Make Demonetisation scheme a success story.

                                              Victory is always for Dharma.

The economy in general and the financial system in particular got a shock but a game changing treatment when the PM announced on the 8^th of November at 8PM  the demonetization of high denomination notes of Rs 500 and Rs 1000 to prevent corruption and unearth black money to save the economy from the evils of dirty money. The objectives to combat financing of terrorism with black and fake money, to prevent corruption from the society, and to eliminate the disruptive  practices pursued in the economy mixing black money with the accounted money intelligently and finding  ways and means  to fight election, to distort the economic activities with wrong data on  macro economic factors,  are noble and laudable and needs to be achieved early to take the economy forward and restore the  lost values of this great nation to ensure a welfare state with utmost peace, safety and comfortable life for the people. The need to maintain ethics in business and commerce is paramount and when the people irrespective of their political, economic, social and technological background have wholeheartedly welcomed the PM’s initiative and bold decision to eradicate the black money and are prepared to put up with the inconveniences that such a measure can cause, then where is the opposition and what is the obstacle?.

Having decided to demonetize, and knowing the possible obstacle from opposition parties and people with vested interests to protect their black money hoardings in cash the preparedness of the Government and the RBI seems to have fallen short of and many a people particularly among the poorer segment have been made to suffer giving an avoidable opportunity to fight the policy tooth and nail and demanding a roll back even. The Government could have kept the positive sentiments of the public at large by ensuring smooth implementation which could and should have been made possible keeping the secrecy clause of the demonetization intact, had it acted fast as soon as the announcement was made and all the checks and balances are kept in place with appropriate logistics to serve the rural poor in particular on a priority basis. A bad execution should not kill the long term and perpetual benefits to be derived from this great and very bold move.     .

The Reserve Bank has a key role in ensuring the successful implementation of the scheme and should have been made fully responsible for its fast and smooth implementation without any glitches. The ATMs, banks’ branches and Post offices spread in the nook and corner of the country should have been fully equipped with adequate infrastructure like man power, transport, security, insurance,  note counting and verifying machines and adequate supply of all small denomination notes (including soiled notes and coins if required) right from Rs 5 to Rs 100. Rural and semi urban centers should have been supplied first with these notes in adequate quantities and the normal banking operations with a special emphasis for exchange of old denomination notes with proper identity with restricted numbers of notes. Unfortunately the Touts and Commission agents crowded all the counters and honest and genuine people suffered in the process. This could have been anticipated and effectively prevented. The two way operations in banks Viz acceptance of deposits and lending got stopped and the panic situation to corner as much money as possible in all denominations of permissible legal tender currencies got a momentum with all shortages and chaos every where in the first two or three days of implementation of the scheme. Lack of planning and proper execution to minimize problems for the poor and hapless people was taken full advantage of by the politicians in waiting to attack the government. The cooperative banks and micro finance Institutions working in rural areas and banking correspondents could have been enabled to carry out their normal operations using small denomination notes to come out to the rescue of the poorer segments. The Government could have got mobilized peoples’ volunteers to make the scheme understandable and acceptable by the masses with all inputs. The enforcement agencies like Income tax, Sales tax and Police force could have played their respective roles in keeping a vigil on possible irregularities and mal practices and educating the masses and business establishments to switch over to digital forms of payments to avoid harassments and come clean on all transactions. The issue of Rs 2000 notes could have been restricted to major towns and cities for the initial days as the people are by and large literate and can appreciate the Government’s move and have the entire wherewithal to absorb the problems if any without much of hassles. The Reserve Bank could have issued more of Rs 500 new notes instead of Rs 2000 notes to avoid irritation to find change for this high value note for small value transactions. The Reserve Bank also could have sought the help of Temples, Mosques and Churches and all shops and establishments to stop acceptance of the demonetized notes and to surrender all small denomination notes to nearby banks on a day to day basis to ensure their recirculation. The sensitive areas like village markets, ration shops, small business firms and village industries should have been given priority treatment in the withdrawals and exchange of  old notes with due diligence to avoid irregularities and malpractices with the help of  banks, ATMs, Post offices, volunteers and enforcement agencies. The man power shortages in banks could have been addressed by resorting to appointment of retired hands and volunteers and there should been more counters for exchange and acceptance of deposits of all denomination both illegal and legal tender currencies.

The Government also could have come out with some fiscal incentives to calm the public and mobilize their total support. Reduction of service tax on items consumed by masses, increase in the procurement prices of agricultural commodities, reduction in the prices of fertilizers, small increases in kerosene subsidy,  income tax relief’s for lower income groups, reduction of excise duties and taxes on two wheelers, petrol, diesel and LPG prices would have worked wonders. The losses may not be substantial but the overall gains both monetary and otherwise would be handsome and those who oppose the demonetization would have been silenced.  What the Government needs at this critical juncture is time to make arrangements to replace the withdrawn notes with adequate liquidity and help the people to act with confidence in the scheme of things to overcome the   temporary difficulties caused by the sudden withdrawal of high denomination notes

All said the economic benefits of the Demonetisation scheme are enormous and there is a paramount need to make it a success at any cost. The disruptions are temporary and definitely manageable. Once the normalcy is established  with effective administration and the banking system is back to normal carrying out all its functions, the economic activities would resume in new avatars and all informal activities hitherto unaccounted for would turn formal and get properly accounted for, rectifying the incorrect data on  investment, production, distribution of  economic products, enhancing employment activities  formally helping in the reduction of undeserved subsidies,  bringing in transparency in the compilation of data, movement of  accounted funds paving way for correct assessment of taxes, framing accurate policies based on more reliable  data unlike in the past. With the proposed GST implementation and with the eradication of unaccounted money, the cleanliness of the financial system gets assured and the Government can very well concentrate on improved and enhanced infrastructure,  effective Governance,  housing for all and better  welfare of the people having control on corruption, inflation, safety from terrorism and fair and equitable distribution of wealth. Conversion of unaccounted wealth in the form of gold and real estate needs to be the next step followed by electoral reforms to make the economy more clean and transparent.  

A society with less cash for transactions and more cash for better living standards can be made a reality with enhanced and wide use of technology in the payment and settlement system. Strong administration is what is called for at this crucial time and as long as people are for the change, then what and where can be the opposition in bringing the change for a better living? 

Dr  T V Gopalakrishnan