First 30 days: Five points that prove demonetisation has backfired
The Country is still struggling in dealing with the huge problem of cash crisis.
- Dec 8, 2016,
- Updated Dec 8, 2016 4:14 PM IST
On November 8, in a surprise address to the nation, PM Narendra Modi announced the recall of Rs 500 and Rs 1000 notes. Defending the move, the PM said that it will help in the long run for the country and will help the Indian economy to curb black money in the system with the elimenation of the fake Indian currency.
But even after 30 days of the announcement, the nation is still struggling to find the solution for dealing with the huge problem of cash crisis.
The Reserve Bank of India on Wednesday, however, has announced that with three weeks left for the December 30 deadline to return the scrapped currency notes, Rs 11.55 lakh crore - out of a value of Rs 14.17 lakh crore notes in circulation at the end of March 2016 - has already come back into the banking system.
But the chaos that is prevailing everywhere has proved why the government's 'bold' decision has backfired.
The never-ending queuesThe serpentine queues of millions of people outside the various banks and ATMs, to exchange or deposit the old notes are the 'new normal'.
From day one, people are lining up outside the banks even as banks across public and private sectors have complained of not having enough cash to meet the needs.
People who did manage to withdraw the money said the new Rs 2,000 notes was difficult to spend because hardly anyone had enough change in smaller currency in the absence of Rs 1,000 and Rs 500 notes.
Causing the Economic slowdownWith the Reserve Bank of India already slashing 0.5 percentage points off its growth forecast for 2016-17 amid the fact that the the services sector shrinked for the first time in 18 months in November, indicates economic slowdown due to demonetisation.
The Nikkei Services Purchasing Managers' Index (PMI) fell to 46.7 in November from 54.5 in the previous month, the sharpest reduction in three years. A reading above 50 indicates growth and a reading below shows contraction. This may be an early indicator of deceleration of the gross domestic product (GDP) in the December quarter.
The PMI report also stated that the construction, trade, hotels and real estate industries had a higher unorganised component and were more vulnerable to the cash shortage and is negatively impacted in the month of November.
Also, Japanese financial firm Nomura, in a research note said that India's GDP growth rate would likely fall to 6.5 per cent in the third quarter and stay subdued at 7 per cent in the subsequent three months with the cash shortage expected to continue till next month.
Government's indecisivenessTill date, the government has made several changes to the norms which were first announced on November 8 show the government's indecisiveness and gives the impression that the demonetisation decision had been taken with little planning.
After reports on crop sowing taking a hit due to non availability of cash, the government allowed farmers to buy seeds with old Rs 500 currency notes. A November 17 announcement allowed farmers to withdraw up to Rs 25,000 per week from their KYC-compliant account. Following reports on abuse of Jan Dhan accounts for stashing money, the RBI capped the withdrawal limit to Rs 10,000 per month.
On November 17, the government made more modifications to the existing rules. Families could now withdraw up to Rs 2.5 lakh for weddings. The currency exchange limit was reduced from Rs 4,500 to Rs 2,000 per person. Traders in agricultural mandis were permitted to draw up to Rs 50,000 in cash per week to pay for sundry expenses like wages. Also, government employees up to Group C could draw Rs 10,000 salary in advance in cash.
Political warThe Parliament's winter session is witnessing a deadlock over demonetisation. With the Congress' Vice President Rahul Gandhi calling the move as a disaster, the chorus for PM's address to the house over the issue is gaining momentum.
Also, in a sharp attack on the government in the Rajya Sabha, Former Prime Minister Manmohan Singh has referred the decision as "monumental mismanagement" that might shave at least 2 percentage points off India's economic growth rate.
Singh further said that the several deaths and distress among the poor, farmers and small traders convinced him the demonetisation plan led to "organised loot and legalised plunder".
Absence of positive sentiment Even after the countinuous assurance from the Prime Minister himself, the overall sentiment is not positive. Till now 84 deaths have occured in the demonetisation related incidents.
The Supreme Court also came down hard on the government for not doing enough to ease the cash crunch in the country, warning that the situation is serious and people were still so anxious that there could be riots.
