THE DEMONETIZATION DRIVEWill it Change the Fate of the Nation for Good?

Adhering to its pre-election

campaign promise to take sternaction against black moneyhoarders, the PM of India didwhat one couldn’t even dreamof. Right from the dayNarendra Modi kicked off thedemonetization drive, therehave been mixed responses onthe surprise move from peoplerepresenting variegatedverticals. While some called ita welcome step to curb blackmoney and make Indiacorruption free, others believedit to make the situation ofcommoners even worse. Here,it is important to recall whatthis decision was all about, andhow it unfolded.years back andhence led to the discriminationof military veterans.On the eve of 8th November2016, in a historical interactionwith the fellow citizensthrough a national channel,Narendra Modi announced that500 and 1000 rupees noteswere no more legal tender. Hegave a window of 50 days forpeople to deposit their notes intheir bank accounts or get themexchanged for value at any ofthe bank branches ofcommercial banks/ RegionalRural Banks/ Co-operativebanks (only Urban Co-operative Banks and State Co-operative Banks). In addition,he also allowed people toexchange their old currencynotes at any Head Post Officeor Sub-Post Office or from anyof the 19 offices of the ReserveBank of India. The PM alsowarned about taking legalaction against anyonedepositing amount beyond 2.5lakhs rupees.

The decision has turned out to be a big political gamble for BJPand the PM himself, the effect of which will get reflected in theforthcoming assembly elections in various states. At present,almost all political parties in the opposition have unanimouslyattacked the government on demonetization. This has completelyparalyzed the functioning of both the Parliament houses.

However, despite all political attacks and the hardships that thecommon Indians are facing, the fact that demonetization couldenhance their lives in the long run, could not be ruled out. Here isa roster of benefits that it can induce.

The decision will take the unaccounted money out of the system.This would minimize the government’s liabilities and encourage itto invest the deposited money on large infrastructure projects andfor the welfare of the needful.

Post demonetization, people would prefer depositing cash in theirbank accounts instead of keeping them at home. This will in turn

boost the CASA ratio and NImargins of the banks.

It could improve the Tax toGDP ratio, tax complianceand collection appreciably,hence leading to comparablylower borrowing andenhanced fiscal management.

Prices are likely to fall at anall-time low, especially in thereal estate sector. Moderationof demand could be otherfactor behind price dropalongside the use of chequesand cards.

A sudden decrease in thecurrency circulation couldgive way to a steep surge forthe cashless paymentalternatives of the likes of E-wallets (Freecharge, Paytm,etc.), digital transactionmodes, net banking, plasticmoney transactions, etc.

It has turned up as a brightopportunity for the RBI torelax monetary policy rate inthe wake of enhancedeconomic efficiency,monetary transmission, andstructural moderation incirculated currency.

Most of the political partieswould be deprived of theunaccounted money by theend of 2016, which willensure cleaner and moretransparent elections in thebetter future.

More than 86% of thecirculated currency in Indiawas of Rs 500 and Rs 1000denominations, which wereheavily used in terrorfunding. According to IndianStatistical Institute, thecirculation of about .025% of

India’s takes place via porous border inNepal, Bangladesh. Hence,demonetization will have grave impact onsuch terror financing.

Anti-national elements pro-active inhoarding of black money, fake currencyrackets, hawala transactions, and fundingfor smuggling, arms and ammunitions, willalso take a back seat.As per a Press Releaseby RBI dated November 28 2016, banks allover India have reported theexchange/deposits worth ₹ 8,44,982 crore(exchange amounted to ₹ 33,948 crore anddeposits amounted to ₹ 8,11,033 crore)from November 10 to November 27, 2016.This happened apropos to theannouncement of withdrawal of legaltender status of banknotes with ₹ 500 and₹ 1000 denominations from the Midnightof November 8, 2016. Notably, the amountis around 84% of the target of ₹10 lakhcrore that the government set itself. Indeed,it was a big achievement considering thefact that money deposited could beleveraged for construction of a better India.At the same time, the note ban would putan end to the age-old cross border terrorismand fake currency penetration in thecountry.While the Finance Minister, along withother cabinet ministers and the ruling partylauded the PM’s decision, it didn’t go wellwith the opposition. Even the commonerswere compelled to face hardships due to thesurprise move. The issue got a big coverageon various TV news channels, Newspapers,and over social media. While the scheme initself was an unprecedented attempt tobring black money hoarders to book, itlagged the sheen on various fronts.

