5 Things Modi Government Ignored Before Launching Demonetisation

While demonestisation may help in resetting the levers of the economy in the long run, the govt has faltered in ensuring smooth implementation


The move to demonetise 500 and 1000 rupee notes by the Narendra Modi government on November 8 has seen mixed reactions. While there is no doubt that demonetisation does help in flushing out black money hidden in cash and is helpful to some extent in resetting the levers of the economy, the government has faltered in ensuring that this is done smoothly without affecting the common man in his daily life. Long queues at bank branches and ATMs, citizens fighting at private hospitals to ensure treatment, small businesses unable to do their daily trade and many even struggling to raise petty cash are some of the difficulties that the government should have thought through before putting the aam aadmi at risk.

Prime Minister Narendra Modi in his first speech on November 8 while making the announcement urged the citizens to bear inconvenience for a few days. Finance Minister Arun Jaitley then sought a couple of weeks to allow the situation to ease. But with the panic among people continuing even after 5 days, PM Modi has now urged the citizens to give him time till December 30.

Clearly, this does not seem to suggest that the government is in control of the situation.

Here are 5 things the government looks to have ignored before launching the disruptive scheme of demonetisation.

1) There is no doubt that all those who were involved in the decision making - Prime Minister Narendra Modi, Finance Minister Arun Jaitley, RBI Governor Urjit Patel, finance ministry officials and select RBI board members - were clearly aware that this uncommon move will be highly disruptive in nature. Why were enough steps not taken to increase the supply of lower denomination and new notes to contain disrpution . As for secrecy, the job of printing new notes could have been secretly outsourced or done in a staggered manner at various mints without arousing suspicion.

2) One other reason why there is loud criticism is due to the lack of time given to banks to recalibrate the ATMs. This story points out that RBI had sent a notification to banks on November 2 asking them to recalibrate at least 10 per cent or 20,000 ATMs to dispense Rs 100 notes only. But before that exercise could get over, the Prime Minister announced the move to scrap the notes on November 8. The govt is yet to explain the reasons for immediacy without giving the banks the time to comply with the RBI notification.

3) While the government did allow government hospitals and pharamacies to accept old notes, a bulk of medical services in India are provided by private hospitals and clinics who were kept out of the list. How did the government imagine the huge middle class and lower middle class to pay their emergency bills since the private sector is notorious in many cases, not allowing admission without receiving deposits and part-payment before life-critical surgeries. Infact this incident in Mumbai where a new born died due to lack of medical attention points out how the poor often end up as collateral damage when such disruptive economic decisions are taken without giving a protective cover to the vulnerable sections of the society.

4) Over 4 lakh trucks are stranded in various parts of the country affecting the livelihood of not just lakhs of truck drivers and cleaners but also the transport business. This in turn threatens to affect food supplies if the deliveries are not done at the right time at mandis accross the country. Transport associations claim that 80% of the transactions in the trucking industry are done in cash. So while they support the overall thought behind demonetisation, they should have been given more time to take care of their cash situation.

5) 65% of the population do not have access to plastic money and regular banking facilities. That explains the huge chaos in rural and semi-urban areas as 16% of the total cash in the system can never replace 84% of the high denomination notes termed illegal overnight. The rural economy unlike the urban economy deals a lot in cash and all that cash is not necessarily black money but a sign of ease of doing business and transactions.

To hit them with a tsunami of this nature and measure the success of demonetisation by rising hashtags and tweets by people on Twitter and Facebook posts shows this government is out of sync with the requirements of real India. Most sufferers of liquidity crunch are not airing their views on social media.

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