Indian Demonetization – Is it Even Worth it?
So there I was wearing my kit for a game of football with my friends when one of them breaks the news about the demonetization.
As a person who relies on logic and is exposed to way too many WhatsApp forwards like “Mars will be seen bigger than the moon tonight” (RIP Physics), my natural reaction is, “Bullsh*t, it’s a hoax”.
Two hours later and the few WhatsApp groups I am part of collectively have hundreds of messages. Turns out – not fake!
I did not see that coming.
After successfully salvaging cash from the corners of our wallets to pay the not-so-modest charges for the football field without Rs. 500 and Rs. 1000 notes, it was time to come to terms with the radical announcement.
Initial euphoria – This is amazing! Screw you black money earners! Screw you government officials who demand huge bribes to push papers! This is going to have a huge positive impact! What a brilliant move!
But once this euphoria died down the rational part of my brain woke up again. A bunch of questions, discussions and realizations followed.
Is it really a brilliant move?
Do we really really believe people with a lot of black money stuff it in their mattresses, pillows and cupboards?
They have a small percentage of it in cash, yes. But unless they are planning on distributing it to buy votes for some upcoming election or something, nope. Well, unless they are a drug lord like Pablo Escobar who lost $2.1 Billion in cash every year to rats eating it or water damage ( :-O I know right?!) which I presume is unlikely.
People invest it. They circulate it.
Just as an example, the IAS couple who were caught with disproportionate assets worth assets worth Rs. 350 crore and Rs. 3 crore in cash. That is less than 1% of their assets in cash.
My point is that when people have a lot of cash lying around, they have a generous multiple of it not in cash. We look at the absolute amount and it is great that this cash is coming out or being burnt. But it is important to not lose sight of the relative amount too.
And sorry to break your bubble but there is no chip in the new notes. Not even RFID, much less something that can be detected by satellites.
I doubt such a technology where a transmitter is not required on the other end for exchange of information exists anywhere, much less in a currency. I would be happy if someone proves me wrong and makes me aware of such technology. It will be my ‘something new I found out about’ for today but I digress.
What about the maids, the daily wage labourers, the vegetable sellers, the farmers. What about the lowest rung? Most reading this are probably comfortable with electronic transactions and do them quite often. But a majority of the population and many industries do not. There is going to be a very grave crunch of purchasing power for them.
What if you had just paid the monthly wages maid who comes to your house her salary in Rs. 500 notes and her plan was to buy rations for her family just the day after this announcement?
How does the vegetable seller in the local market buy his stock for the day in the early morning wholesale market?
Many businesses owners will pay their daily wage contractual labourers in these denomination notes saying they don’t have an option and they can deposit these in their bank account.
But if someone is running a household on their daily wage, can they really do that? Do they have the freedom to sit with the useless money till the banks open and then take take a day off work to navigate through the ensuing chaos and long queues in the banks?
Most do not have credit / debit cards or do not know how to use them. I know how many times I have stood in an ATM for quite some time after I am done explaining someone how to use their card at the expense of being eyed suspiciously or being rudely shooed off by the guard who didn’t care enough to help the person.
They will take time to adapt. The collateral damage being that all local brick and mortar businesses will suffer at least till the new notes come into circulation and ease the cash scarcity. Some hard days ahead for your local kirana wala who doesn’t have a card machine.
And the logistical and infrastructural cost of this decision is immense. Printing of new notes, refilling of all banks treasuries and ATMs among many others. But I will refrain from elaborating about this obvious aspect.
That being said, I give complete credit that it will address the apparently widespread issue of counterfeit money and usage of the same to fund terrorist activites.
Is a bold move? Definitely! Will have an effect on the black money in the country? Probably a limited one.
This decision is not going to solve the problem. This is just a reset button of sorts. Illegal transactions are going to continue once the new notes come into circulation and their scarcity decreases.
But at what cost? So much hardship for the everyone while the relative effect on the people with the bigger volumes of black money is questionable at best?
My point being, let us take the facts, understand them and logically try to comprehend the effects of this instead of being crazed and be swept away by mass fanaticism or opinion.
Once you do that, then go ahead and troll me all you want by using all caps and calling me things like anti-nationalist and unpatriotic.
#IndiaFightsCorruption … #IndiaFightsCorruptionHopefully