The glaring flaws

It is too early to comment on the fate ofModi government, whether it will bewritten off or be a beneficiary in the longrun. However, in the first month of the noteban, it is for sure that the common Indianwas compelled to face miseries inwithdrawing their own money. The PMmight have asked for 50 days for thesituation to recuperate but the reality couldbe too bitter to except. P. Chidambram,former Finance Minister under Manmohan

Singh government expressed the sameapprehension as he said, “They haveblundered. They are trying to race againsttime.” Here are certain points that couldtend this historical decision intended tosanctify India from corruption and illegalmoney, to backfire.

Introduction of Rs 2000 Notes

crore notes per month. If they wanted toreplace 2100 crore notes with theequivalent denomination notes, it wouldtake them seven months to print them.That is why they introduced Rs 2,000notes. There is absolutely no economicjustification.”In another interview, he said, that hewould have resigned had he been theFinance Minister, if asked to take the

demonetization step. He believed that theidea of maintaining secrecy was necessarybut the PM should have consulted at leastthe former PM Manmohan Singh andBJP’s own former Finance MinisterYashwant Sinha. Moreover, the government has made iteasier for those wishing to hoardunaccounted money in cash, as ₹2000notes will occupy only half the space ascompared to ₹1000 notes. This has onlyas a blessing in disguise for theproliferation of black money, reportsHuffington Post.

Sidelining of the common man

The chaos and uncertainty regardingdearth of sufficient money in theaftermath of the currency ban wasobvious on the faces of everyone in therural as well as urban locations. Long

Speaking in a media event, FinanceMinister Mr. Arun Jaitley hailed thedemonetization drive as a big“achievement”. He said “On the executionpart, I don't think this could have beenbetter executed than how it has beenexecuted now”. Ironically, it seemed as ifthe new announcements regarding rulesand regulations every single day have onlymystified the public instead of convincingit about the decision. “This continuoustinkering to fix avoidable or foreseeableproblems suggests that the particulars ofthe demonetization-related policies arebeing made on the fly rather than beingmeticulously planned in advance”, reportedThewire.

Be it to manage financial hiccupsfor an upcoming wedding, buyseeds for the farms, sustain fundsfor businesses, or even to cope upwith daily monetary requirements,the extent of damage has penetrateddeep down. To top it all, there havebeen more than 70 deaths since 8November all across India, whichinclude people who died becauseof:

Standing continuously for hours in theserpentine queues outside banks and ATMS

Suicides following the demonetization cashcrunch; and

Denial of hospitals, medicine shops andambulances to serve the patients in lieu ofold notes.

card requires them to abide by certain

Persistently changed policies

Speaking in a media event, FinanceMinister Mr. Arun Jaitley hailed thedemonetization drive as a big“achievement”. He said “On the executionpart, I don't think this could have beenbetter executed than how it has beenexecuted now”. Ironically, it seemed as ifthe new announcements regarding rulesand regulations every single day have onlymystified the public instead of convincingit about the decision. “This continuoustinkering to fix avoidable or foreseeableproblems suggests that the particulars ofthe demonetization-related policies arebeing made on the fly rather than beingmeticulously planned in advance”, reportedThewire.

