Just fifty days of pain is what PM Modi has asked people to endure for this surprise movement of demonetization. But this limitation seems implausible as with this rate at which fresh currency is being disbursed, it will prove grossly inadequate to set the economy at the right track.
Now here’s why?
As per the data furnished by Finance Ministry, Rs 17,50,000 crore worth of currency notes were in circulation in October-end, out of which around 84 per cent or Rs 14,50,000 crore is in the now defunct Rs 500 and Rs 1,000 notes.
On the other hand, another data furnished late on Sunday by Finance Ministry of initial four days- November 10 to November 13—Rs 50,000 crore has been dispensed to people either by Rs 100 and Rs 2,000 denominations—either by means of withdrawal from their accounts or ATMs, or exchanged at bank and post office counters.
This, in 18 crore transactions, which has already made the banking system burst at its seams. In fact, on most days so far, and in most of the bank branches and ATMs, the money is getting exhausted even before the serpentine queues close in. This does not go well as per the assurances given by RBI which it had asserted in past that they have enough currency to replenish banks and their disbursals. Also, RBI said to have started printing the new currencies several days ago in order to create a good buffer.
Therefore, in that case even if we assume that the full amount of Rs 12,500 crore is being disbursed in Rs 2,000 denomination regularly, even then it will take 116 days to replenish the financial system which has been declared illegal. This is directly proportionate to the total amount of currency declared illegal would be replaced with new notes.
This strong step wasn’t taken without reason as a strong warning against demonetization by the direct tax administration has been given four years ago, what ill-effects it can bring and how futile the exercise can be—all of which is waiting to play out in full bloom today.
One general demand from public is that high denomination currency notes particularly Rs 1,000 and Rs 500 should be demonetized,” said in a report authored by the chairman of the Central Board of Direct Taxes in 2012, titled: “Measures to Tackle Black Money in India and Abroad.”
In this context, it was observed that demonetization can be one of the ways for tackling black money or economy, which is largely held in the form of benami properties, bullion and jewellery,” revealed 109-page report.
Furthermore, such a drastic step will cost tremendously, as more currency notes have to be printed which will cause an adverse impact on the banking system, mainly on logistics issues, make transportation of cash difficult, inconvenience the public and play havoc with disbursal of wages.
Demonetization wasn’t happening for the first time as it had been undertaken twice in the past—1946 and 1978, which was miserably failed, with less than 15 per cent of high currency notes being exchanged and more than 85 per cent of the currency notes had never been surfaced, because the owners suspected penal action by government agencies.