9/11 is not unknown to anyone. It was truly the day when USA attracted the whole globe towards itself by a dramatic action. Likely, mid-night of 8th November (9/11) also proved to have a magnetic effect when everyone was surprised by the knee-jerk decision taken by the Prime Minister Narendra Modi to demonetise the existing Rs. 500 and Rs.1000 currency notes. Demonetisation is ending something as no longer the legal tender of a country. By far, this is the most sweeping change in currency policy that has occurred anywhere in the world in decades. Demonetisation this time is a huge gamble with the economy. Demonetisation in a developing economy is like shooting at the tyres of a racing car. Tall claims are being made about the ability of demonetisation to flush out black economy and are considered as a ‘surgical strike on black money’ by its admirers. In their view, black money is a gigantic hoard of illegal income that keeps growing and needs to be flushed out. But this can be untrue. The wrongdoer knows better than to keep their illegal income in suitcases of cash. Instead, they spend, invest, launder or convert it in one way or other. They keep the illegal money in real estate form. Of-course at any point of time, some black money is likely to be lying in jars or pillow-cases. But going after that residual liquidity is like mopping the floor under the shower says Jean Dreze, leading advocate of welfare policies.
The sudden move to demonetize high-value currency notes has created a scary situation for people who live on the margin of subsistence. Some of the short-terms costs are already clear- the time people waste while standing in long queues, the worker lay-offs, many tragic deaths. As said by the former Union Finance Minister, P. Chidambaram that the printing of new Rs.500 and Rs. 1000 notes would take about seven months because the capacity of India’s currency presses was only 300 crore pieces per month. This hints that with each post- demonetisation day passing by, we have to see such more cases. About 13 crore people are queuing up every day now in front of the two lakh bank branches for some cash and 1.2 lakh (functioning ones) ATMs, it seems near to impossible to serve a country with 120 crore people. The total number of currency that has been withdrawn is seven times higher. Wider economic costs are to be felt soon. Some reports suggest that economic activities in rural markets have slowed down. For instance, an example by Nidhi Aggarwal and Sudha Narayanan at the Indira Gandhi Institute of Development Research shows that mandi arrivals of non-perishable agricultural commodities crashed across the board within a week of demonetisation. The declines range from 30 percent cotton to 87 percent for soyabean. When farmers are short of cash, agricultural labourers and local artisans are bound to suffer too. NREGA workers are also to be badly hit. As it is, they are affected by chronic delays in wage payments. Black money in the sense of illegal income may or may not be earned in cash, and even if it is earned in cash, it can easily be converted into other stores of value. Just to destroy Rs.400 crore fake currencies, blocking of the circulation of total of Rs. 17 lakh crore seems an insane decision. The need of the hour was to focus the incentives that generate and retain black money. Moreover, most of the black money might be stocked in the form of gold which would make it harder for the administration to track.
There has been a drastic rise in the credit availability of various banks in the month of September. Statistical data is an enough proof to calculate that RSS followers were much earlier known of the decision and thus got already deposited their liquid cash who otherwise top in the list of black money holders.
India’s independence was declared in the mid-night of 15thAugust 1947 and 15th August morning came with a new fresh breeze that soothed the eyes of every Indian as this was a fresh morning which encouraged everyone to step ahead with ease and freedom. A new morning with a new India much awaited morning everyone was looking for.Demonetisation decision was also declared in the midnight of 8thNovember (9/11) 2016. But this morning was perplexed, disquietude, unpredictable, a common man had neverdreamt of. A morning not of demonetisationbut of demonization.The micro-economic effects of demonetisation might be beneficial, but at macro-economiclevel, it might prove a disaster as 2% fall in GDP has been estimated by the economists like Dr Manmohan Singh. And for the economy as a whole, the concern should be at macro-level. Otherwise, it would be a situation like drying a lake to hunt crocodiles but the actual victim become fish as crocodiles can survive in land as well.Whether it proves a boon or a bane to the economy is a matter of time only, till then let us hope for the best and be ready for the worst.
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