Black turns white

On November 29, Arun Jaitley introducedan income disclosure scheme in the LokSabha called as Pradhan Mantri GaribKalyan Yojana (PMGKY). It allows thepeople having unaccounted cash to comeclean by paying 50% of the amount as taxand penalty. If discovered during raids, thefine on the undeclared income would rise to85%. The breakup for 50% amountincludes: Taxable amount (30%), Penalty(10%) and Surchage on tax paid (33%),which is around 10% of the total taxablemoney. As for the remaining 50% of theundeclared money, 25% amount would beconsidered interest-free for four years.Ultimately, the owner can take home onlyonefourth (25%) of the total unaccountedmoney. The conditions for amountdiscovered in raids would differaccordingly. Indian Express terms this billas a safe passage for people withunaccounted money in cash. It opines thatthe scheme has given a major setback to thewar on corruption initiated by thegovernment through the note ban decision.It writes, “The bill is an invitation to thosewho have kept their undeclared income incash to pay the government half of it(including tax, penalty and surcharge) andin return, turn the balance 50 per cent intolegal white money”. Ithe war on corruptioninitiated by the government through thenote ban decision. It writes, “The bill is aninvitation to those who have kept theirundeclared income in cash to pay thegovernment half of it (including tax,penalty and surcharge) and in return, turnthe balance 50 per cent into legal whitemoney”.

Failed attempt to control

counterfeit currency?

One of the primary motives behind puttingthe higher denomination notes out of actionwas to stop the circulation of fake currency.However, if we go by the numbers, thevalue of counterfeit currency is next tonegligible. As per a study conducted byIndian Statistical Institute, Kolkata in 2015,spurious notes worth ₹400

crore were in circulation in India. This ishardly 0.025% of the total budgetannounced in 2016 fiscal, i.e, ₹19.7 lakhcrore. Notably, merely the printing cost ofthe banned notes is around ₹12,000 crore.A policy that drains ₹12,000 crore for thesake of flushing out ₹400 crore of fakecurrency seems a bit unjust. It actuallyspread more sensation and panic amongthe public than doing any good. In anincident, which further posed a majorthreat to the drive intended to combat fakecurrency, an engineering graduate wasarrested on December 1 for printing fake₹2,000 worth ₹42 lakh in Mohali.Abhinav Verma, along with two moremembers of his gang, was accused ofduping the people with photocopies of₹2,000 notes in exchange of old currencynotes at a 30% commission rate. The fakenotes were recovered from an Audi SUVwith read beacon atop, which is allowedonly for VVIPs, according to MohaliSuperintendent of Police. Notably,Abhinav’s ‘Live Braille’ wearabletechnology innovation to help the blindpeople walk without stick was lauded bythe PM himself at Indian ScienceCongress in 2015. His device waslaunched commercially under the ‘Makein India’ program earlier in 2016.

The ‘Cashless’ society

Making India cashless was one of theambitious goals behind demonetization.The PM himself endorsed the concept andencouraged the people to use debit/creditcards, internet banking, mobiletransaction apps, etc. to avoid the hasslesof paying cash amid the ongoingeconomic crisis. In his November’s‘Mann Ki Baat’ program, he agreed that a‘cashless’ society is not possibleimmediately, and appealed the people,especially the youth to come forward andbe part of ‘less-cash’ society. This willpave the path for being cashless in thebetter future. The idea is great andenvisages a bright future for the nation butthe timing is quite adverse.

Genuine challenges

India has to work heavily in improving theinfrastructure in order to afford a cashlesseconomy. At present, the country entertains46% banking penetration and 19% of itspopulation lives without electricity or withunreliable connection. Moreover, of the 14million merchants, only 1.2 million havePoint of Sales (PoS) devices. In addition,the digital literacy is almost non-existentamong above 90% population of India.While 40% of people live below povertyline, it is not that cake walk for them toafford a smartphone or at times, even abasic phone. Before making the countrycompletely cashless, it is inevitable toaddress these real challenges.

Problems with Plastic money

Plastic money has also several stringsattached with it both for the merchants andfor the consumers. For businesspeople,applying for a obligations such as paymentfor merchant fees, KYC documentation andcertifications related to transaction security.Additionally, card payment is quite timeconsuming. Likewise, consumers have topay annual fees for cards in addition toconvenience and surcharge fees.

