View: Demonetization, Modi's biggest

move, is total bust

Bloomberg|
Sep 01, 2017, 01.12 PM IST

Some officials argued that the piles of cash the PM spoke of would be
“extinguished,” representing a transfer from black money hoarders to RBI's balance sheet.

By Mihir Sharma

When India’s prime minister announced last November that 86 per cent of India’s
currency would be worthless in hours, he presented the decree as a well-thought-out
measure to attack cash “hoarded by anti-national and anti-social elements.” We
were led to believe that honest taxpayers would line up to return their high-value
currency notes, but these “anti-national and anti-social elements” would be unable to
do so without raising suspicion.

In the words of Finance Minister Arun Jaitley: “Obviously people who have used
cash for crime purposes are not foolhardy enough to try and risk and bring the cash
back into the system because there will be questions asked.”

Well, if that’s true, then apparently nobody in India is dishonest -- because,

according to the Reserve Bank of India’s long-delayed accounting, more than 99
percent of the cash in circulation has been returned. This isn’t surprising. Indians are
not the idiots their government seemed to imagine. Within days of the
“demonetization,” a dozen methods to launder piles of cash had been pioneered.
Instead of the world’s best-planned attack on black money, India’s government had
launched the world’s biggest legal money laundering scheme.

Eight months on, no argument advanced by the government or its backers in favor
of demonetization has been validated. Some officials argued that the piles of cash
the prime minister spoke of would be “extinguished,” representing a transfer from
black money hoarders to the Reserve Bank’s balance sheet which the government
could use, say, to recapitalize India’s struggling banks. That hasn’t materialized, and
in fact the RBI has given far less than usual to the government this year.

Some said that counterfeit currency would be exposed; in fact, it’s less than 0.0007
percent of the cash taken in. The prime minister himself argued that demonetization
would “break the back of terrorism” by cutting off sources of funding. Instead, this
has been among the bloodiest summers for Indian security forces in Kashmir. This
week, Jaitley argued that the move would change Indians’ behavior, encouraging
them to use digital payments instead of cash; but as I’ve pointed out in the past,
demonetization is the exact opposite of what Cass Sunstein would call a “nudge.”

Demonetization 2016 in India will adversely

impact Indian Economy

Group Discussion round in some of the top B-schools has started while in others it is going to
begin shortly. Number of participating candidates in each GD round could go from 8 to 12. The
time allotted for GD is around 15 to 20 minutes. The GD round winner is usually the candidate
who knows well the topic, its pros & cons and does not criss-cross his own ideas. Besides one
who make 2-3 entries in the round is considered as a good candidate.

Understanding the topic - Demonetization 2016

On November 8, 2016, the Prime Minister of India, Narendra Modi announced the
demonetization of all Rs.500 and Rs. 1,000 denomination banknotes of the Mahatma Gandhi
Series. The demonetization announcement made the use of Rs.500 and Rs.1000 banknotes
 invalid past midnight of November 8. It was announced that the new Rs.500 and Rs.2000
banknotes of the Mahatma Gandhi new series would be introduced in exchange for the old
banknotes.

The objective of demonetization as claimed by Government of India was to curtail the black
money running as shadow economy and to stop the use of counterfeit cash to fund illegal activity
and terrorism. The sudden nature of the announcement—and the prolonged cash shortages in the
weeks that followed—created significant disruption throughout the economy, threatening
economic output. The demonetization move was heavily criticized as poorly planned and unfair,
and was met with protests, litigation, and strikes.

The announcement was sudden and unscheduled. It was a live television address at 8PM on
November 8, 2016. In the days following the demonetisation, the country faced severe cash
shortages with severe detrimental effects across the economy. People seeking to exchange their
bank notes had to stand in lengthy queues, and several deaths were linked to the inconveniences
caused due to the rush to exchange cash. As the cash shortages grew in the weeks following the
move, the demonetization was heavily criticised by prominent economists and by world media.

Choose a clear path- merits or demerits of demonetization

You may get not more than 1 minute while speaking for or against or taking a balanced view on
demonetization and its impact on economy. The only thing is that you should be well aware
about the topic and only this can lead you to speak the way you think is right. Besides, once
someone else is speaking you may carefully listen to him and later try to get in and speak out
your view point. Please remember do not criss-cross your own stand.

