Currency Demonetization by RBI - my opinion :
MVR
The PM of India
announced using electronic media that Rs 500 and Rs 1000 notes will no longer be
the legal tender from 8th November 2016 midnight. In place of these withdrawn
notes the RBI will issue Rs 2000 notes and Rs 500 new notes from 10th November
2016. The other notes in circulation Rs 100, Rs 50, Rs 20, Rs10, Rs 5, Rs 2,
and Rs 1 will continue to be the Indian legal tender.
Experts say that the Section
22 of the RBI Act 1934 provides that the RBI has the sole right to issue Bank
notes of all denominations. The RBI is responsible for the design, production
and complete management of the Indian currency. It is also the duty of RBI to guarantee
satisfactory supply of unsoiled and genuine notes.
Then, why did the PM
make this statement? does he know that when the Rs 500 and Rs 1000 notes held
by the common citizen of India excluding the Black Money holders return the
notes to Bank equivalent money in other denominations has to be paid. Did he at
least check with the RBI Governor on this so that the poor and common citizens
will not suffer?
The Indian Statistical Institute, Kolkata
conducted a study on behalf of the National Investigation Agency (NIA) and
reported that there is approximately Rs 400 crores worth of fake currency in
circulation in the Indian economy. This Rs 400 Crores constitutes only 0.028%
of the Rs 14,180 billion worth currency demonetised in Rs 500 and Rs 1000 notes.
What is the logic?
Demonetization is one
of the tricks considered to flush out Black money but it has failed world over.
As the Govt took this route to flush out Black Money let us study which country
succeeded by adopting it.
USSR under the
leadership of Mikhail Gorbachev tried it by withdrawing Ruble 50 and Ruble 100
Bills in Jan 1991 as reported in newspapers.
It led to the Soviet break up after an economic collapse.
In Zaire the Dictator
Mobutu Sese Seko demonetized obsolescent currency from the system in 1993, the
system did not work and the economy suffered, subsequently he was ousted from
power after a civil war.
In 1982 Ghana
withdrew its 50 Ghanaian Cedi currency. As a result, the Black Market
flourished, banking system collapsed, and foreign currency investment increased.
The demonetization was a total failure and the people lost confidence in
Banking system and invested in foreign currency and fixed assets.
In 2010 North Korea
dictator Kim Jong-Il currency reform removed last two zeros from the face value
of the currency to have tighter control on currency and to wade off black
money. The demonetization made the country face severe food shortage and price
rise in all fronts. Kim apologized and the ruling party's head of finance was
executed.
In 1987, then known
as Myanmar, country's military junta invalidated around 80% of the value of their
money. As in the above cases the demonetization effort introduced to curtail
black money back fired. The sufferings of people resulted in the first ever
students mass protests and demonstrations leading to the Govt crack down
killing thousands of people.
Demonetization did
not succeed in almost all the Countries where it was tried. Then why did the
Government of India adopt this failed method to curb Black Money? The political
line was that the move is to flush out Black Money but the economists have argued
that the biggest portion of black money is untouched as the black money is
lying in undisclosed accounts in Foreign Banks, held in Gold, Land and Real
estates.
The majority of Indian
rural village poor does not hold a Bank account or use ATM to deal in money,
but hold their earnings in cash as daily wages, weekly pays, and monthly salary.
This is used during the same month against buying basic requirements or to run
petty business to earn some money for living. In case of small farmers, they spend
cash for paying labour, buying seeds and fertilizers, pay for water, fuel and
electricity. The poor pensioners and old people go to post office, treasury or
nearby Bank only once in a month to withdraw the money to meet their basic expenses
for the month.
Is it justified to
make them loose precious time to stand in queue for whatever small deposit they
have in Bank or Post Office and if complained asking them to think about soldiers
in the border? Is it not clear to the financial experts who advises to the Govt
that the total Indian population consists of 70% rural population and they do
not have proper access to bank accounts or ATMs? Why make the 30 to 35% Indians
to use the social media for supporting and promoting this quixotical decision?
All know that they have no issues because they can use plastic money and other cashless
paying methods. Are we making a new divide; “Plastic Money holders” and “Others”?
Is it to be believed,
as reported in the media that the ruling party wanted to distract people’s
attention from the poll promises of bringing back Black Money slashed in
foreign Banks, and share that money @ Rs 15 Lakhs to each Indian? Is to cover
up the inability to deliver on GDP growth? Or is it for grabbing an advantage
in the forthcoming assembly elections in various states by surprising the
opposition parties after securing all the black money they have in possession.?
Indians know that the Government Banks waived off Rs 1.14 lakh crore of bad
debts in the last 3 years. Also action is not taken against defaulter of loans
worth lakhs of crores of rupees. Is it a face saving gesture and attention
deviator for not making the defaulters and beneficiaries name public?
The press reports and
opposition parties brought to light the West Bengal BJP deposits of Rs 3 crore
in their account in a nationalised bank just 8 days prior to the PM’S
announcement. It is reported that the last transaction of Rs 40 lakhs were made
just few minutes before the historical announcement by PM.
As on date the share
market is falling, Rupee is traded against USD above 68.20, In Retail shops the
business have come down by 60 to 70%, farmers find it difficult to buy seeds
and fertilizers, and the work force is in Q.
It is attributed to poor planning, greed to grab publicity, poor
intelligence or lack of foresight to replace withdrawn notes and ATM
recalibration.
Print and electronic
media who supported the initiative for the first few days were forced to report
on ground realities. There were massive inconveniences to common man reported
all over the country. Almost all the common man of India and political party
leaders commented that there is the need to flush out Black Money from India
but it should not be by putting the common man to inconvenience due to
Thuglakian decision by the Govt. After Nov 8th the Thuglakian Govt was issuing,
amending, modifying, and dictating conditions how and when an average Indian
should withdraw his hard earned money from Bank or ATM.
If Indian Government
believes that the high value notes of Rs 1000 and Rs 500 is only the culprit
for Black Money in the country, then how can they justify that the newly
introduced Rs 2000 note will not be used to hoard Black money? Is it Quixotic
or Thuglakian decision?
There are multiple
deaths reported due to people waiting in queues, difficulty in conducting marriages,
deaths due to many hospitals, pharmacies and ambulances refusing to accept Rs
1000 and Rs 500 notes.
I am not an expert in
financial matters and economy, but my common sense and love for my country make
me comment as follows: “I am sure that the draconian decision of demonetisation
thrusted on the Common Man without any proper planning putting them to great inconvenience
will have very less economic benefit and India will have to pay a high cost for
it. It will never achieve its reported target of eliminating Black Money completely
but will stress Indian economy too much and the recovery may take 2 to 3
years”.
MVR
Menon
22 November 2016
Strategy
Consultant & Social Worker
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