Demonetization

The demonetization of 500 and 1000 Rupee notes is a milestone in the history of the Indian Rupee. This is definitely a shock to the whole economy, a positive one maybe, but the nation is definitely not ecstatic. The current government has imitated many steps taken previously by other governments. This is one such step.

The same decision was taken in 1978 by then Prime Minister Morarji Desai, who decided, against the will of RBI, to demonetize ₹1,000, ₹5,000 and ₹10,000 notes in a bid to combat corruption and black money.

By no means am I disparaging this brilliant move by the government, but while not drawbacks, there are definitely some lacunae that eclipse the move.

            Most of the rural and urban poor in India are un-banked i.e. they don’t have bank accounts.  These people—migrant labourers, landless workers, potters, contract labourers, street vendors, rickshaw pullers, and female workers— keep money stashed at home. Old people, disabled, sick, transgender and prostitutes will be especially impacted. The above category of people will be deeply inconvenienced to go to banks to exchange their money. The transgender and prostitutes keep all their money in cash with themselves. Due to the inherent bias of the society they may choose not to go to banks themselves instead hire a middleman for this purpose who will not only charge for fees for their services and but also cheat a large amount. People who need money for some urgent work like to see a doctor, pay for medicines, medical emergencies (in private hospitals), travelling etc. will be in a highly difficult situation as no one will accept their money (even if they have it) if in denominations of ₹500 or 1000 notes.

 It is an Indian thing in villages and small towns for housewives to keep their saved cash hidden away from their husbands and other family members. Invalidation of ₹500 and 1000 notes has jeopardized this scheme. The months of November and December are the season for sowing of Rabi crops (in most of India) and Samba crops in Tamil Nadu. This season requires a lot of cash in hand for purchasing seeds, pesticides, fertilizers, hiring labourers etc. All these activities will be severely hampered due to want of required cash. Contract labourers in organized and unorganized sectors are paid their daily wages in cash. Now the contractors can delay the wage payment for few days till things settle down. These people will have to face hardships for comings days since they live a life on hand to mouth earnings.

Most of the business in India have cash transactions with less than 2% business transactions taking place electronically. This move will cause severe cash crunch for both the customers and the sellers. The small artisans and street vendors have been most impacted. The fast-growing e-commerce segment which was made popular due to COD (Cash on Delivery) model had slow business for few weeks.

There is a panic-like situation for many cash holders due to lack of awareness. Big rush conditions in banks and post offices may disrupt other regular services of Banks and Post Offices like loan disbursal, postal services etc. as most manpower will be utilized for this note exchange activity in the upcoming weeks. There can be many cases of cheating as well due to lack of knowledge and awareness.

The above points are all short -term disadvantages, clearly indicating that the surprise and sudden nullification of ₹500 and 100 notes is a master stoke by the NDA government which will cut deep into the black money and corruption market. Terrorist funding will be deeply pruned so will be the issue of FICN (Fake Indian Currency Note). This will encourage electronic transactions in future, thereby increasing the number of formal transaction increasing government revenue by way of taxes and curb fraudulent financial transactions. Advantages are a too many to cover here.

Lastly, I would like to say ‘to get something, you have to pay something’. And at present, we are paying. Just wait for some time to get a better India in return.

-Srushti Kamerkar