Archive for December, 2016

Was India really ready for Demonetization?

December 8, 2016 Leave a comment

After 86% of currency in circulation did not remain legal tender,

82 people died in the ATM Queues,

Many weddings were postponed,

GDP growth is likely to go down from 6.8% to 3.5%,

Stock prices went down below 200 days moving average,

Manufacturing PMI fell down from 54.4 to 52.3,

Smaller producers running on cash transactions till last month are shut,

Fishing industry faced a severe fall in demand,

Consumer goods sale fell down to one-third within a month,

Farmers are selling their produce at much lower prices for lack of cash with buyers,

And the hardest blow went to those 600 million people who did not have a bank account. 300 out of these don’t even have required bank IDs to even open a bank account.

Few smaller denominations of currency printed rendering most people leave with a 2000 rupee note which does no good as nobody is willing to take it,

Banks are already running out of cash and their ATMs are unable to hold the required volumes of smaller denominations of currency.

Was India really ready for Demonetization?

India is an economy where 40% people stay in rural areas  and an estimated 95% of the transactions are carried out through cash. Can such a highly cash reliant country suddenly turn into a cashless society in just 50 days? The claims sound overpromising.

And the promise to curb the black money and reduce corruption – Did it really work out?

Why was this decision taken? Cash is a very significant portion of the black money – an assumption on which the demonetization decision was based on – Was it really true? – In 2013, only 6% of the black money was recovered from cash invaders. Was it really that significant to waive off Rs. 12,000 currency as tender notes?

The actual black money totals out to Rs. 30 lakh Crore which is way beyond the cash in circulation. So, did the move actually expose these black money bearers? While 1000 rupee notes were withdrawn, a higher denomination of Rs. 2000 was introduced. Will this not make it easier for those saving black money in future?

Before demonetization was announced, there was some groundwork needed –

  • Banks should have been supplied with enough new notes for replacement
  • ATM capacities were to be expanded to take on more volumes of cash

But most will argue that if such a preparation was made in advance, it would have given a chance to black money bearers to exchange their cash before the move. So, was this sudden announcement the only way? If it was, did it have to be so painful? The answer is undoubtedly yes. A sudden demonetization is obviously a pain and when the economy is not ready to take such a blow, it is likely to plunge into a screeching halt.

The monetary impact of the move was already clear and it was to cause a chaos. However, a demonetization move also needed to have a consideration of non-monetary aspects like impacts on people into different situations and settings. If there was a consideration for the people who did not bank accounts, or the people who never used ATMs, appropriate measures could have been taken.

The move of demonetization maybe an appropriate thing to do but whether the country had right strategies and right infrastructure to handle the implications, still remains a question. Was India really ready for Demonetization?

Categories: Uncategorized

Poor are poorer, Rich are richer – the Gap Widens with Demonetization

December 8, 2016 Leave a comment

In between the swipes of credit cards and debit cards in ATMs, you will find many poor, maybe illiterate people, running around ATMs for the first time usage and there is no one to help. While Indian government has plans to build a cashless society, banks have no bandwidth to handle the queries of a large number of customers who are still unfamiliar with the technology.

I recently went to Mahabaleshwar and could clearly see the differences in struggles of these people and well to do people like us. We did not have the cash either so standing in line for cash was the only option just like them. The only difference was that while we reached ATM after a long wait, we were at least able to withdraw Rs. 2000 from ATM but those first-time users of ATM, who were forced by the government to adapt to the technologies, despite waiting for longer time, were unable to take out cash as they did not know how to use the ATM. There was no instruction sheet or a person to help them except those already in a queue.

Some thoughts trouble me after having an experience the effect of demonetization for some time. A careful observation revealed how ignorant is the system of today towards the needs of people who are illiterate, less educated, disabled, poor, old, or needy.

  • We were fortunate enough to seek help from the Hotel staff who was ready to take a credit card swipe for a transaction. Can these poor people even afford to go to a restaurant which has the facility of card swipe or would they still struggle on stalls for cash?
  • As a small-scale vendor like those selling vegetables, would you find people giving you cash or do you have to leave your vegetables as waste?
  • What about those farmers who are unable to get cash against their production?
  • As a first time user of ATM, do you have anyone to guide you or you are at the mercy of a person standing next to you to help or else?
  • While the decision of demonetization was abrupt, was the plan for managing the after effect was also abrupt? Or did government even think of a plan?

While demonetization has hardly affected big businessmen and well to families who had already adopted plastic money as their way of life, the real people who were severely affected by the decisions are the poor farmers, small vendors, uneducated and those not comfortable with technological advances.

People facing difficulties have become only scenarios and stories to talk about.

Think of an old lady in her 70’s. Throughout her life, she has been using cash. Her eye sight is too weak to even see what is written on the ATM screen and maybe she is not even educated enough. Would she be able to act independently at an ATM center? Who doesn’t know the story an old woman dying of heart attack because she was unable to convert her hard earned money into real cash?

Think of a poor farmer who has been selling his production against cash but because of lack of cash, is unable to sustain the living? Farmer suicides are nothing new and our nation has already experienced it in past. Will this impact not increase such incidences?

Think of a housewife, probably tortured by her husband or in-laws, who have been saving money for her life and all of a sudden, all her savings go to whom?

The rich already have gold, properties, stocks, and other assets to invest their money in. Most of the cash is circulated among the smaller people with lesser money. I remember the day when the demonetization was announced. While I heard people telling stories of so much cash, I saw my wallet and there was only one note to exchange. Am I poor? I am just middle-class independent woman who is educated and uses plastic money more often than cash. I was not affected until I met people who did not use plastic money and demanded cash against the services they offered me.

Another observation – If I was to stand for 3 hours in the queue, I can work on my mobile, use various applications to complete my tasks, do a video conferencing to conduct a meeting, read books on Kindle, check and answer my business emails, and do a lot more. What about people who earn daily wages and to get petty cash, they have to stand in line for hours, losing either their work hours or their sleep?

What I can see as impacts of this sudden demonetization is – Poor are getting poorer, middle class is still in middle, rich will get richer, helpless would go even more helpless – The GAP WIDENS!