Banks wrote off 1.14 Lakh Crore Rupees of Big Business Houses. SBI wrote off about 8000 Crores of Vijay Malaya. The Bad Debt of Rs. 8 Lakh Crore are still pending and would be dealt after demonetization.
Why the Government is not waiving off the loans of the farmers, who are committing suicide. The previous government waived off the loans of the farmers to the tune of 70,000 Crores in 2010.
How much could the Bad Debt be recovered?
Actually, the bank tries to recover the loan. But when it fails, the RBI norms say, ” Waive off the loan, if there is no recovery”. It is called the banking prudence.
But the defaulters reschedule the loans, either by increasing the loan amount or increasing the payment term. The Bad Debts here are being written off. There is a difference between waiver and write-off. The waiver could be recovered.
Consequences on Economy
The immediate effect is a liquidity crisis, as 86% of the currency has been withdrawn. The situation is similar to the draining of 86% of blood and the death is imminent. The people are patient and will wait and manage the affairs.
The cash goes into working capital, but now the cash has been removed. So there is a great scarcity of cash needed for the growth of the economy.
The consumer demand has been reduced. The people are afraid to spend as they do not know when the cash will arrive and they do not want to do away with the cash in hand.
The small traders, hawkers or vendors who purchase the raw material on daily basis and sell it on streets have no working capital. They have lost it first due to the absence of customers and second due to the loss of working days in queues. Those involved in the business of perishable items are the worse hit.
Adverse Effects of Demonitization
The demonetization has become a great fiasco as it has miserably failed to achieve the objective for press release which it was undertaken. It is having severe detrimental effects on small scale industries, businesses, agriculture, transportation, trading etc.
Braving the cold waves, the people of India are forced to queue up outside the ATM of different banks, but soon the cash machines become empty. Around half of the ATM in the country is non-functional and there is a great cash crunch even after 55 days.
About 10 Lakh youth come into the workforce every month. But instead of the tall claims of present Government to provide 2 Crore jobs each year, the present demonetization has reduced the jobs.
The people including Nepali workers having no bank account or proper Identity proof had to exchange the money on the commission basis.
More than 120 people died due to the inconveniences caused in queues. The refusal to accept old banknotes by hospitals also caused several deaths.
In unorganized sector, the wage earners and laborers are retrenched, as there is no cash to pay them. There has been a loss of several man days or working days.
The organized sector has reduced the production, as the top two Auto Companies are working or three days a week only. There is no money for the workers and suppliers and no cash is coming back from the retailers. The whole country is standing in queues.
Some violence was reported in New Delhi, 6 banks branches and ATM were attacked in Uttar Pradesh. A shop was looted in Madhya Pradesh when the shop owner refused to accept the old currency.
It has destroyed the age old Indian culture. The festivals and family occasions like marriages which enrich the Indian culture are being destroyed. The common man cannot marry off his daughter as he wishes or dreams of throughout his life.
Even a father fails to get money from the banks after being there for three days so that his daughter could undergo emergency surgery. Ultimately the girl dies. An aged man dies of the heart attack outside the bank ATM. The common law also ensures that no innocent person should be penalized. A common Indian is not a fool but patient and is watching.
Gold and Jewelry were sold at double the prices creating more black money, defeating the very purpose of demonetization.
Even the BSE SENSEX and NIFTY crashed 1,689 and 50 stock indices respectively which is six months low than the last one.
About 800,000 truck drivers were affected by the scarcity of cash and around 400,000 trucks remained stranded at major highways across India.
All major highway toll junctions witnessed long queues. Then Union Minister of Transport, Nitin Gadkari suspended toll collections throughout India till 11th November, then until 14th and later till midnight of 18th and again till 2 December 2016.
The agriculture sector is heavily dependent on cash and farmers had no cash to purchase seeds, fertilizers, and pesticides and they conducted protest rallies in Gujarat, Amritsar etc.
The demand of card swipe machines has increased. The sale of e-commerce companies declined by 30% in cash on delivery orders, but they welcomed digital payments.
The usage of the debit card, credit card and e-payment options of Pay-TM and Pay U Money has also seen a rise. Even on 9th November, the debit credit card transactions rose by 108% and 60% respectively.
Death Blow to SSI
The demonetization has dealt a severe blow to the Small Scale Industries (SSI), most of which are either closed down or are on the verge of closure. The real objective of demonetization seems to finish the SSI and provide an independent platform to Big Business Houses (BBH).