Merits-Demonetization favours Economy

 Demonetization policy of the Government has been termed as the greatest financial reform that
aims to curb the black money, corruption and counterfeit currency notes.
 All the people who are not involved in malpractices welcomed the demonetization as the right
move.
 Demonetization will help India to become corruption-free as it will be difficult now to keep the
unaccounted cash.
 Demonetization will help the government to track the black money and the unaccounted cash
will now flow no more and the amount collected by means of tax can be better utilized for the
public welfare and development schemes.
 One of the biggest achievements of demonetization has been seen in the drastic curb of terrorist
activities as it has stopped the funding the terrorism which used to get a boost due to inflow of
unaccounted cash and fake currency in large volume.
 Money laundering will eventually come to halt as the activity can easily be tracked and the
money can be seized by the authorities.
 Demonetization will stop the running of parallel economy due to circulation of fake currency as
the banning of Rs.500 and Rs. 1000 notes will eliminate their circulation.
 The unaccounted cash can be deposited in the Pradhan Mantri Garib Kalyan Yojana after paying
50% tax. The money will remain deposited for 4 years with the bank without incurring any
interest. However, after 4 years the amount will be returned. This amount can be utilized for
social welfare schemes and making the life of low income groups better.
 The Public Sector Banks which were reeling under deposit crunch and were running short of
funds have suddenly swelled with lot of money which can be used for future finances and loans
after keeping a certain amount of reserve as per RBI guidelines.
 The people who opened the Jan Dhan accounts will now use their accounts and become familiar
with banking activitiy. The money deposited in these accounts can be used for the developmental
activity of the country.
 The tax collected due to launch of demonetization policy will be put to developmental activities
in the country.
 Demonetization has driven the country towards a cashless society. Lakhs of the people even in
remote rural areas have started resorting to use the cashless transactions. The move has promoted
banking activities. Now even the small transactions have started going through banking channels
and the small savings have turned into a huge national asset.
 The high rising price pattern and inflationary trends which the Indian economy was facing are
taking a down turn making the living possible within low income group reach.

Demerits-Blow to economic growth and inconvenience all around

The very next day of announcing the demonetization, the BSE Sensex and NIFTY 50 stock
indices fell over 6%. The severe cash shortages brought detrimental impact on the economy.
People trying to exchange their bank notes had to stand in lengthy queues causing many deaths
due to inconvenience and rush.
 The sudden announcement has made adverse impact on business and economy. Instead of a
growing economy India has become a standstill and no growth economy. It is fearedthat a fall of
2-3% in the GDP growth will be recorded coming year.
 India is an agriculture based economy. Due to the cash crunch, the farmers especially small and
marginal who largely depend on cash to buy seeds, fertilizers and to pay for sowing, borrowing
water for irrigation and for other related agriculture equipments remained worst affected and
could not complete the crop related activity.
 Since small branches of the banks were also not supplied with adequate cash within time of
sowing season of the crop, farmers could not get their crop loans disbursed. This added to the
woes of the farmers leading to a weak agriculture production the coming year.
 Real Estate sector came to a stand still and is still gasping for buyers of the constructed and half
constructed inventory without buyers. This has resulted in poor cash flow leading to a poor
demand.
 Demonetization has made the situation become chaotic. Tempers are running high among the
masses as there is a delay in the circulation of new currency.
 Due to the inability to pay cash to poor daily wage workers, the small employers have stopped
their business activity.
 The poor planning on the part of the government has also added to the woes of the common
people with low incomes. The Rs.2000 currency note does not find many takers as it is difficult
to get the balance back when you are buying daily needs like vegetables, milk, bread or paying
for petty expenses like bus fare. While rs.100 currency notes were not available in sufficient
number, Rs.500 note arrived in the market very late.
 Demonetization is the 2 way sword in regard to incurring the public expenditure. On the one
hand huge cost is to be incurred on printing the new currency and on the other hand managing
the lakhs of crores of old currency volume has also become a big expenditure incurring item.
 Many Economists are of the view that Rs.2000 currency note will be much easier to hide and can
be used to store black money in shorter space.
 Entire opposition has stood against demonetization and has called this decision a draconian law.
Although the Government thinks that the demonetization will have favourable impact in future,
the present condition of uncertainty and chaos speaks otherwise.

