Home > Uncategorized > Was India really ready for Demonetization?

Was India really ready for Demonetization?

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 While 1000 rupee notes were withdrawn, a higher denomination of Rs. 2000 was introduced.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?

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