On 8th November 2016, the Modi Government made a shocking announcement. The Rs. 500 and Rs. 1000 notes were going to be banned on midnight. Poof! Just like that, no warning. This move by the Government, aka demonetisation, in an effort to fight black money, sent alarm bells ringing all over the country. While a lot of people have commended the Government on this bold move, there was also the consensus that this move was an implementation disaster and would adversely affect the country’s economic growth. Big time.
WTD reviews this move so that you can decide if you’re for or against it.
PRO #1: Powering the banking system
Since the demonetisation of Rs. 500 and Rs. 1000 notes on 8th November 2016, around 4 Lakh crores have been deposited in the banks (as of 22nd November 2016). The cash that was being kept at home as savings was not being productively used to boost the Indian economy. Now that it’s in the banks, the money can be utilised for investment purposes and to give loans to emerging business in the country. The unproductive money has come under circulation and is directly or indirectly contributing to the economy.
CON #1: Ignoring the money in Swiss banks
The demonetisation scheme largely targets the black money held by the general public of the country and is meant to scare away the common people from evading taxes and hoarding currency. However, it doesn’t address the crores of rupees that people have hidden from the Indian Government in Swiss banks. Many politicians and influential people have questioned the Government about what it’s doing with the money in Swiss bank accounts (which is held by the wealthier sections of the Indian population) and criticised it for only troubling the common man (who comparatively hoards much smaller amounts). India has been engaged in talks with Switzerland to share information about its account holders but the progress on this front needs to be as prompt as the demonetisation scheme.
PRO #2: Snipping of black money
Around 86% of the currency in circulation was in the form of Rs. 500 and Rs. 1000 notes and now this 86% of the currency has been scrapped off along with the value it represents. The only way of getting new notes is by exchanging them in the banks; thus if people try to exchange more currency than what they should legally have they will immediately be caught and prosecuted. Unaccounted and untaxed income cannot be exchanged or deposited in the banks and would be as valuable as the paper it’s printed on. This is a brilliant way of dealing with black money, which was a big economic problem for India, because it doesn’t rely on the citizen to be honest like the wealth disclosure schemes in the past. It directly makes the black money illegal regardless of public consent.
CON #2: Targeting only cash
A lot of unaccounted assets with people are in the form of assets other than cash. These hidden incomes are in the form of gold, properties, etc. and people often buy these assets with fake identities, aliases or with the names of their relatives or friends, making it difficult to track. People will continue to posses these illegal assets if no step is taken against the other forms of tax evasion as well. After declaration of demonetisation, many Indians with black money rushed to jewellery stores and bought a lot of gold from their unaccounted income. To truly be a successful attack on black money, these other assets need to be looked at too.
PRO #3: Big blow to counterfeiting
Counterfeiting has been a major problem for the country. When fake notes flow into the country, the economy is greatly disturbed due to unaccountability. Most of the fake Indian currency notes of Rs. 500 denomination come from Pakistan and are smuggled into India through other bordering countries. This fake currency is also allegedly used for funding terrorist activities in the country. These fake notes are printed by high-quality machines which create a copy of the original ones. The machines are only equipped to make copies of old notes, and it would be very difficult to create copy of the new ones as the new notes have their own unique identification features that would be very difficult and time-consuming to replicate.
CON #3: Perpetuating fraud
Despite this major step being taken by the Government to stop the circulation of black money, people have found a way to filter their money. After the announcement was made, the Rs 500 and Rs 1000 notes were being traded for a lesser value like Rs 400 or Rs 800 respectively or even lower while the difference was taken as commission for the exchange. People are ready to exchange their old notes for valid currency for whatever value they get (something is better than nothing) just so they could keep their wealth and not have to pay the 200% penalty on it.
PRO#4: Changing public mentality
Demonetisation has had a major impact on the way people think and react to the Government. A callous attitude had built up among the people towards authority in the country. Corruption had built up to a level that the public felt like nothing will happen to them if they break a few small laws.
This mentality has now been completely shaken. People who didn’t declare their black money, thinking that the Government won’t do anything to them, or even if it does they’ll somehow get out of it, are now finding themselves in a soup. They’ve started fearing the authority and stopped taking laws lightly. Simultaneously, a major shift towards a cashless economy is taking place and more and more people are opting for cashless measures of payment and acceptance. This changing mentality should benefit the country in moving towards a more transparent and ethical economy.
CON #4: Major implementation failures
The sudden decision by the Government has created chaos not only in the banking system but in the whole country. Long queues in the banks, limited ATMs dispensing new notes and shortage of the new currency have caused major inconveniences to the people. Cases have been observed where people have died standing in ATM queues. A little boy was denied admission to a private hospital because the doctors demanded payment in cash. This whole demonetisation process was very abrupt and could have been more organised and formulated. Most arguments against this scheme hinge on the fact that the implementation was severely lacking.
We surely appreciate this bold move taken by the Prime Minister, taking such a big decision and going against so many powerful people is a very tough thing to do. But, a move like this is bound to make many people unhappy.
However, the implementation did not go too well, PM asked the people of the country to co-ordinate with the government and bare with these problems for a couple of days. These problems could have been taken care of by a proper and organised implementation of a demonetisation scheme. The poor people are the ones who have actually been affected as they transact through cash only and earn on a daily basis. Even though these problems are short term and demonetisation is part of a long term goal, the inconvenience caused cannot be ignored.
This big step will not completely wash away the black money but will surely filter and funnel the economy of the country.