Friday, January 14, 2011

Demonetise

IT IS TIME TO DEMONITISE:
B. Yerram Raju*
“Not all the perfumes of Arabia will sweeten this little hand” (Shakespeare from ‘Meckbeth’)
The rate cuts of 2010 from the RBI did not influence the prices of food articles in particular and others in general, with the food inflation at the alarming level of more than 18%. Rampant corruption surfaced in nooks and corners of the economy. Recently the stories of forged notes coming into circulation via Pakistan, Bangladesh, West Bengal have also come to light. Rs 1000, Rs 500 notes have become the minimum denominations in circulation. All bank counters can stand evidence to this phenomenon. Several ACB raids revealed that the cash stored and seized in raids were mostly in Rs.1000denomination currency or Rs.500 currency. It is not certainly the 8.5% growth of economy that is responsible for this.
This will certainly bring down the inflationary pressure as it will flush out excess money in circulation. For a moment, this may foment the bear hug that has already started, for a few more days and market correction may in fact be facilitated.

This measure would not certainly affect the small and marginal as also tenant farmers, wage earners, salaried class and the aam admi in general. The rich might regret for the stack. Extraordinary situations require extraordinary solutions.