How it Happens
The large industries are more skilled than SSI’s. As an example, the daily production of jaggery in SSI is just 10 sacks, while the sugar industry produces 5000 sacks. In the former, the cane juice is boiled and thickened in big cauldrons by using more fuel which increases the production cost. In the latter, the evaporators are used and the workers are more skilled and highly paid, there are quality control labs and production cost is low. Same is the case with textile, paper, rolling mills etc. Even then the SSI’s compete with BBH.
All previous governments supported SSI as they produce more employment, e.g., 5000 sacks producing sugar mill needs 1000 workers, while the same production of jaggery in SSI employs 20,000 workers. SSI’s are entrepreneurship development centers and need protection to grow. Their production cost is more but they carry the weight of the society.
Now the SSI purchases, cane pays wages and sells jaggery in cash. They do not pay excise duty or Sales Tax or Income Tax and demand tax holidays. It may be an illegal business, but the rules could be amended. Cash payment saves them from tax payments.
Herein lays the defects of demonetization. The government wants the SSI’s to sell and purchase through banks, PR come under taxation and pay for the Provident Fund (PF) of the workers. Payments through banks would necessitate PF. The cane production too could be taxed through market committees which would further increase the production cost and they will fail to compete.
The bank financing to SSI’s increased by 2.4 % in January 2016 but went down by 3.6 in June 2016. The SSI’s are under pressure as new technologies have hindered their growth and they have no funds for modernization.
Small Traders, Vendors, and Hawkers
One can purchase vegetables by placing online orders to the chain of Big Grocery Stores. But this option has killed the business of street-sellers. Similarly the small vocations of bakery, biscuits, tailoring, taxi services etc. are being snatched by BBH.
This terrorism of technology would kill SSI’s and small traders.
All these evidence indicate that the government wants to encourage the BBH which pay the taxes, while SSI’s pay nothing. More taxes would increase the salaries of the government employees and would increase more Govt. Contracts.
That is why the govt. plans that the SSI’s should work through banks, hence demonetization. Force them to pay taxes and they will close down their business.
This would create the Clean Economy.
Indifferent Government
In the early fifties of the 20th century when the Indian government decided to use Hindi as a sole official language, there was great opposition in Southern India. One person underwent self-immolation and Jawahar Lal Nehru, the then Indian Prime Minister withdrew the decision, saying that no such decision is important than human life.
But at present more than 100 people standing for their turn outside the banks have died due to demonetization and the PM Narinder Modi is nonchalant.
Facts Behind Dmontization
The present economic system could never bridge the gap between the rich and press release the poor. The Union government says that the decision is better for the poor, then why it has been weakening MNREGA (Rural Employment Guarantee Program for 100 days in a year) for the last 31 months.
On the other hand, the Corporate Taxes are being reduced, the labor laws being weakened, the wages not being enhanced and the safety of whistleblowers is not being ensured. Those opposing the government are being termed as traitors. The close relatives of Government officials are being given an option to declare their assets. Will these efforts reduce black money?
This aggressive implementation of new economic policies is very dangerous. The capitalist economy could never be established until the traditional culture is destroyed. It happened in 16th and 19th centuries in the US and Europe. The demonetization too is a step in his direction.
These efforts should have been supplemented with MNERGA, mid-day meal and subsidized ration so that the poor man could survive.
Black Heaven
The hoarders of Black money are very clever. They know that there is a complete Income Tax waiver scheme for the entire tribal area of North Eastern States of India including Ladakh. Hence the black money currency is flying towards these regions.
Opposition in Parliament
Demonetization was severely criticized by the opposition in the Winter Session of Parliament leading to an impasse. The Congress-led opposition opposed the issue in the Parliament.
The debate was initiated by Congress MP Anand Sharma in Upper House on 16 November 2016. Congress MP Pramod Tiwari accused the PM of demonetization and compared him to Mussolini, Hitler, and Gaddhafi. Praful Patel accused the government of not even re-calibrating the ATM to accept new currency. He said that nobody is questioning the intention, but it is the unpreparedness to execute.
Mamata Banerjee, the CM of West Bengal led a delegation of Trinamool Congress, Aam Aadmi Party, Shiv Sena, Patidar Anamat Andolan Samiti (of Hardik Patel) and National Conference to the President of India to protest against demonetization and demanded the withdrawal of the decision.
Prem Chand Gupta questioned a statement of PM from the unscheduled TV broadcast of 8th November. He said that, if the move was planned ten months ago, then how the new RBI Governor Urjit Patel appointed two months ago could sign the new notes?
The former Chief Minister of Uttar Pradesh Mayawati and Prabhu Das compared the situation to “a financial emergency”, by saying “It looks as if India has been shut down.”
Sitaram Yechury from CPI said that only 6% of the black money in India is in the form of cash and demonetization won’t curb black money.
