It was on 8th Nov the Hon PM of India came with this announcement to the nation. It took all by surprise. In Jan 1946 India experienced its first demonetisation under the British rule. In Jan 1978 again high value currency notes were demonetised. Now on 8th Nov 2016, the currency notes of Rs 1000 and 500 were demonetised.
Some economists doubt the impact of this decision but it is indeed a bold move.
The erstwhile governor of RBI DR IG Patel refused to oblige the government of India to fall in line with the demonetisation pressures. It is said that Dr Raguram Rajan also refused to accept the very proposal and reportedly the government had to wait for the new RBI governor Dr Urjit Patel to put his signature on the proposed new currency notes. It is worth understanding the monetary policy sagacity in an otherwise complicated economy like India and to say flatly no to the Government whims. To flush out black money it is an excellent idea. If it is done with utmost flawless planning coupled with sincerity and secrecy everyone would have welcomed it save the black money barons. Assault on black money is fully justified and it was overdue. But the very clever ones with black money had converted it into gold long ago! It seems the stable is locked safely after the horse has run away.
Was it done very professionally is the moot question being debated in the Indian Parliament? It was very dramatic. By this act of demonetisation some 86 per cent of the currency became null and void overnight. It means some 11 per cent of the GDP equivalent. One must realise that in India cash is the real means of transaction! We should understand that 20 percent of the total economic output is accounted by the informal sector.
The very idea of replacing the big denomination notes by new Rs 2000 denomination is debateable if not ridiculous.
Now on RBI management, it is well argued that “Dr Urjit Patel is either guilty of misleading the nation about the RBI’s preparedness on demonetisation or has sacrificed the autonomy of the RBI.”
Again it is said, “RBI is the monetary authority of India and solely responsible for making bank notes available to all residents in India. If the RBI headed by Dr Patel gave its approval to the demonetisation plan, then ostensibly the RBI was confident of making currency available easily”. Would Dr Patel show the courage of conviction to resign?
None can afford to be seen as opposing measures to clean up black money and to stamp out counterfeits. Here sadly the planning was faulty as well as its implementation strategy. One need not be an Oxford trained economist to know the installed capacity of the printing mechanism in India to cope with the demand to replace the withdrawn currency. When it is said everything will be settled before end of Dec 2016, only God almighty knows its logic based on sheer logic!!! Realistically putting it, one needs at least seven months to come back to normalcy in India. Again we need strong measures to contain corruption too. Swatch Bharath means corruption free India also.
Dr K M George,
President of Sustainable Development Forum,
Melmana, PO Ooramana, Muvattupuzha, Kerala, Pin 686663; phone 0485-2870371