Connectivity and bank issues

To be precise, India has only 22% internetconnectivity, and in several areas, theinternet is blocked due to various reasons.In such situations, it is beyond one’simagination to opt for online transactionsor e-wallets. Even the banks need to beduly equipped and should have properinfrastructure in order to deal with the risein e-transactions or to open more bankaccounts.

Editor's Note

While the citizens of India hail the brave andsurprising decision of the government, they areyet to get the much desired monetary relief.They are instead compelled to wait for theirturn to get their own money from the banks andrecalibrated ATMS. Despite it being a greatmove, a better planning could had made thedemonetization drive the best ever in the world.Nevertheless, it is still the best move ascompared to earlier similar note bans incountries like North Korea, Ghana, Zaire,Soviet Union, since we have an upper hand interms of digital transactions. Yet again, suchcashless transactions have their own limitations.

While Manmohan Singh termed it as an"organised loot and legalised plunder, NobelLaureate Amartya Sen called the decision“despotic action that has struck at the root ofeconomy based on trust. Arun Jaitley didrespond to Singh’s castigation by saying that itis no surprise that he is unhappy as "maximumblackmoney was generated" under his rule. Butamid all these blame games and mudslinging, itis the common man, who is bound to suffer, andthe condition is showing no signs ofimprovement at least in the promised 50 days.Still, let’s hope for the best. There is anotherangle to this entire episode. Supporting or notsupporting the government on any decision isone’s personal opinion, it should not beconsidered as a benchmark to prove one’snationalism or patriotism. Unfortunately, thispractice is becoming a norm nowadays, withself-proclaimed patriots crossing all the limitsin claiming the nonsupporters as outsiders,traitors, and even the terrorists. In 1908, in aletter to one of his friends, Rabindranath Tagorewrote “Patriotism can’t be our final spiritualshelter. I will not buy glass for the price ofdiamonds and I will never allow patriotism totriumphover humanity as long as I live.” Histake on the freedom of mind needs could act asa lighthouse in sanctifying our minds from theevil and hatred spread in the environment atpresent.

Coming back to the decision, as per estimates,near about 25-40% of India’s economicactivities is carried out without any legalmention. Bringing these off the book activitiesin the open through banking system may beeffective in boosting tax revenue. It is a strongstep to ensure a cleaner and more transparentsystem and for the sake of it a little bit ofsuffering could be bearable.

However, if the suffering transforms to deaths,it is beyond doubts a severe issue to thinkabout. In a recent event, an elderly died whilestanding in a queue in Hyderabad. In a justopposite incident, a Kanpur woman gave birthto a child in a bank queue. The nation witnessedmany more of such incidents after November 8.Be it labor pain or the pain of a labor, sighs ofthe old, or the hues and cries of a farmer, thegovernment needs to be accountable for all suchagonies. As of now, the whole of nation as wellas the world awaits the outbreak of January 12017, since the

government has claimed to get everything atplace within 50 days, which end on 30thDecember 2016. The final day would decide thefate of the nation, whether it is ready fordemonetization or the old currency notes wouldmake a comeback.

IMPORTANT JUDGMENT

Following the ban on ₹ 500 and ₹1000notes on 8th November by the Prime

Minister of India, there have been manycases against the move from the

petitioners across the country. In all, 70cases have been filed in different courts

of India, with 17 cases slated for hearingin the Supreme Court alone. Here is the

timeline of court case hearings regardingdemonetization:

