When a currency in circulation loses its value in exchange due to a legal notification by a competent authority, it is called demonetisation. In effect, it loses its legal tender and cannot be used to repay an obligation or satisfy a right or want in monetary terms. The reasons for demonetisation could be many, such as diminution in its value to a degree that transactions of such small value are no longer conducted, or that wear and tear (due to usage) has brought the currency to a dilapidated or unidentifiable condition, or any abnormal condition whereby replacement of the currency is felt necessary by the competent authority.
The recent sudden demonetisation of currency of the higher denominations of ₹500 and ₹1000 by the Government of India is due to such abnormal condition. It was the prevalence of unaccounted wealth and fake currency that compelled the Government of India to demonetise its higher denominated currency to prevent loss to the exchequer and prevent terrorist and disruptive forces from causing harm to the people and havoc to the national security. Such an act was unprecedented in the history of this nation. It has been described as a ‘surgical strike’ against the dishonest and nefarious elements of the nation.
The need for demonetisation was suggested by the Wanchoo Committee in 1971 to curb the menace of black money. Up till now, for reasons best known to them, no previous government considered it worthy of being implemented. Few things thus become apparent:
1. That greed for acquisition of wealth by the citizens of the nation overrode all civil and legal considerations and violation of the law was common.
2. That the law enforcement agencies, due to their indulgence and incompetence, had failed to enforce these laws to ensure probity, accountability, transparency and austerity in the Indian society.
3. The technology, techniques and security had become obsolete, and loopholes existed in the system whereby the generation and distribution of this currency by unauthorised persons was easy, untraceable and undetected.
4. That the above conditions were chronic and have prevailed since the many past decades.
The above facts suggest that there has been a chronic failure on part of all relevant institutions of the Government along with a diminution of the ‘moral character’ of the citizens. In effect, it was this decadence in the ‘character’ of the people and in the ‘governance’ of this nation, that led to demonetisation.
Under the prevailing circumstances, can these institutions, which have betrayed the trust of the people, all along, be relied upon to enforce a sense of honesty in the hearts of the citizens and sincerity of purpose amongst the institutions? The Government of today has publicly pledged itself to the eradication of dishonesty and nefarious activities within the country. It is also apparent that the Government of the day has a plan in place, because hoarding of new currency notes, in the form of unaccounted wealth, has been detected.
A sizeable majority of the people have gladly accepted the steps of the Government, regardless of their inconveniences and sufferings. In a country where eighty per-cent of the wealth is cornered by ten per-cent of the populace, it is pain for a few and joy for most. “Time will tell” if it can fulfil its lofty aims, but it surely appears to be a valiant effort and its ‘success’ is worthy of tribute. Failure on the other hand will indicate that it was just a political game plan aimed at refurbishing the image of the Government.
Demonetisation can have a drastic effect on the economic, social and political life of the nation. The immediate period of demonetisation will adversely affect the economy – with all yard stick of economic development showing a decelerating rate of growth in incomes and employment. Growth during the period will be at the nation’s lowest potential.
Approximately, a year needs to be taken as the ‘base year’ in order to properly evaluate future trends of the economy and all other social parameters of human development, on account of the following reasons:
1. With demonetisation affecting every citizen in the country, the Government’s intention to bring about austerity, transparency, accountability and honesty in personal and public life gets expressed in unequivocal terms.
2. The degree of willingness of the citizens to abide by the law and ‘submission’ to a transparent and honest way of life will also be revealed.
3. All arms of the Government and the executive become aware of the Government’s desire, but what remains to be seen is their degree of sincerity and dedication to adhere and implement the Government’s will.
4. It will lay bare the intentions of all political parties and their commitment to usher in an era where the ‘law of the land’ prevails.
5. It will test the sincerity, competence and ability of the Government to enforce the ‘rule of law’ in the land.
6. It will boost compliance to tax laws and increase the revenues of the Government.
7. More than the economic effects, it is the social impact on the citizens in their personal and social thoughts as well as their behaviours, that will be worthy of note and will consequently effect every sphere of Indian society.
In sum, demonetisation, coupled with the will to enforce the law upon one and all, has the potential to affect a ‘trend reversal’ to the continuing decadence and loss of credibility of an ailing Indian society.
Demonetisation is certainly not a panacea for all the ills that plague Indian society. Yet, it is a very significant leap and expression of commitment by the Government to deter the citizens from accumulating wealth through unfair means. The benefits of demonetisation will be short-lived, unless eternal vigilance is exercised which can alone serve as the tool to cultivate the habit of ‘obedience’ to the ‘law of the land’. The immediate reward of demonetisation will be a significant boost to the Government revenues. It is the manner of utilisation of these revenues that will decide the future socio-economic condition of the nation.
God made the land abundant in all its varied flora, fauna and notions – but people make a nation. Ultimately, it is the thought, knowledge, ideas, skills, competence, compassion and commitment and conduct of the people who ‘rule’ and ‘are to be ruled’ that will determine the peace, progress and prosperity that prevail amidst the cultures and societies that constitute the nation.
(The author is a research scholar in the Department of Commerce at Dr. Harisingh Gour Central University.)