Indian Economy Starts A New Chapter As Demonetisation Begins
People and businesses have started to find means and ways to continue with business as usual after the government's decision to demonetise Rs 500 and Rs 1,000 currency notes
In the beginning hours after banks opened for business after demonitisation of old Rs 500 and Rs 1n000 notes was announced by Prime Minister Modi, banks claimed that the transition is progressing smoothly with a large number of people queuing up to exchange old notes for the new, while trade and commerce did scrambled for usable Rs 100 notes.
Businesses and banks credited Modi for taking the bold measures for tackling black money that for long has been dogging the economy.
Shyam Srinivasan, MD and CEO, Federal Bank, said: "The move to demonetize the Rs 500 and Rs 1,000 note is indeed a seminal move. Near term volatilities notwithstanding, this audacious forward looking move will bring stability and transparency to the way business is conducted in the country."
But traders were facing a cash crunch as the scramble for Rs 100 denominations turned acute. Businessmen complained that business was affected due to the move, but are trying to find solutions to keep their businesses going.
"There has been virtually no business in the last few hours. However, I have offered credit of a few days to people whom I know just to keep the business going," a Mumbai-based cloth merchant said.
Banks offered to keep their offices open through Saturday and Sunday to facilitate easier exchange of old notes, while individuals are waiving off small change as a result of non-availability of change.
One of the RBI's most immediate task is to put as many as Rs 500 and Rs 2,000 notes back in circulation, and most banks are working around the clock to see that sufficient money starts to circulate in the system. One businessman said that he is not parting with any Rs 100 notes because he wants it for any daily and regular expenses.
However, housewives and businessmen welcomed the exchange of old notes for the new, although the limit per person has been restricted to Rs 2,000 per day. People who received the new notes were ecstatic that the new currency notes were quite inspirational with new imprints printed on the reverse.
"It's nice to see new initiatives like the Mangalyan and Red Fort imprinted on the reverse," Meetu Singh, a housewife. "However, the colour selection makes the new notes look very ordinary."
The new bills have different colours and more security features. The Rs 500 note is in stone grey, while the Rs 2,000 note is dressed in the colour magenta. Earlier, the finance ministry said in a statement that the new denomination note has the motif of Mangalayan, which depicts the country's first venture in interplanetary space.
Hence, people are expecting that the government will continue to try new inspirational motifs at the back of the note to inspire and also to make it difficult to fake the currency bills.
The government also pointed out that in the next few months, new Rs 1,000 notes will be introduced in the Indian economy. Das pointed out that from time to time, new series of notes with new features and designs will be infused in the market.
One of the immediate concerns of the people is whether black money will be gone by the new move.
Former finance minister P Chidambaram also expressed his concerns over the new Rs 2,000 bill being able to curb black money. At at a press meet, he said: "Introduction of the Rs 2,000 note is a puzzle. How will this help in preventing generation of black money?"
Chidambaram also pointed out that the cost of demonitisation is probably around Rs 15,000-Rs 20,000 crore and noted that the economic gains of demonitisation should be at least equal to that amount.
However, most bankers and market analysts point out that since it will lead to a surge in savings account deposits in the short run, there could be a drop in yields and interest costs in the economy.
While most people expect that some of the issues concerning black money are not going to go away completely, most common folks are willing to take on a little hardships to see these times with less 'cash on hand' through. "If it helps the country," said a food stall owner, "It's a good move, then."