November 15:Responding to the writ of Sangam Lal Pandey,an Uttar Pradesh-based lawyer to quash thenotification of the Reserve Bank of India (RBI),the Supreme Court refused to staydemonetization. Giving relief to the Modigovernment, the SC bench said that the Centre’sobjective was not “illegal” but “laudable”.However, it also maintained that so called“surgical strike” against black money and fakecurrency circulation has caused inconvenienceand “collateral damage” to the common people.It also said, “You (Centre) can have a surgicalstrike against blackmoney but you cannot havesurgical strike against the people of the country.Carpenters, maids, vegetable sellers aredependent on cash. Are you capable of reducingtheir trauma? Your aim is to wipe out blackmoney but people are traumatised standing inqueues for hours doing nothing,”. The courtstated further, "They (Centre) call it surgicalstrike. You (Kapil Sibal appearing for apetitioner) call it carpet bombing”. It added,“The object of such measures is against thepeople hoarding cash”November 18:

The Supreme court rejected the government’splea to stay cases against demonetization filedin High Courts and lower courts all over India.Terming the long queues outside banks as aserious issue, it warned that there “may beriots”. It said," This is very serious. This is willrequire great consideration. People havebecome frantic, people are affected... There maybe riots. " It further said, "How can we shut ourdoors to people when there is a problem of suchmagnitude." The court also questioned reliefmeasures by the Centre as it said, “Last timeyou said there will be relief for people in thecoming days but you have squeezedtheexchange limit to Rs 2,000 only.”

December 02:The bench of Supreme Court comprising ChiefJustice T S Thakur and Justice D YChandrachud urged all the parties to sit togetherand prepare of list of case categories. It opinedthat this will help in determining the cases thatcan be referred to the high courts and the onesthat could undergo hearing in the apex court.The Supreme Court also urged the centralgovernment to inform about the measures liftedto ease the inconvenience and sufferings of thepeople who are dependent on co-operativebanks in rural locations after demonetization.

December 03:A bench of Justice D Y Chandrachud andJustices A M Khanwilkar informedrescheduling of the hearing to December 9 dueto the absence if Chief Justice Thakur. The apexcourt was supposed to hear the petitionschallenging constitutional validity of thenotification of demonetizations, and the chaos itcreated among the people.

LAW AND MEIndia is not the only country to practicedemonetization, governments in severalcountries have implemented currency ban in thepast as well. However, they only invited the ireof the people owing the decision’s debacle inmost of the instances. One of the worst impactswas witnessed in Soviet Union. The infamousSoviet Union monetary reform of 1991, whichwas originally meant to stabilize the currency circulation in the country, eventually wentdown as a big fiasco in the history books.Named as Pavlov Reform after its architect andthe last Prime Minister of Soviet Union ValentinPavlov, it came into existence with the intentionto give counterfeit rubles a tough fight. On 22January 1991, President Mikhael Gorbachevsigned a decree to eliminate all the banknoteswith 50-rouble and 100-rouble denominationsissued since 1961. The duration of exchange ofold notes lasted only for three days fromJanuary 23 - 25, 1991. Maximum limit forexchange was 1000 rubles for each personexcept special commissions, which wereallowed to exchange bigger amount till Marchend. Individual withdrawals of up to 500 rubleswere permitted from Sberbank - the stateownedsaving bank. As a part of the reform, new notesof 50 and 100 ruble along with thedenominations of 1,3,5,10,200, 500, and 100rubles were issued. All old notes except 50 and100 rubles continued to circulate with the newones in 1991. Just opposite to the government’santicipation, the plans succeeded only in part asit was able to withdraw only 17.1% of theexpected withdrawal of 81.5 billion rubles, i.e.14 billion rubles. It led to a slump in thestandard of living and the country’s economyby the end of 1991. The average nationalincome dropped by 20% in comparison to 21%in 1990. The expenditure excess over revenuesincreases to 20-30% of the GDP. Further, withhyperinflation rising to 50% every month, andfinancial system going beyond control, theentire economy got paralyzed. All this led toloss of people’s confidence in the governmentand gave way to the infamous August 1991coup where Gorbachev lost his authority andthe disintegration of Soviet Union took place.

Pavlov was imprisoned for his participation in thecoup; he worked in the banking sector in post-Soviet Russia after his release. Boris Yeltsinbecame the first president of Russia. Taking a cluefrom the fiasco, the Russia’s redenomination ofruble in 1998 was handled more maturely.

