India’s Demonetization

Disaster

The announcement immediately triggered a mad scramble to unload the expiring banknotes.

DEMONITIZATION

This demonetization exercise was supposed to address the issues of

• Counterfeit• Corruption• Black money

DEMONITIZATION

90% - Outside country10%---- gold,property,..

5% as cashOverall- 0.5% of all blackmoney

HARM OF DEMONITIZATION

• AVAILABILITY OF MONEY• 86% by value of the 77 billion currency notes• 500s (11.4 billion notes) or 1000s (5.081 billion notes).• we’ll need 16.5 billion new notes

• In 2014–15,- an entire year - the RBI had ordered from the printing presses the following numbers of currency notes:

• INR 500s: 5.4 billion notes• INR 1000s: 1.5 billion notes

• The new notes’ design prevents them from fitting into existing ATMs

• Their denomination – 2,000 rupees – is too high to be useful for most people,

• The RBI has only now (Nov 14) announced the setting up of a task force to oversee the recalibration of ATMs to dispense the new 2000s notes.

• RBI offcials were not in the loop as to the timing of the announcement.

• Fewer than 20% of India’s approximately 2,15,000 ATMs for instance are in rural centres.

• More than 90% of financial transactions in India are conducted in cash

• Over 90% of retail outlets lack so much as a card reader• Over 85% of workers are paid in cash• More than half of the population is unbanked

•India has a ratio of one machine for every 1,785 people.• In comparison, Europe has one for every 119 people, •China one for every 60 people and the US one for every 25 people.

DEMONITIZATION

• Nearly a month later, however, all the demonetization drive has achieved is severe economic disruption.

• Far from being a masterstroke, this decision seems to have been a miscalculation of epic proportions.

Economy• India’s previously booming economy has now ground to a

halt. All indicators – sales, traders’ incomes, production, and employment – are down. Former Prime Minister Manmohan Singh estimates that India’s GDP will shrink by 1-2% in the current fiscal year.

• Small producers• Daily wage workers• Local industries • The informal financial sector – which conducts 40% of India’s total lending,

largely in rural areas – has all but collapsed.• India’s fishing industry• Farmers• Hospitals• Families• Middle-class workers• As many as 82 people have reportedly died in cash queues or related events. • Furthermore, it seems likely that many of the short-term effects of the

demonetization could persist – and intensify – in the longer term, with closed businesses unable to reopen.

DEMONITIZATION

• Lasting Damage

• Burma in 1987• the former Soviet Union in 1991 • North Korea in 2009

DEMONITIZATION

• Design was fundamentally flawed• There was no “policy skeleton,”• No cost-benefit analysis• No evidence that alternative policy options were

considered• Judging by the blizzard of policy tweaks since the

announcement, it seems clear that no impact study was carried out.

• -Shashi Tharoor

DEMONITIZATION

QUOTE…• Dr.Manmohan Singh- a monumental management

failure, and in fact, it is a case of organised loot, legalised plunder of the common people.

• Reghuram Rajan : It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on tracking data and better tax administration to get at where money is not being declared

THANK YOU…….