Demonetisation: Patience is the key

Prime Minister Narendra Modi’s announcement on demonetisation on November 8 has taken everyone by surprise.  There is mixed reaction to Modi’s move all over. The happenings in the country were as usual. Corporate sector, big fishes in the society, politicians, and others were busy in minting and preserving the money and the daily bread runners were struggling for the lives on Tuesday, November 8. Then came Prime Minister Narendra Modi live on television. He started his speech and soon made an unusual, shocking announcement, to demonetise of Rs 500 and 1000 note with immediate effect.

Demonetisation - 5

It came as a shock to everyone. People were worried what to do with the currency they have? How to get the necessary household items with being unable to use the money in hand?  There were worried faces all over, though PM had assured that the hard earned notes of the common people can be exchanged at the nearby banks with the notes of Rs 100 and lesser denominations.

Despite the assurance by the PM, the banks were completely crowded by the people who were in long queues to get their currency notes of higher denominations exchanged. ATMs were out of order for days. Even if the money put into the machines, it was nowhere enough for the huge crowd waiting for their turn to withdraw the money. People standing in long queues became order of the day.

Demonetisation - 2

The move was addressed as a surgical strike on black money and a beginning of a fight against corruption. The entire move was a planned and secretly executed, say government sources. Apart from the PM, only 3 others were aware of the demonetisation. The BJP MPs and ministers too got to know about the issue only when the PM made an announcement in front of the MPs on November 8.

The people were seeing chaos in order to withdraw their own hard earned money from banks and  ATMs. Media has alleged the process of demonetisation as a reason for the death of over 75 people. PM has requested the public to bear the   brunt for 50 days and assured of a new India in 2017.

The short term and long term impacts of the demonetisation are explained by the financial experts as follows:

  • Black money

Black money stored in the form of Rs 500 and Rs 1000 notes will be taken out of our system. As predicted by ICICI Securities Primary Dealership, the government’s plan to scrap Rs 500 and Rs 1,000 notes will uncover up to Rs 4.6 lakh crore in black money.

  • Terror funding

Fake Indian Currency Notes (FICN) network will be dismantled by the demonetisation measures. Taking out 500 and 1000 rupee notes out of circulation will have a lasting impact on the syndicates producing FICN’s, thus affecting the funding of terror networks in Jammu and Kashmir, north-eastern states and Naxalite-hit states.

  • Real estate may see significant course correction

The demonetisation decision is expected to have far reaching effects on real estate. Resale transactions in the real estate sector often have a significant cash component as it reduces incidence of capital gains tax. Black money was responsible for sharp appreciation of properties in metros; real estate prices may now see a sharp drop.

  • Political parties in crisis ahead of polls

With nearly five state elections in 2017, demonetisation has stunned political parties. Especially, in large states like Punjab and Uttar Pradesh, cash donations are a huge part of “election management”. In one stroke, big parties will find themselves hamstrung as cash hoards are often undeclared money. Parties will have to completely rejig campaign strategies in light of expected cash crunch.

  • Moving towards digital payments

Demonetisation is likely result in people adopting virtual wallets such as Paytm, Ola Money etc.: This behavioural change could be a game changer for India.

Demonetisation - 6

Along with all these, temporary chaos and agitations have started the day after the announcement of demonetization. The opposition parties have pounced upon the central government stating that the demonetisation has been done with no preparation to face the situation following the decision. Congress, AAP, TMC, RJD and Communist parties have questioned the decision of the government. Moving a step forward, Mamata Banerjee had called for Bharat bandh on November 28 urging the Centre to roll back on demonetisation.

Among all the opposition leaders, Bihar CM Nitish Kumar hailed the decision of the Prime Minister. He called the effort of Modi as riding on a tiger. Former Prime Minister, the man who is hailed as the reformer of the Indian economy, Dr Manmohan Singh said, demonetisation of Rs 500 and Rs 1,000 notes as a “monumental mismanagement ” that might dent GDP by 2%.

Deputy Commissioner of commercial tax enforcement wing, Mysuru, Giriyannavar said: “Business will be down for several months. As there is a limit on transactions, it is difficult to buy goods and services that costs high such as vehicles. The real estate business was racked up in the country and was almost impossible for the middle class people and the working class to own a site. The demonetization will hit hard on the real estate businessmen who were minting money with the struggle of the people.”

Retired Economics Professor, K M Bhat said: “For a good cause a little amount of sacrifice is always required. Earlier, when the Morarji government demonetised the notes of Rs 500 and Rs 1,000, those notes constituted hardly 20% of the money circulated. But today, it is up to 70% out of the total money in circulation. This will yield a good result in the future for the better India, and I appreciate the PM’s decision to demonetise the notes. I had to stand in queue outside the bank to get my money exchanged and to withdraw the money. Yes, it is difficult. But these little difficulties can end up with a better tomorrow.”

Is the demonetization is a timely decision?

The timing is curious for several reasons: the UPI (unified payment interface) system is likely to be fully operationalised only by January 2017. Would it have not been better to wait until then, if this move was to also spur India’s shift towards a cashless economy?

On the other hand, if this had been announced in advance it could have been self-defeating in nature; allowing holders of black money to convert their cash for gold or other forms of wealth instead.

The government is planning to implement property cards in the form of smart cards in its next moves. This card stores the entire data of the man who owns it with his property details. Apart from the entire buzz, chaos, uproars, hails, if the decision to demonetise the notes helps boosting the Indian economy and assures a better, corruption-free tomorrow, the little struggles do worth it!

By Shreeharsha C M

Simple Share Buttons