CURRENT SCENARIOThe nation is heading toward the road to prosperityand even those who are facing the problems arewilling to bear the brunt considering it a temporaryinconvenience. People in India have extended theirsupport toward the move since they believe thattheir nation will change for good. They willultimately get freedom from corruption, moneylaundering, black money hoarding, terror attacks,face currency circulations, and all such curses thatare damaging the country like termites.

Thwarting the dreams of better India

Amid such positive thinking, the news of a formerMinister spending ₹ 500 crore on the wedding ofhis daughter, or that of a politiciancaught with unexplained ₹ 20 lakh in newcurrency notes, tend the people to feel cheated.Ironically, the latter leader recently posted on hisFacebook wall “For the progress of my country, Iam ready to stand in the queue,”. In a couple ofother incidents, the IT Department seized over Rs4 crore in new 2000 notes from the premises of acontractor and an engineer in New Delhi, alongwith Rs 100 notes and the banned Rs 500 noteson December 1. Likewise, a politician wasarrested in West Bengal with Rs 10 lakh cash innew notes of Rs 2000 on December 6.

This is exactly what happening in the currentscenario. While the middle class people and theimpoverished ones are standing in endlessqueues, neglecting all their priorities, incidentslike these just shatter our PM’s dream of getting acorruption free India.

Flooding of Jan Dhan accounts

The number of corrupts in a big country like Indiais indeed hard to track down, which can beobserved by a huge surge in the deposits of JanDhan accounts since November 8 demonetizationannouncement. In the first 13 days itself, severalof Jan Dhan accounts, spearheaded by WestBengal and Karnataka were flooded with aroundRs 21,000 crore. The PM has however asked thepoor people to keep the money deposited in theirJan Dhan accounts. "I'm trying to find a way tosend those who deposit money in poor man'saccount to jail while the poor get to keep themoney," he said during his party’s Parivartan rallyin Moradabad, UP on Dec 03.

Terror attacks A big motive behind the demonetization push was to control terror attacks. On Nov 22, two terrorists were gunned down in an encounter with security

NEWS Go cashless at least once next week, send proof: Pushing to promote Prime Minister Narendra Modi’s vision of a cashless economy, the BJP government in Haryana has ordered its employees to make at least one digital transaction within the

next seven days from their mobile phones and submit “certificates” of compliance.

Kerala leaders protest against demonetisation in Delhi Kerala’s opposition leaders on 14th December,16 staged a rare sit-in protest in Delhi against curbs imposed on cooperative

banks after the denomination of Rs 500 and 1,000 notes.

Pakistani national held with fake Rs 500 notes in Surat A Pakistani national on 14th December,16 was arrested and fake currency notes of scrapped Rs 500 with a face value of

Rs 50,000 were seized from him at Surat Railway station, police said. According to police, the accused, identified as Burhanuddin Sajjad (45), had entered India on a valid tourist visa and had obtained the fake notes from Pakistan

Expect income tax, interest rates cut in upcoming Union Budget: MoS Finance Income tax rate as well as interest rate are expected to come down as a result of demonetisation of high value currency

notes, Minister of State for Finance Arjun Ram Meghwal said 14th December,16. “I cannot reveal everything which will be part of the budget, but interest rate will come down…it will definitely come down”.

Utility, medical bills: Rs 500 notes invalid from December 15 midnight People can use old Rs 500 notes for paying utility bills or buying medicines till mid night of 15th December as the

Government has decided not to extend exemptions beyond 15th December. At the same time, mobile recharge facility with old Rs 500 notes will not be available. However, people

Game Zone Finish the words

1.There are _ _ women members in Constituent Assembly.

2.The Constituent Assembly met for the first time in ___ _____ on _ December ____in the central hall of Parliament House.

3.The idea of the suspension of Fundamental Rights during the emergency was taken from ______ Constitution of _______ .

4.The Indian Constitution starts with the ________ .

Article Submitted by Mohammad Atif