Demonetization In India: A Boon Or A Bane

For The Common Man

(pic: Nikkei Asian Review)

It came as a surprise to everybody after our PM Narendra Modi declared on trashing the
500 and 1000 rupees notes. PM’s move on banning the respective notes certainly may be
the ray of hope to sweep out corruption and a boon to every tax-payer. The attempt to
wipe out black money and corruption might be rigid, however was it really a well-planned
move?

Most of them had this question in mind as they were unaware of the reason behind such a
drastic change. Usually skeptical to changes is typical among Indians.

However, let me point out few reasons which were the positive part of this decision was-

1) To stop the funds that were transferred by terrorists,

2) Put an end to the circulation of fake currency notes,

3) Wiping off the corruption of black money

4) Bring up the indian economy for a better tomorrow including real-estate and gold where
most black money were grounded
5) Digitalization being the forte

(pic: feegenie)

Digitalizing India to have a cashless policy where every Indian would either use online
transactions or swipe their card for the smallest of uses. This will help in maintaining
harmony and discipline among people and the crocodiles out there to fill the country with
filth would step back from corruption. Although the Constitution has many loopholes, which
in turn could backfire this attempt, as we have other ruling parties that may unite to stand
against the good cause as it involves the government. The government did not pay heed to
the fact that they may not be in power by the next elections, still took a step towards a
better tomorrow.

(pic: The New Indian Express)

Aiming at combating corruption or black money, short-term problems and chaos spread
among the working class; especially those that deal with cash on a daily basis. During this
change, most of the working class people had to stand in queues to withdraw a basic
minimum amount of cash from banks or ATMs, where many small businesses run on liquid
cash. The effect on urban consumers, small and large businesses will be prominent as this
move will seem to be crippling down in the sort-term. The semi-urban and rural sections
will take more time than urban areas to cope up with the change, however the shortage of
smaller denominator notes will create more chaos. People with stationery shops, daily
wagers, auto-drivers, small businesses that involve services providers like electricians,
plumbers, upholsters, handyman, even online e-commerce companies that do not have
online payment facilities had to capitulate to the situation. After a point, other
denominations which are less than 2000 and 500 notes will get impacted and there would
be requirement for smaller currencies in the next few weeks. The incurred loss during these
days cannot be mended or attained by them.
 (pic: BGR)

Assuming the attempt to clear out corruption wasn’t a planned process, the brunt that the
common people have been facing since that night was not justified either. The chaos
alerted common man driven towards a negative thought-process which led them to fear
lack of cash in hand, as this would affect them while travelling, purchasing necessities and
other emergency requirements. The initial turmoil to any huge change can be adjusted
however, when common man being effected for an unexplained period of time makes them
anxious and weary about the situation. Infact many government hospitals and medicine
stores refrained from accepting 500 and 1000 rupees notes which was not as per the
declaration by PM. Most private entities and organisation neither compromised nor came
as a help to common citizens during this crisis, as they were afraid of being penalised by the
government.

(pic: change.org)

Standing behind long queues in the bank each day to withdraw nominal amount which is
insufficient however, lately the weekly withdrawal was increased to soothe the civilians
from unrest for the time being. Although this effect did not hamper the rich as most of their
transactions were online, nonetheless the working class faced the brunt and are still going
through the same.

(pic: local press co.)

The controversy of introducing Rs.2000 note coined several doubts on the government as
to what could the strategy be? Moreover seemed like an unsolved mystery. Although this
demonetising step has the potential to pin down the small rogues, scrape off the illegal
transactions in real estate, gold and other sectors where circulation of unaccounted money
was vigorous. Mostly the daily wagers, cash related businesses and services were under a
huge loss and had succumbed to the currency crunch. There wouldn’t have been shortage
of cash in banks and ATMs (the new 2000 and 500 notes) and people who belong to
working class would not have been the victims of the crisis if the idea to demonetise would
have been more planned. Plus, the primary focus should be on recovering the safeguarded
money of people kept in the overseas.

(pic: local press co.)

(pic: hiimpact)

A lot of corruption came into notice which can be called as the demonetising effect. Various
unaccounted money in the form of real-estate and gold were discovered from certain
section of people. True though that the act could be a start of a new economy for India. The
utmost that indian citizens can give away during this crisis is patience as they work hard,
pays tax and compromises to anything that could be good for the country. Hoping to see
the world of digitalization strike in India and making the people aware of benefits of
transacting digitally.