Indian banks has received over Rs. 2 trillion (around $30 billion) in cash after the government’s move to abolish high denomination banknotes, and customers queued for hours to exchange or deposit their old bills and ATMs ran dry. These deposits received till date is estimated to be over 15% of the value of the total scrapped notes in circulation.
Importantly, on 8th November, the Indian PM Narendra Modi scrapped Rs.1000 and Rs.500 currency notes, which was a bid to flush out tax evaders. The bank notes that were declared illegal tender represent over 86% of cash in circulation.
No doubt, this has brought tremendous pressure on the banking system to replenish the cash. Over 70 million transactions are also recorded through midday of Nov.12. India’s Finance Minister (FM) Arun Jaitley says that there is adequate money in the currency chests at over 4,000 locations and reconfiguration the dispensing machines will be done within 2 weeks.
The Indian FM also urged people not to rush to banks but wait for a few days to conduct their transactions using electronic transfers, checks and credit and debit cards. He also added that the big regret is that people are being inconvenienced, though the currency replacement of this magnitude will cause some problems.
Reports suggest that the Indian government did not deliberately reconfigure the over 200,000 cash machines beforehand for maintaining adequate secrecy and the machines are being re-calibrated now so they can dispense the new 500 and 2,000 rupee notes that do not fit into the existing cash trays in the ATMs.
Some critics say this situation and the various inconveniences the public are facing should have been prepared for and plans should have been in place before the whole fracas began. Some economists too have questioned the decision to introduce the Rs. 2000 note saying if the policy is designed to force people into the banking system why issue a higher denomination – presumably an even more convenient vehicle for black money transactions.
But despite criticism, there are no second thoughts that Mr Modi’s demonetization is designed to drive black money out of the shadows. The move was aimed at curbing the negative impact of fake currency, black money, terrorism on the nation’s economy and corruption. The black money and corruption are considered as the biggest obstacles in eradicating poverty. Of course, it has hit those who have a huge amount of black money in the form of cash. A World Bank estimate puts the size of the black economy at 23.2% of India’s total economy in 2007. The Indian PM says that the rationale behind the move, saying ‘on one hand we are number one in economic growth and on the other we are ranked 100 in global corruption rankings.
No doubt, that this is certainly a brave decision, there would be a pause and obviously no little chaos as replacement notes of different design are made available. The aim was and is to clamp down on India’s severe problem with ’black money’ – to which the common people has given a Thumps UP!
by Ashwani Srivastava