Why Narendra Modi's Demonetisation Move Is Fading Out

The resounding applause received by Prime Minister Narendra Modi for unleashing a self-styled 'surgical strike on black money' through demonetization of currency has started fading out. Reason: inept handling of the consequent implications on the general masses and the market as well and second, unrealistic move to ignore 'economic dictums' while eliciting experts' views on the issue - albeit in the garb of keeping the move a top secret.

Even as the Prime Minister has sought 50 days to bring back the situation to order - a self-explanatory move to accept the lapses on the part of the Government- and he is claimed to have evoked positive response, the pertinent question that baffles the mind is whether the much-acclaimed 'surgical strike on black money' can actually stop 'black transactions' that are in operation in the form of 'tacit-trade' in the gold sector in particular or could it ensure protection to the interests of common people who lost not only basic facilities - at ATMs and Banks - to eke out their living but their lives too? The answer may now hardly be in affirmative, but the fallout might have been different if this unprecedented anti-graft decision was supplemented with pre-monetization market analysis by economists.

History has a bad habit of repeating itself. With this well-intended but controversial initiative by the Government, people have virtually been put in a condition that they had to bear with 30 years ago. The past bears testimony to the fact that the country did not have ATM facilities prior to 1987 and people had to be in queues at banks for hours to do their transactions. With the demonetization of Rs. 500 and Rs. 1000, people are again seen at bank counters in long queues for hours across the country to obtain their own hard-earned money. The only difference is that this time around they have to queue up to operate ATMs too.

This ordeal has claimed over 50 innocent lives across the country so far. On November 17, two children became victims of the crisis in Pakur district of Jharkhand too. The children reportedly died of malaria. Their father remained in the bank queue for hours to get money for their treatment. Subsequently, villagers confined the Sub-divisional Officer for three hours holding the Government responsible for the mishap.

Apart from opposition parties that have been aiming to cash-in on the complex situation by criticizing the Government for feigning complete ignorance about the plight of the common people, customers in general and the business community in particular believe that the much-acclaimed 'surgical strike' on black money has inflicted 'collateral damages' to the market. If buyers have to remain without cash, sellers are struggling to deal with the situation. They have been left with no option except to keep a close watch on the situation. Consequently, money that is meant to keep on rolling is static as buyers have limited cash that they can withdraw from the bank after a lot of struggle and they prefer to keep in reserve for eventualities. The market has, as such, come to a grinding halt.

Never before has the country witnessed black marketing of currencies that has led to transfer of black money from holders to corruption-prone section of people. Demonetized currency has exchanged hands under a tacit-deal to gain mutual-protection by offenders. If intelligence inputs are to be believed, black money is being exchanged at half of the cost in the open market. This has facilitated offenders to dispense with their black money thereby empowering a group of fresh offenders to control the market. As such, in any case, black money is still in circulation and market is the ultimate victim.

Moreover, the gold reserve that is supposed to play a key role to decide the economic fate of the country is poised to 'imbalance' the market operations. As per information available with intelligence agencies, about 25 tons of gold were sold at exorbitant rates and that too, with back dated invoices of pre-demonetization period. That implies that fake transactions of black money were made in the garb of buying gold, while in reality they were not sold and remained in possession of the traders. In Jharkhand, the Income Tax Department conducted raids against goldsmiths who were accused of depositing over Rs. 3 crore in different banks after demonetization.

There was a callous neglect on the part of the Government to develop a pro-active mechanism before initiating major steps to attack black money. Indeed, banks - that were supposed to have inadequate cash owing to large scale hording of black money in the market -- restored their reserves substantially with deposits after demonetization, but the market has been reeling under an acute 'transaction-crunch' for want of proper assessment by experts about the sinister implications of the decision on the market and common men. The Government decision is believed to have been prompted by views extended by bankers -who are not experts of the market - and economists, who are the paramount masters of reading the pulse of the market, were hardly consulted for their views on the impact of the decision on the market. More, even banks that boasted of having replenished their chests with deposits, are now supposed to be struggling to cope with the shortfall of currency of small denominations that were given away to customers in lieu of withdrawal or exchange. The Government's sudden move to reduce the exchange limit to Rs 2000 from Rs 4000 bears testimony to the fact in this regard.

Likewise, the populist-scheme of the Modi Government, Jan Dhan Yojana, was used by offenders to manipulate black money. The bank accounts that were opened with zero balance under the Jan Dhan Yojana have been credited with sizeable deposits. Addressing a public meeting recently at Goa, none other than Prime Minister Narendra Modi himself claimed that the Jan Dhan Yojana accounts that were opened with zero balance had deposits of about Rs. 46,000 crore now. The PM, however, recounted it as achievements of his Government.

Incidentally, sleuths smelt a rat in such huge deposits in the Jan Dhan Yojana accounts. It was found that every JDY account that had a deposit limit of Rs. 50,000 (fifty thousand) only was credited with sudden huge deposits after demonetization of currencies. Subsequently, Secretary to the Economic Affairs, Shaktikanta Das had to accept that it was brought to the notice of the Government that many JDY accounts were credited with Rs. 49,000 (forty nine thousand) after the ban was imposed on certain notes.

To top it all, although the decision is now accused of posing a major threat to financial system of the country, of the 50 days that he sought for, the PM has about 40 days to prove his worth by restoring the 'set rules' of market.