Also, incidents of people arrested with fake currency from different parts of the country and various media reports of people converting black money into a legal entity with the help of persons in the system, show why the government's move has failed the comman man.
On November 8, in a surprise address to the nation, PM Narendra Modi announced the recall of Rs 500 and Rs 1000 notes. Defending the move, the PM said that it will help in the long run for the country and will help the Indian economy to curb black money in the system with the elimenation of the fake Indian currency.
But even after 30 days of the announcement, the nation is still struggling to find the solution for dealing with the huge problem of cash crisis.
The Reserve Bank of India on Wednesday, however, has announced that with three weeks left for the December 30 deadline to return the scrapped currency notes, Rs 11.55 lakh crore - out of a value of Rs 14.17 lakh crore notes in circulation at the end of March 2016 - has already come back into the banking system.
But the chaos that is prevailing everywhere has proved why the government's 'bold' decision has backfired.
The never-ending queuesThe serpentine queues of millions of people outside the various banks and ATMs, to exchange or deposit the old notes are the 'new normal'.
From day one, people are lining up outside the banks even as banks across public and private sectors have complained of not having enough cash to meet the needs.
People who did manage to withdraw the money said the new Rs 2,000 notes was difficult to spend because hardly anyone had enough change in smaller currency in the absence of Rs 1,000 and Rs 500 notes.
Causing the Economic slowdownWith the Reserve Bank of India already slashing 0.5 percentage points off its growth forecast for 2016-17 amid the fact that the the services sector shrinked for the first time in 18 months in November, indicates economic slowdown due to demonetisation.
The Nikkei Services Purchasing Managers' Index (PMI) fell to 46.7 in November from 54.5 in the previous month, the sharpest reduction in three years. A reading above 50 indicates growth and a reading below shows contraction. This may be an early indicator of deceleration of the gross domestic product (GDP) in the December quarter.
The PMI report also stated that the construction, trade, hotels and real estate industries had a higher unorganised component and were more vulnerable to the cash shortage and is negatively impacted in the month of November.
Also, Japanese financial firm Nomura, in a research note said that India's GDP growth rate would likely fall to 6.5 per cent in the third quarter and stay subdued at 7 per cent in the subsequent three months with the cash shortage expected to continue till next month.
Government's indecisivenessTill date, the government has made several changes to the norms which were first announced on November 8 show the government's indecisiveness and gives the impression that the demonetisation decision had been taken with little planning.
After reports on crop sowing taking a hit due to non availability of cash, the government allowed farmers to buy seeds with old Rs 500 currency notes. A November 17 announcement allowed farmers to withdraw up to Rs 25,000 per week from their KYC-compliant account. Following reports on abuse of Jan Dhan accounts for stashing money, the RBI capped the withdrawal limit to Rs 10,000 per month.
On November 17, the government made more modifications to the existing rules. Families could now withdraw up to Rs 2.5 lakh for weddings. The currency exchange limit was reduced from Rs 4,500 to Rs 2,000 per person. Traders in agricultural mandis were permitted to draw up to Rs 50,000 in cash per week to pay for sundry expenses like wages. Also, government employees up to Group C could draw Rs 10,000 salary in advance in cash.
Political warThe Parliament's winter session is witnessing a deadlock over demonetisation. With the Congress' Vice President Rahul Gandhi calling the move as a disaster, the chorus for PM's address to the house over the issue is gaining momentum.
Also, in a sharp attack on the government in the Rajya Sabha, Former Prime Minister Manmohan Singh has referred the decision as "monumental mismanagement" that might shave at least 2 percentage points off India's economic growth rate.
Singh further said that the several deaths and distress among the poor, farmers and small traders convinced him the demonetisation plan led to "organised loot and legalised plunder".
Absence of positive sentiment Even after the countinuous assurance from the Prime Minister himself, the overall sentiment is not positive. Till now 84 deaths have occured in the demonetisation related incidents.
The Supreme Court also came down hard on the government for not doing enough to ease the cash crunch in the country, warning that the situation is serious and people were still so anxious that there could be riots.
Also, incidents of people arrested with fake currency from different parts of the country and various media reports of people converting black money into a legal entity with the help of persons in the system, show why the government's move has failed the comman man.