Demonetisation – Government in a Fix?

From all indications available today, demonetisation does not appear to have been a very bright idea, particularly since it was not backed up by a fool proof plan for execution.

Life is a little confused for most Indians today since the demonetisation announcement on 08 November 2016. But surprisingly not many are complaining even from among those who have reasons to complain. As of now complaining and bickering is restricted to politicians from the opposition and a small section of population who had hordes of currency notes stashed away since the move has upset their comfort level which they had taken for granted for many decades.

So far the common man on the street has taken the demonetisation bouncer on the chin and has withstood the pain in the overall interest of the nation. He was happy that at last the government was targeting the corrupt and dishonest citizens. For the first few days most had a ‘feel good factor’ about the whole move which is surely on the wane now. His only concern as on date is the fact that the banking system, even after a month, is still not geared up to meet his meagre requirements of cash. His restraint and patience has been exemplary barring a few isolated incidents. Will it last if things do not become normal in next few days? A difficult question to answer and one can only hope that the worst is over and there is little danger of the situation going out of hand where people resort to rioting or violence on the streets.

The demonetisation drive has hit the politicians where it hurts most. It is obvious they were all taken by surprise and that must be another reason why they are so upset. In India, most politicians have a knack of knowing what is going to come, particularly when it relates to money. Today most of them are as confused as a chameleon in a bag full of skittles. This has resulted in their collective failure to chart out a common agenda to take on the government on this issue in the parliament.  The net result has been a total chaos in the parliament where the winter session is likely to be a total wash out.

There are tall claims that terror activities in the Kashmir valley and Naxal activity in some parts of the country have taken a major hit. Frankly such claims are more political rhetoric than a reality, particularly when it comes to terrorism. Last few days have seen heightened terror activity in Jammu & Kashmir that punctures government’s claims. As far as Naxal activity is concerned, they will bounce back sooner than later since they work on basis of fear and coercion to collect funds. Once there is enough currency in circulation, there is no reason why they will not be back to what they normally do. Surely it will be foolish to make a case that terrorists and Naxalites depend solely on counterfeit money for their various activities.


It does appear that the government has been taken by surprise by the extensive misuse of tax concessions given for agricultural income and the laxity of accounting practices in religious institutions for conversion of black money to white. Use of Jan Dhan accounts of the poor for parking black money has become a major issue. Surprisingly the Prime Minister has openly urged the poor not to return the money deposited in their accounts by others. Does it mean that the government is not in a position to tackle this problem? Is the Prime Minister openly trying to pitch the poor versus the rich? If this happens on large scale based on the Prime Minister’s urging, will it not lead to violence and mayhem where the poor will again be the biggest sufferers? After all those who have parked their unaccounted money in such accounts are certainly not decent law abiding citizens. In all likelihood they will be part of local mafia or mafia supported people in rural and semi rural areas where their writ runs large. Surely the Prime Minister’s statement was not only base in nature but also unbecoming of someone holding the highest elected position in the country. Above all it will be naive to assume that most of the Jan Dhan account owners allowed the use of their accounts for free. Most would have made some easy money from this bargain.

The government has emphasised repeatedly that it intends to take the defaulters to task by scrutinising the deposits in banks. The point that emerges here is that if the government takes a vindictive approach, the officers at the execution level will make merry by harassing one and all. If that happens, the public, more importantly the honest or nearly honest tax payers will be the biggest losers. If the government stands by its declared stand of not asking any questions on deposits of up to rupees two lakh fifty thousand then many defaulters may have the last laugh. In all probability it may be more prudent for the government to ensure that the honest tax payer is not harassed even it means that some defaulters may go scot free. It is time to focus on the bigger defaulters and the middlemen or operators who act on their behalf.

As far as the government is concerned, it has taken a big gamble by initiating demonetisation. It is obvious that it did not factor in all the likely problems that it seems to be addressing now in a knee jerk manner on a daily basis. More importantly the government is not even sure if the much talked about aim of the whole exercise to curb black money and related corruption is valid anymore since nearly 75% of the estimated 15 lakh crores of the high denomination currency has already been deposited in the banks. There are still more than three weeks to go before the deadline for depositing old notes comes into force so this figure is certainly going to be higher. It is obvious that the hoarders of black money in collaboration with middlemen, hawala operators, accountants and some bank officials have found many ingenious ways to successfully circumvent the checks and balances put in place by the government. Round one surely belongs to this syndicate and not to the government.

The government is now talking of a digital payment revolution and trying to project that as the main aim instead of black money and corruption. Digital revolution is not a bad idea at all but expecting it to take place in a vast country like India in a matter of weeks or few months is sheer fantasy. Lack of education, lack of trust in banking and similar institutions, lack of internet penetration and reliability, the mind set of feeling secure with hard currency are just some of the inhibitors for such a revolution today. The government has to first address these issues to prepare grounds for the desired digital revolution.

The government must take this opportunity to do some introspection with respect to the corrupt practices within its own ranks and systems. It is time for the ministers and senior bureaucrats to take the onus to prevail on their subordinates through personal examples, good will, coercion or use of the stick to do their work diligently and honestly in a pro active manner to ease public pain instead of increasing it every time they are approached. In the fight against corruption the tone has to set by the authorities and not by the public. The government has to address the issue of corporate loan defaulters who have literally looted the banks at will over the last few decades. Political funding is another area that needs to be addressed on priority if the government wants to enhance its credibility in the fight against corruption.

From all indications available today, demonetisation does not appear to have been a very bright idea, particularly since it was not backed up by a fool proof plan for execution. It is equally true that there is no going back at this stage. Therefore the immediate focus now has to be on how to get the required volume of currency back in circulation to bring some normalcy in the common man’s life. The government did act in haste but unfortunately it does not have the luxury to repent at leisure

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