Firstly, our nation was not ready to accept such a change in the economy. To fight against black money and corruption, the Prime Minister’s suddenly cancelled the legal character of ₹500 and ₹1,000 currency notes. Digital payments are now being focused on and seen as the way forward. One key factor that determines whether a nation is ready for such a change is the cash-to-GDP ratio which indicates how much of the economy is dependent on cash-based transactions. It reflects whether the economy can be turned into a digital one, as NaMo wants for India.
As of March 2016, India’s cash-GDP ratio stood at a whopping 10.6%, highest in the 16 years. India’s Cash-GDP Ratio is the highest among BRICS nations. This ratio has been constantly increasing up to 12–13% which is much higher than major economies including the US and the UK and lower than Japan (about 18%). Even countries with a low cash-GDP ratio are in a long process of evaluating this exercise. In that case, with such a high ratio, the government should’ve first taken measures to reduce it before announcing demonetization.
On December 11, Venezuela, whose inflation rate is estimated to touch 475% this fiscal year, adapted the exercise following India and demonetized the 100 bolivar bill. But, the Nicolas Maduro-led government was forced to withdraw the move because of widespread riots and increase in crime rate in the country.
Chaos at ATMs is another persistent issue that has risen with the demonetization policy. Nobody has seen any rich or influential person, except Rahul Gandhi, waiting in an ATM queue to withdraw money. The role of the ATMs must come under scanner in the logistical nightmare that demonetization has ushered in.
With almost 86% of the total currency value getting wiped away when circulation of the ₹500 and ₹1,000 banknotes was stopped, the two lakh automated teller machines were expected to help bring back liquidity into the system. That hasn’t happened. Of all the ATMs, 60% were non-functional while the others were semi-functional. The need of the hour was to get all of them serviceable as soon as possible. However, what we have understood is that it could take up to three more weeks for the machines to function normally. Arun Jaitley said on November 12, 2016 that the machines are not designed to receive and dispense the new banknotes.
Popular economists like the former RBI Governor Shri Raghuram Rajan and former Prime Minister Manmohan Singh have voiced their opinion against demonetization long before the policy was implemented. As of October 2016, the total value of counterfeit currency in circulation was around ₹70 crore. Simultaneously, the cost of printing the new notes alone is a whopping ₹8,000 crores! Counterfeit currency is equivalent to economic terrorism, agreed. But, what is the use in spending that much money when it’s less than 0.65% of the total expense the government had to handle (including the other logistical costs) for this exercise? For more information on economic terrorism, read .
Black Money is another prevalent issue for which this exercise was carried out. There have been reports of obsolete money sacks being abandoned on various parts of the country. But, it’s accounted for not even 2–3% of the total black economy of the nation. If you think this isn’t true, just go back in time and read the news. NaMo announced that possession of obsolete currency might land a person in jail for up to four years. This simply means that the expected amount of old currency wasn’t received.
There are a plenty of other ways to launder black money apart from Hawala, including making Hundi deposits to temples like Tirupati, forming NGOs and showing charity work etc. People can invest in gold, shares, bonds, foreign deposits, etc. Demonetizing bulk currency will never completely eliminate black money. The black money that has been recovered is nothing compared to the net black economy prevalent in the nation.
Now, Modi’s supporters may say that there is a long-term vision that’s sure to come out of this exercise. Hoarding ₹2,000 INR notes is more feasible than hoarding the ₹500 or ₹1,000 obsolete ones. Plus, Modi government has a forgotten history in long-term failure. We all have forgotten the LPG prices and the path that this policy took for this regime. Let me remind you.
Not very long ago, an LPG Cylinder cost ₹350 for a regular household. Then, Modi’s government revised this and increased the price by approximately 90% to around ₹600, promising a subsidy in the cost. Later on, the government pressurized the people to give bank details to the agencies as the subsidy would only be deposited in the bank accounts (for those who didn’t have a bank account till then, PM launched the Pradhan Mantri Jan Dhan Yojna with basic/minimal benefits).
Then came the UID/Aadhaar Scheme which is much similar to the Social Security Number system in the United States. The government made it mandatory for us to link our Aadhaar IDs with our bank accounts and gas agencies. Slowly, the Aadhaar started to be used everywhere, right from PAN to ration to voter’s ID. Later on, the government withdrew the subsidy from everything that it had promised, and announced that those who have enough resources should withdraw from the LPG subsidy. This happened over a period of three to four years (long-term) and it effectively resulted in the LPG cylinder price hike. This is one of the many long-term results of one of the NaMo schemes.
Basically, the Narendra Modi led BJP government wants us to accept anything and everything that it proposes. Those who have a difference of opinion will be forced towards survival crisis. This is how a democratic country, India, works.