In a public meeting on 17 November 2016, the CM of Delhi Arvind Kejriwal and West Bengal CM Mamata Banerjee demanded the withdrawal of demonetization in 3 days.
On 17th and 18th November 2016, the opposition and the government clashed over the issue in Parliament.
On 24 November 2016, Manmohan Singh, the former PM said that this scheme will severely hurt the small industries and farming sector. The GDP would decline by about 3 percent. He asked the PM to give examples of countries where people are not allowed to withdraw their own money from the banks. New notifications and rules brought out every day badly reflect on PM Office, Finance Minister, and the RBI. Why has the Cooperative banking been prevented from handling cash? Finally, he termed the demonetization as an “organized loot and a legalized plunder of the masses.
P. Chidambaram (Former Finance Minister)
Whoever planted the idea of demonetization didn’t know elementary economics.
Expert Opinions against Demonetization in 2012
In 2012, the Central Board of Direct Taxes advised against demonetization. It said that it may not tackle the menace of black money, which is generally held as Benami (Pseudonym) properties, bullion, and jewelry.
The Income Tax probes found that the black money holders merely retain 6% or less as cash, hence targeting cash were not advisable.
As early as in 2014, the BJP spokesperson Meenakshi Lekhi had opposed demonetization. She said that the general illiterate public has no access to banking and would be adversely affected by it.
Nobel Laureate
Nobel laureate Indian economist Amartya Sen, severely criticized the demonetization move calling it a “despotic action”.
Nationwide Strike
The entire opposition including Congress, CPI, CPIM, AIADMK, BSP, DMK, TMC, JD (U), NCP, RJD, and SP observed a protest day November 28, 2016. They protested in front of different banks and demand the return of people’s money. In Bihar, 15 trains were blocked and stranded. Protest marches and rallies were organized in West Bengal, Maharashtra, and UP. In Kerala, the shops, business establishments, school, and colleges remained closed throughout the state and the movements of private vehicles were disrupted at different places.
Criticism of Court and Experts
Initially, this move against black money was appreciated, but its execution causing hardships to common people was criticized.
“It appears to be carpet bombing and not surgical strike”, as claimed by the Government. (The Supreme Court of India)
“It is like blasting the tyres of a running car with a bullet”. (Famous economist Juan Deze)
“The decision will have a severe effect on Indian economy and some other option could have been tried against black money”. (Prof Basgget Haulsorm, Nobel Laureate in Economics in 2016)
Due to weak investment, the GDP of India will come down to 7% from the estimated 7.4% and would adversely affect the cash dependent small and medium business activities. (Asian Development Bank)
“It is a major mistake which will cause much damage than possible benefits as anticipated”. (Kaushik Basu, the former Vice-President and Chief Economist of the World Bank)
“It is a hollow move since it did not really address any of the purported goals of tackling black money or fake currency”. (Pranab Sen, former Chief Statistician, and member Planning Commission of India)
“It is a witless, anti-people move causing great hardship to the people and little effect on black money”. (Prabhat Patnaik, a former professor of economics at the JNU Delhi)
“Demonetization ‘looks like a bad idea’, badly executed on the basis of some half-baked notions”. (Renowned economist and journalist, T. N. Ninan in Business Standard)
“The move had derailed the economy, and the outcome is doubtful”. (Deepak Parekh, Chairman of HDFC)
The Decision is More Political and Less Economic
All the political parties were given the relaxation to deposit the demonetized currency in the banks without any tax liabilities and any questioning about its source.
This entire exercise seems to get political donations for the BJP, as the donors lavishly oblige the ruling party.
The politicians can deposit the black money in party account and later get it back in elections. Those depositing more cash in party account cold later become Ministers and Chief Ministers.
Only two Indian leaders, Arvind Kejrival and Mamta Banerjee have criticized this decision, they both deserve to be the PM of India, and they will become so one day.
Demonetization is a process to revive Indian banks facing a cash crunch, NPA or Bad Debt. For survival they need money and to hold it for 4 to 5 months.
It is an attack on an unorganized economy and household savings.
Viewpoint of RSS
S. Gurumurthy, the economic thinker of RSS, the extreme Hindu outfit and ideological base of ruling BJP, says that the new currency notes of Rs. 2000 denomination too wold be banned in next 5 years as it was launched to face cash scarcity and the new Rs. 500 note wold be the largest currency in India.
But this statement has reduced the faith of the people in Indian currency.
Support
Several bankers and international commentators have welcomed the move as a bold crackdown on corruption.
IMF supported the efforts of Indian PM to fight against corruption.
The President of India has welcomed the demonetization as a bold step.
