Dr. D. Mukhopadhyay
Demonetization was suddenly announced by Narendra Modi, the Prime Minister of India on 8th November, 2016 where he declared that 500 and 1000 Rupee Notes become counterfeit with effect after mid-night. The whole nation was astonished to hear such an announcement with unprepared minds. Demonetization is a scientific process of making counterfeit currency out of circulation so that money supply in the economy is restricted to the desired extent. This is a major demonetization incidence India came across after Demonetization in 1965 and 1978 and after 38 years since 1978, this demonetization may be considered to be a major economic reform initiated by Modi Government in Centre.
Supply of money in the economy is curtailed through demonetization and this creates temporary troubles for carrying out smooth economic transactions unless the counterfeit currency is replaced with new and valid currency notes. India witnessed demonetization 2016 as a traumatic experience. It needs hardly mention that India is a vast country with enormous economy size and majority of people transact in cash. More than 30% people are illiterate, hardly 60% of people do have bank account, most of rural mass is uncovered with banking service in India and people are in great trouble to effect their day-to-day commercial transactions under the given circumstances. According to media report, so far hardly 10% of counterfeit currency have been replaced with valid currency and this is indeed very very insignificant. Now many questions arise in the minds of people as to how this demonetization is going to help the national economy. Corruption is rampant in India in every level of the monetary transactions that take place in day to day economic life.
It is obvious that an inquisitive mind wants to know as to how taking bribe shall be curbed or how it is going to stop drug and or narcotic trafficking. According to the Indian Statistical Institute(ISI), Kolkata, only two to three counterfeit notes are found or discovered in a bundle of 10,000 notes which is very insignificant in terms of cost and benefit of demonetization that has been in place since 9th November, 2016. In this context, it may wisely be advocated that nobody would support to having counterfeit currency even if it is insignificant and one hundred percent genuineness in monetary transaction is desired and no fake currency should be given any room in the economy and it sounds theoretically valid. It is one of the sacred duties of every government to adopt appropriate measures to drive counterfeit currency out of circulation as it detriments the functioning of the economy. In India, more than 90% trading activities take place in cash and 86% of the same has been demonetized which makes economic wheel of the country almost stop. Daily wage earners are not having any work, farmers are not in a position to buy seeds, small scale industries are on the point of closure and groceries and pedlars are on the zenith of economic hunger out of the consequence of Demonetization 2016. It is a well-known fact that in an economy, low supply of money causes depression and this reminds us the consequence of the Great Depression 1929 in America when the Federal Reserve had slashed 30% money circulation and this was later acknowledged to be one of the major causes of the Great Depression. Japan also faced somewhat similar situation in early 1990s.
Everybody blessed with prudence may agree that demonetization measures adopted by Modi Government is a good step in removal of unaccounted money but implementation of the policy suffers from impracticability and imprudence. The whole demonetization operation was not based on time honoured home work. About 40% GDP comes from unorganized sector of the economy and about 80% of total employment is provided by unorganized sector only and this unorganized sector is breathing with trouble due to lack of sufficient oxygen.
New currency is nothing but oxygen to the economy. Commercial transactions of the unorganized sector of the economy take place in cash more or less and therefore cashless economy, plastic money is nothing but a utopian scheme if government of India so thinks. Every person having a bank account does not have debit card and ATM and many of the accountholders transact with banks on the basis of thumb impression. Cashless society is expected to give us an economically transparent society and as a theory, it sounds to have merit but how it is not possible in a country like India under the present scenario which needs at least another fifty or more years to be at par with that of economically advanced countries. Stringent restrictions have been imposed on cash withdrawal from banks and there is no stability and consistency in such announcements.
Since 8th November 2016 to 24th November, 2016, norms for cash withdrawal have been amended at least five times and this caused and created great confusion and harassment among the people. In the same way; cash deposit norms and currency exchange norms have been issued differently at different point of time. The whole economy has been sunk into the deep sea of mismanagement. Agriculture is the backbone of Indian economy and demonetization shall definitely have huge impact on production and distribution of agricultural produce and it may even cause famine in the country in the fourth-coming years as a consequence of Demonetization 2016.
Demonetization is a viable step for ensuring commercial transparency in the economy but central government has already incurred more cost than benefits and there is unarguable uncertainty about its benefits in near future. The Institute of Cost Accountants of India (ICAI-CMA), the national Professional Body of Cost & Management Accountants (CMAs) has taken an initiative to administer a Study on Cost-Benefit of Demonetization 2016 also.
Demonetization may yield certain good for the economy but that is likely to be insignificant. Many man-days have already been lost in this chaos and it is difficult to recoup the same soon. Let PM Modi be attentive for removal of illiteracy and promoting quality education for all and controlling population explosion, once it is done, this would act as the panacea for all ills, our society shall automatically be cashless and no separate effort for them shall be needed for making it a cashless society.
(The author is Professor of Management, Shri Mata Vaishno Devi University, Katra, J & K)
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