One of the primary roles of a central bank is the management of currency. A month after demonetisation, the banks are still rationing cash to tend to as many people as possible and ATMs are running dry within hours.
RBI's frequent notifications regarding withdrawal and usage of the currency notes has added to the problem. Not only have these announcements fanned confusion, they've also led to people hoarding currency in some cases.
Here are six things that both the RBI and the Prime Minister Narendra Modi-led government could have done better.
Even though the RBI had asked banks to recalibrate ATMs for dispensing only Rs 100 notes a week before PM Modi announced demonetisation, the caliberation of ATMs for dispensing only Rs 100 notes could not be completed before PM Modi's televised address on November 8. It took more than three weeks for the recalibration of ATMs, causing hardships for people across the country who were left cashless.
There have been innumerable statements from both the government and the RBI since November 8 that have added to the confusion about the rules, usage and exchange policy for the old currencies. On November 8, both the Prime Minister and the RBI had said that old currency notes of Rs 1,000 and Rs 500 can be deposited in banks until December 30, so much so that government later exhorted people to not rush to banks in the early days and add to the queues. However, in a U-turn on December 19, RBI added a new caveat that defunct currency notes exceeding Rs 5,000 can only be deposited once per account till December 31 and that too after showing reasons for not doing so earlier.
One of the major reasons for demonetisation, as the government puts it, was to boot out corruption and black money. The government had estimated that around Rs 5 lakh crore of the scrapped Rs 14.93 lakh crore won't come back to the system. This could have led to a windfall for the RBI and the government could have used that money for public spending. As on December 10, RBI said that Rs 12.44 lakh crore had already come back to the system. With around ten more days to go before banks stop accepting the old currency notes, almost all of it is expected to come back. Revenue Secretary Hasmukh Adhia had also said that the government expects entire money in circulation to come back. If this was the case, then the government needs to answer as to why such a massive disruption was necessary.
Government's rationale behind this unprecedented move was to flush out black money and to put an end to hawala transactions that fuel terrorism and drug-trafficking. At least, that's what the Prime Minister Narendra Modi mentioned in his historic TV address to the people on November 8. However, as the cash crunch took over the country, the government seemed to change its narrative to make India a cashless economy. RBI Governor Urjit Patel also echoed the government's point that one of the benefits of demonetisation was the thrust on digitisation.
Going cashless with luck
The government on December 15 announced two lucky draws for merchants and consumers who pay via digital transactions - Lucky Grahak Yojana for consumers and Digi-Dhan Vyapar Yojana for merchants. Terming the schemes as a Christmas gift to the nation, the government said that the primary aim of this lucky draw was to incentivise digital transactions. The scheme becomes operational on December 25, but with an estimated expenditure of Rs 340 crore, how this scheme will help promote digital transactions at remote corners of the country remains to be seen.
No change for political parties
One of the reasons that the government had offered for demonetisation was about 'removing the pernicious influence of cash on the political and economic system.' However, after demonetisation, there has been no change with regards to donations to political parties. Political parties can receive multiple anonymous donations of less than Rs 20,000. These donations can be deposited in banks tax-free. Since political parties are not under the RTI Act, their conduct on how they spend this money will remain unaccounted. This loophole can be used by political parties and their cronies to launder their undisclosed illicit wealth in scrapped currency notes.
The views and opinions expressed in this article are those of the author