Demonetization in India (2016)

As I sit down to write this, India is already into 12th day of demonetization of 1000 and 500 rupee denomination notes, an event that brought unprecedented gloom and existential challenge into every single household in the country. Yet,as one ponders over the situation, its most outstanding feature is the unimaginable patience and forbearance shown by the common people in bearing the hardship. This, to a very great extent, is ascribable to the people’s faith in the good intentions of the country’s Prime Minister, Narendra Modi and his great concern for the welfare of the people, specially the poor.

2. In hindsight one can point out any number of ways in which a scheme of such horrendous magnitude could have been better implemented. Yet while it would be wrong to assume that government did not do its best in framing the scheme and planning its implementation in view of the very grave implications of any slip-up, yet one or two of its aspects point to the familiar feature of governmental working that its left hand does not know what the right is doing.

3. In the Prime Minister’s statement announcing the demonetization, it was acknowledged that 1000 & 500 rupee notes constituted 86% of the total currency in circulation.Thus it was obvious that people had very little, in fact negligible,smaller denomination notes. This realisation had dawned on the Reserve Bank of India and, just a few days before the demonetization announcement, it had issued instructions to all Banks that 10% of all ATMs in the country. should issue only 100 rupee notes. But demonetization came before these instructions could be implemented by Banks. The unfortunate result was seen when, post demonetization, even those people, who could replace their 1000/500 notes with newer 2000 notes, could not use them because those to whom they were offered could not give the required change in smaller notes. This was one of the biggest hardship causing factor in the working of the scheme.

4. The Prime Minister’s statement announcing the demonetization also acknowledged that the scheme would cause some temporary hardship to the people. But the impression gained was that it would be a matter of a few days. The scheme was announced on the 8th of November. It was mentioned that the Banks would remain closed on 9th November and reopen on 10th and the ATMs would start working from 11th November. It led people to assume that their difficulties would be assuaged as soon as the banks opened and the ATMs started working. The Banks did open on the 10th with unending queues of millions of people wanting to replace their outlawed cash but it soon became obvious that banks had very little cash to offer. The people realised that the problem would persist much longer than they thought. The bigger surprise, however, came when it was officially given out that only a fraction of the ATMs had become operational from 11th, as promised and even those were working only at a fraction of their capacity as these machines could not dispense the new 2000/500 denomination notes because the size of the new notes was different from the existing 1000/500 notes which the machines were calibrated to dispense. The recalibration of the ATMs to dispense the new notes would take weeks.

5. Obviously those who designed the new 2000/500 rupee notes were not aware of the impending demonetization because it had to be a closely guarded secret. But, more importantly, it appears that those who framed the implementation of the demonetization scheme were not aware that ATMs will not be able to work as usual from 11th November as mentioned in the PM’s speech and how this factor would upset the schedule for replacement of outlawed money. If they did know, one would assume that there should have been a hint in the PM’s speech.

6. From a few days, the PM had to later revise the duration of the hardships to the people to as much as 50 days. Obviously, the Prime Minister took responsibility on his shoulders for the shortcomings of the bureaucracy and those who worked out the implementation of the scheme.

7. There is still a long way to go for implementation of the scheme and all kinds of unexpected hazards can crop up. It is to be hoped that with government keeping an eagle’s eye on day to day developments and devising immediate responses to the problems that come up, there will be a successful culmination. It will indeed be a great achievement.

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One Response to Demonetization in India (2016)

  1. cj says:

    There are both aspects that needed further work the policy argiment which should have been examined, implementation which definitely could be better and don’t see serious thought on consequence management just seem to be running on hope

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