These days, those who are determined to see flaw in each and every action of the present government – come what may – are now blasting RBI/Modi for policy flip-flop on demonetization of 1000/500 notes. They cite issue of 60 notifications in 43 days after prime minister’s announcement on November 8, 2016. One must take note of the ‘background’ and ‘far reaching’ nature of the decision before jumping the gun.
It was taken in the backdrop of mountain of corruption and black money that had taken deep roots in all institutions of governance and at almost every point of their interface with the public. It had spread like cancer in every nook and corner of the human body. Besides, affecting economic growth, it had undermined the capacity of government to implement welfare programs for the poor.
True, black money is embedded in a host of areas viz., real estate, bullion, foreign currency, stashed abroad etc, and not just cash. But, the route to acquisition of all such assets is none other than cash. For instance, a person owning 10 flats [albeit in ‘fictitious’ names] would have used un-accounted/black money only to purchase them.
Therefore, it was absolutely necessary to do a surgical strike against undisclosed cash. Critics argue that hoarders of this cash are few [in a population of 130 crores] and the official machinery ought to have chased them instead of taking the demonetization route that has [allegedly] affected the common man and the poor.
The route may sound appealing but given the cumbersome procedures and the warped judicial processes, chasing each of the suspect persons is a herculean task and prone to inordinate delays [pursuing an investigation in court may take several years or even decades]. The chances of success in going through this route are bleak; it won’t address even a fringe of the problem.
In contrast, scrapping of currency has an instantaneous effect of devastating hoarders of black cash even as majority of those who have honestly earned their living and paid taxes on their income face absolutely no risk of losing their money. True, the latter face some pain/inconvenience as the cash they hold needs to be swapped/exchanged for new currency and that cannot happen immediately.
How much of inconvenience they have to undergo depends on the pace at which new currency is made available in requisite measure. Those who lash out at RBI ad infinitum for ‘alleged’ lack of preparations should note that supplying new notes in every nook and corner of the country ‘in-advance’ is a bad idea in principle. Doing so would have put the hoarders on full alert thereby defeating the very purpose of demonetization.
So, whatever preparations were needed could only be done after November 8. Since, replacement of mammoth currency of Rs 1500,000 crores [embedded in 1000/500 notes] even at maximum efficiency takes time, shortage is inevitable. Under such scenario, the RBI had no other option but to impose restrictions and rationing so as to prioritize essential uses and their exemption for specified period. That explains a plethora of notifications to begin with.
Those notifications needed to be revised in response to evolving situation on the ground. For instance, the initial cash withdrawal limit of Rs 10,000 for individuals was revised to Rs 24,000 per week as availability of new currency improved. Likewise, the weekly limit for small businesses was increased to Rs 50,000. Similarly, the limit for currency swap was raised to Rs 4500.
The authorities also needed to counter machinations of hoarders to convert their black in to white using ‘disingenuous’ methods. For instance, in initial days, the latter deployed hordes of persons [factory workers, laborers etc] to swap Rs 4000/4500 each. Such flagrant misuse compelled RBI to first reduce this limit to Rs 2000 followed by withdrawal of the facility.
The black money mongers also resorted to large-scale misuse of the accounts under Jan Dhan Yojna [JDY]. These accounts which had an accumulated balance of Rs 45,000 crores before November 8, saw a sudden surge to around Rs 74,000 crores [despite a ceiling of Rs 50,000 fixed for each account]. They have also opened ‘fictitious’ accounts to park their illegal wealth.
Unscrupulous persons also deposited thousands of crores in district cooperative banks [DCBs] during November 10-14. Owned mostly by individuals/politicians – these banks do not come under supervision of RBI even as their internal control systems are weak. They are also not equipped with modern technology [cannot even differentiate ‘fake’ from ‘genuine’ notes]. This forced apex bank to debar DCBs from accepting old currency notes.
There have also been numerous instances of the same person visiting the bank several times giving rise to suspicion that he may be using his/her account to launder some else’s money. This is what prompted the RBI to recently come out with an ill-fated circular dt December 20, 2016 [ tweaked on the next day under public pressure] requiring a person to deposit the entire amount at one go and provide a ‘satisfactory’ explanation.
Indians have the unique distinction of perfecting the art of JUGAAD [a euphemism often used for ‘manipulation’]. They are genius at finding ways to circumvent the law. Indeed, hoarders of black cash have used it to the hilt to convert it into white and escaping the consequences of demonetization. Modi – government is leaving no stone un-turned in beating them at their own game. If, that means issue of more circulars/notifications, so be it.
Any attempt to portray such actions as policy flip flop [Congress has degenerated to a point of even branding Reserve Bank of India as ‘Reverse’ Bank of India] only speaks volumes of a misinformation campaign by vested interests to demonize demonetization and discredit prime minister and his team which is relentlessly working to improve the lot of the poor and accelerate pace of growth.
1.3 billion people of India should ensure that these vested interests do not succeed in their nefarious designs and the country reaps full benefits of this historic and trans-formative decision.