The Modi government’s decision to ban Rs 500 and Rs 1,000 notes creates a huge problem for the common people as banks fail handle the huge rush of people wanting to exchange their money. What impact will this have on the economy?
Last week, in a bid to clampdown on black money, the government withdrew Rs 500 and Rs 1,000 notes from circulation with immediate effect. Reserve Bank of India (RBI) data suggests that the proportion of Rs 500 and Rs 1000 notes were 86.4% of total value of notes in circulation on March 31, 2016, amounting to Rs 14 trillion. The growth rates in these notes were 76% and 109% respectively in the last five years versus overall currency in circulation going up by 40%, points out a Citigroup note.
When Prime Minister Narendra Modi on November 8 said that Rs 500 and Rs 1,000 currency notes would cease to be legal tender within a few hours of the announcement being made, the demonetisation move was lauded by some as a major assault on the flow of black money, fake currency and corruption. Even as most people rushed to get their existing currency notes exchanged, few could foretell the extent of cash crunch that would befall the common man in the days to come.
However, ever since banks and automated teller machines (ATMs) resumed exchange of old notes and withdrawal of new currency, the queues for these seem to only be growing. While some continue to laud the government for its initiative to cleanse the economy for the longterm good, many Indians have been facing immediate hardships for want of usable cash in hand.
There also have been reports of some people resorting to illegal means to exchange their cash and some others profiteering through assisting them for monetary benefits.
In view of these issues and to address the present crisis, the government on Tuesday evening came up with a number of steps. Shaktikanta Das, secretary in the department of economic affairs, Ministry of Finance, briefed the media earlier in the day. He tried to build confidence among people by saying that the situation was improving gradually and would ease further in the coming days. Das also listed seven steps that the government was taking.
The historic step of the Centre to ban old high-value currency notes in a bid to combat corruption and black money has brought some bad news in its wake. 25 people have been reported dead in several parts of the nation due to demonetisation drive within a span of a week, the real number could be more. Some of these unfortunate people died standing in queues, others when some medical shops, hospitals and local vendors refused to accept Rs 500 and Rs 1,000 notes.
In a tragic incident, a child died in the Bulandshahr branch of Kailash hospital, owned by union culture and tourism minister Mahesh Sharma, as his parents had only old currency notes and the hospital administration allegedly wanted him to deposit an advance of Rs 10,000, reported The Huffington Post. Another major case reported from Surat (Gujarat) where a 50-year-old woman committed suicide. The mother of two was not able to buy ration to feed her family because the ration shops refused to accept old currency notes.
There have been other cases of businessman dying out of chest pain just by hearing Prime Minister Narendra Modi’s November 8 speech where he announced the government’s demonetisation plan of Rs 500 and Rs 1000 currency notes.In one such incident, a young man died of heart attack in Kanpur. The man had received Rs 70 lakhs in advance for selling his land just the previous day of the announcement. He had been trying to sell his land for months.
Cases of death related dowry have also been reported as a 45-year-old man from Kaimur in Bihar have died because he thought that the Rs 35,000 he had saved will no longer be accepted by the in-laws of his daughter.
Meanwhile, the release of films in the state has been postponed until the currency crisis is over. Sales of lottery tickets and liquor, the main sources of tax revenue for state government, have come down drastically.
Now, unabated queues outside automated teller machines (ATMs), feedback that its ‘note ban’ has negatively impacted small traders, farmers and those planning weddings, a rattled Narendra Modi government on Thursday announced several exceptions to provide relief to sections of the public.
The government rejected the Opposition demand for a joint parliamentary committee, or JPC, probe into reports that the information about ‘note ban’ was leaked before the PM announced it to the nation, but also thought it necessary to clarify there will not be a rollback to its demonetisation scheme.
However, both sides held uncompromising positions at the end of the day. The Opposition maintained it won’t let either of the Houses to run if the PM is not present, while the government asked the Leader of Opposition in the Rajya Sabha Ghulam Nabi Azad to tender an unconditional apology for comparing the 40 deaths to demonetisation to have been less than the number of Indian Army jawans that Pakistan-based terrorists killed in Uri in Jammu & Kashmir in mid-September.
In the Lok Sabha, the government agreed to suspend the Question Hour for a discussion on demonetisation. However, the Opposition wanted it to be held under a rule that would have entailed voting. The Speaker rejected the demand. Opposition leaders wondered why the government, which has an overwhelming majority in the Lok Sabha, was scared of a vote on the issue.
While Azad refused to tender any apology, the Congress leadership said the government had picked on his comments to deflect attention from the hardships that people are suffering because of demonetisation. Government strategists claimed the Opposition was frustrated at being outmanoeuvred by the PM on the issue and not allowing Parliament to run.
Here are the seven steps that the Centre is planning to take to check illegal activities and to improve the situation for people:
Indelible ink Some people had been exchanging the demonetised currency notes multiple times, even as others were not able to do so even once. The government is planning to use indelible ink marks, which will be applied at cash counters to avoid same people exchanging money multiple times.
Turning to god The government is also encouraging religious institutions to deposit currency notes of smaller denominations in local banks, so that the banks are flush with enough cash in these denominations to dispense to people.
Jan Dhan accounts Many accounts of people from the weaker sections of society that were opened under the government’s ambitious Jan Dhan Yojana were being used by the moneyed to deposit unaccounted cash in smaller instalments. The government is now keeping a close watch on deposits in these accounts.
No misuse of bank accounts The government has also appealed to the holders of Jan Dhan accounts not to let their accounts be misused by others to deposit their black money.
Task force A special task force has been set up to monitor the infusion of fake currency notes and deposit of black money into the system.
Ensuring supply of provisions Recently, there were reports of a sudden spurt in the prices of some essential commodities, mainly due to rumour-mongering about a scarcity. Now, the government is going to closely monitor the supply of essential commodities in the economy.
Crackdown on social-media rumours The government has also appealed to people not to believe in or spread rumours being peddled through various social media platforms that certain institutions are going on strike.