The first thing that strikes my mind whenever I hear the word Demonetisation is a reminder of my school days. There were times when the classroom resembled more like a crowded bus and it was quite difficult for the teachers to catch the ones causing the commotion, as a result of which, not only the mischievous fellows who were the real cause, the whole class, including the ones who barely had any idea of what they’ve done, got punished!
“Demonetisation” The announcement made by the Prime Minister of India, Mr.Narendra Modi in an unscheduled live televised address at 20:15 pm (IST) on 8th of November 2016 came as a shock as well as surprise for the citizens and media alike. In the announcement, Mr. Modi declared that use of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series would be invalid from midnight of the same day and announced the issuance of new ₹500 and ₹2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes. However, the use of the banknote denominations of ₹100, ₹50, ₹20, ₹10 and ₹5 of the Mahatma Gandhi Series will remain legal, unaffected by the policy.
The government claimed that the demonetisation is an effort to stop counterfeiting of the current banknotes allegedly used for funding terrorism, as well as a crack down on black money in the country. The move was described as an effort to reduce corruption, the use of drugs, and smuggling. However, In the past, the Bharatiya Janata Party (BJP) had strongly opposed demonetisation. BJP spokesperson Ms. Meenakshi Lekhi had said in 2014 that “The aam aurats and the aadmis, those who are illiterate and have no access to banking facilities, will be the
ones to be hit by such diversionary measures.” Though his was before Mr.Narendra Modi launched Jan Dhan Yojana to include the poor into the banking system.
But, the scarcity of cash due to demonetisation led to chaos, and most people holding old banknotes, faced difficulties to exchange them as endless lines outside banks and ATMs across India, became a daily routine for millions of people waiting to deposit or exchange the ₹500 and ₹1000 banknotes since 9th of November, 2016!
Moreover, with the ATMs running out of cash after a few hours of being functional, and around half the ATMs in the country being non -functional, sporadic violence broke out amidst people standing in the queues to withdraw exchange or withdraw their money. Even reports of many grievous injuries, people attacking the bank premises and ATMs, and shopliftings came to view. Several people were reported to have died from standing in queues for hours to exchange their old banknotes. Deaths were also attributed to lack of medical help due to refusal of old banknotes by hospitals. As of 15 November 2016, the attributed death toll was 25. However, according to some recent polls, it is said that panic after demonetisation started fading on 19 November 2016.
The cash shortages had detrimental effects on a number of small businesses, agriculture, and transportation, while people seeking to exchange their notes had lengthy waits, and several deaths were linked to the rush to exchange cash. The Stock market crash which was a result of
the combined effect of demonetisation and US presidential election, dropped to an around six- month low in the week following the announcement. About 800,000 truck drivers were affected with scarcity of cash, with around 400,000 trucks stranded at major highways across India were reported.
The major highway toll junctions on the highways also saw long queues as toll plaza operators refused the old banknotes. Agriculture Transactions in the Indian agriculture sector are heavily dependent on cash and were adversely affected by the demonetisation of ₹500 and ₹1000 banknotes. Due to scarcity of the new banknotes, many farmers have insufficient cash to purchase seeds, fertilizers and pesticides needed for the plantation of crops usually sown around mid-November. Farmers and their unions conducted protest rallies against the demonetisation as well as against restrictions imposed by the Reserve Bank of India on district cooperative central banks which were ordered not to accept or exchange the demonetised banknotes.
Several State Bank of India branches remained open at night, and long queues of people waited outside the ATM to withdraw money. In the first four days after the announcement of the step, about 3 trillion rupees in the form of old ₹500 and ₹1000 banknotes had been deposited in the banking system and about 500 billion rupees had been dispensed via withdrawals from bank accounts, ATMs as well as exchanges over the bank counters. Within these four days, the banking system has handled about 180 million transactions. The State Bank of India reported to have received more than ₹300 billion in bank deposit in first two days after demonetisation. A spike in the usage of debit card and credit card post demonetisation was also reported. In Malda, a district believed to be a transit-point for fake Indian currencies, a large sum of cash deposits in dormant accounts were also reported. According to The Economic Times, more than 80 percent of fake currency in India originates from Malda district in West Bengal.
By the second week after demonetisation of ₹500 and ₹1000 banknotes, cigarette sales across India witnessed a fall of 30–40%, while E-commerce companies saw up to a 30% decline in cash on delivery (COD) orders. Several e-commerce companies hailed the demonetisation decision as an impetus to increase digital payments. They believe that it would lead to a decline in COD returns which is expected to cut down their costs. The demand for point of sales (POS) or card swipe machines has increased. E-payment options like Paytm and PayUMoney has also seen a rise. Income Tax departments raided various illegal tax-evasive businesses in cities that traded with demonetised currency. In fact, more than 300 Naxals have surrendered to the police voluntarily due to shortage of funds.
But then, the debate of demonetisation doesn’t stop there. There are several allegations regarding the prior leakage of information as well.
1. Several exact details pertaining to the decision to demonetise the notes had been published on 1 April 2016 in a Gujarati newspaper called Akila, including for instance, that there would be around 2 months’ time to exchange banned notes, and that new notes in the ₹2000 denomination would be issued. With the editor of the newspaper claiming the incidence to be an April fool’s day prank, the matter may have got dismissed, but chances of such co-incidences, well that’s truly rare!
2. A fortnight before the official announcement, a news report in Hindi daily Dainik Jagran quoting RBI sources mentioned about the coming release of new 2000 rupee note and alongside withdrawal of prevailing 500 and 1000 rupee notes when it is released. Well if that’s not what prior information means, then what is?
3. A businessman reportedly admitted in an interview, that he had received prior warning of the impending demonetisation from a source in the government, and that he had sufficient time to convert most of his money into smaller denominations. Seems like the man has put himself in neck deep trouble!
4. The Chairman of the State Bank of India had also openly spoken in April 2016 about the possibility of demonetisation of ₹500 and ₹1000 notes. A government based bank after all!
5. A BJP MLA from Rajasthan, Bhawani Singh Rajawat, claimed in a video that ‘Ambani and Adani’ were informed about the demonetisation, and made arrangements. However, he later said that it was an off-the-record conversation, and officially denied the comments. May be if not so, people would have lost their faith!
To conclude, the decision of induction of new notes and banishing the old ones met with mixed reactions. While The chief minister of West Bengal called the declaration a drama, and also met the President Mr. Pranab Mukherjee to oppose demonetization, several bankers appreciated the move in the sense that it would help curb black money. Lots of citizens supported the move adding that it would also accelerate e-commerce, and praised the move.
In sort, with so many pros and cons of its own, it’s nothing but an attempt to help the people of the nation stabilize their economical balance.