Vice-President of European Commission Jyrki Katainen and former PM of Finland has welcomed the move to bring transparency and strength in Indian economy.
Justin Rowlatt, the South Asia Correspondent of BBC praised the move for its secrecy and success.
Tim Worstall welcomed the macroeconomic effect of the move in his article in Forbes.
Mikael Damberg, the Swedish Minister of Enterprise supported it as a bold decision.
Global Times, the state media of China praised the move as a “fierce fight against black money and corruption.
The Finance Minister of India said, along with the upcoming GST, it would clean the complete economic system, increase the size of economy and revenue base and change the spending habit and lifestyle.
Former Chief Election Commissioner of India S. Y. Quraishi hoped it to lead towards long-term electoral reforms.
The Congress spokesperson Randeep Surjewala welcomed the move with skeptical consequences.
The Chief Ministers of Himachal Pradesh, Bihar, press release and Andhra Pradesh supported the move.
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sendingAUTHORSanjay Sharma
3 months ago from Mandi (HP) India
Thanks, Ganapathi Subramanyam for the visit and the comment. You are absolutely right.
5 months ago from Mandi (HP) India
Thanks, Shaloo Walia for the visit and the comment. Coming to power is a different thing. Nothing personal.
Shaloo Walia
5 months ago from India
A well- researched and detailed hub. It’s sad to see that even this demonetization fiasco couldn’t stop Modi from coming back into power again.
Thanks, Ganapathi Subramanyam for the visit and the comment. I think you are right.
Ganapathi Subramanyam
2 years ago
Well researched article .
I think demo money round tripped through Mauritius and escaped capital gains tax altogether .
2 years ago from Mandi (HP) India
Thanks, John R Wilsdon for the visit and the comment. Now the situations are returning to normal. Bur this Don Quixote-like endeavors are the result of naivety and overenthusiasm.
John R Wilsdon
2 years ago from Superior, Arizona
Very well-researched hub on the demonetization crisis. I do hope that India can return to a bit more stable currency situation as per pre-demonetization.
Thanks Venkatachari M for the visit and the comment. I have answered everything in the article and in the comments section.
Venkatachari M
3 years ago from Hyderabad, India
A great article. I appreciate your research and collection of data. You have discussed it so widely giving all the details with plus and minus points of the move taken.
But, I support demonetization as it is aimed to control black money hoarding and bringing transparency in all transactions. I agree that people had to suffer. But, any good step requires some boldness and endurance. The only thing I feel discomfort is that our people are not well-educated or prepared to adopt to new technologies of cashless transactions. But, the banks and our administration are doing their best to bring awareness and introduce suitable apps.
You are right, but the agenda of cashless economy just after demonetization raises doubts about the intention of the government, The RBI Governor declared of 21st December that from 10th November to 19th December the new currency of the value of just 5.92 Lakh Crore have been issued, which mostly contains new notes of Rs. 2000 denomination, which has few takers like the money hoarders. In this way just one third of the total demonetized currency of the value of 14. 18 Lakh Crore has been replenished in 40 days and it will take more than three months to reprint the replacement of entire demonetized currency. The cash crisis is going to increase till then and the effects on economy will last longer than this. The internet speed and cyber safety or hacking is well known in India.
Agreed no nation, even the most developed ones are cashless economies, but less cash is more feasible and increases transparency. As for smart phone, India’s capability lies in its population. From a negligible to leading smart phone market, anything is possible provided government has the will.
AUTHORSanjay Sharma
3 years ago from Mandi (HP) India
Targeting just 6% of currency ( as per govt. reports) held in black money and causing hardships to all the citizens is not an advisable option. Out of total 14.5 Lakh Crore of demonetized currency, more than 90% or 13 Lakh Crore have arrived in different banks and PR rest will be there by 30th December. Just less than 15000 Crore has been confiscated by the authorities in different raids. The wage earners have been worst hit. Cashless economy too can’t be an universal PR option in India, as not more than 17% people have android phones in the country and some have more than one.
Ashutosh Joshi
3 years ago from New Delhi, India
Woahh!! Pretty detailed account I would say. When I wrote a hub on demonetization I too was more optimistic irrespective of how this was implemented. But as we close in to the deadline, seeing the fallout of this whole exercise and continued mismanagement, also having experienced it personally I would say that it a deliberate crisis createdby the government. Having said that I still have some hope that this will have postive impact in the whole financial system and the economy in the long run. Taxation cannot be borne by just 1%, similarly we need to move to less cash economy. Atleast this exercisehas opened an avenue to address some of this long pending issues, despite it being a forceful move. Ultimately its upon the govt now and let see what awaits in 2017.