On 8th November 2016, the Indian government demonetised high denomination 500/- (rupee) and 1000/- notes which were no longer to be used as legal tender and instead introduced a new 2000/- note. The policy came about very suddenly, in a bid to control corruption and the ‘black money’ problem that consumes the Indian economy.
Since I am in India for my holidays, I thought I would share with you guys some of the grave miscalculations, Prime Minister Narendra Modi seems to have made and how it has effected the country in the southern region of Asia.
Perhaps the government has been simply too careless and presumptuous in its actions?
In value terms, Modi has demonetised 86% of India’s currency which has left millions upon millions with worthless cash and threatens to bring a large percentage of the cash-driven economy to a halt. It is no wonder that the Central Bank of India has struggled vehemently to print more of the other denominations that are legally still in circulation. It appears that anger seems to be growing rapidly as hundreds of thousands have been queuing for hours outside banks since the demonetisation was announced to swap their banned notes. Tempers frayed further as some ATMs are not the correct size to print out new notes and often not able to keep up with the demand of the public. Narendra Modi asked citizens of India to be patient during the 50 days following the decision to withdraw large denomination notes.
Many have criticised Modi for allegedly relying on a trusted cliché of politicians to determine policy rather than seeking expert advice and guidance. Many argue that India is simply too big and complex to efficiently handle such consequences. With millions queuing in cities to be able to deposit and withdraw cash, the rural economy has been hit even harder. It is estimated that 80% of them use cash for their transactions propelling the fishing industry into a state of near-collapse in West Bengal and causing farmers in the wheat-growing states of the northwest to run out of money to buy their seeds amid sowing season. Many have to walk miles at a time in such remote parts to reach a bank branch in order to change their cash resulting in a loss of crucial days of labour.
Many places have been exempt from the cancellation of legal tender such as petrol pumps, government hospitals, school fees, state controlled cooperative stores, pharmacies, railway and bus ticket counters and international airports for arriving and departing passengers. But – due to the lack of implementation – many of these places have rejected the use of such notes because it has been proved a hassle to deposit the old currency and withdraw new currency, especially with such a tight timeframe.
Obviously, the short-sightedness of the Modi administration has impacted the lives of everyday Indians and to an extent has shut India’s financial system down.
Delhi Chief Minister, Arvind Kejriwal, claimed that ‘there’s chaos everywhere’ and continued to state that demonetisation has wreaked havoc on the poor and working Indians while the wealthy have found ways to skirt the new rules. Economists agree that such radical steps will have no effect on the generation of black money through corruption. Some go as far as saying that demonetisation has in fact created an even bigger market for black money. Regardless, there are still numerous ways to launder it. Displaying that there are clear loopholes the government has failed to seal.
One thing is for sure, with 8.44 trillion/- deposited at the close of November, reaching only the half way mark, it seems those who have such money may have already managed to get it back into the system.
Wishing all my readers a very happy Christmas! Happy reading.