Wednesday, December 21, 2016

Asking the Right Questions on Demonetisation

This is what many in the country – both economists and non-economists – are doing. Strange indeed that fiction should overtake facts when an eminent economist and a popular columnist, Bibek Debroy chose to counter Manmohan Singh-likes that are just handful in the country in a column in the Hindu dated 12th December, '16. The fact is that majority of the population were in support of demonetisation. I demanded for it even in 2011 for three reasons that the PM mentioned. There was one more reason at that time – to contain inflation that was razing at 8.5% then.The fiction is that 98.7% of households have bank accounts that too with the proportions mentioned by him.

23% of Jan Dhan accounts still have zero balance and around 21% had been accessed for laundering post-demonetisation. JAM was in a real jam with several of them not getting their monthly pensions or MNREG wages credited into the accounts. Unorganised micro and small enterprises, the wayside iron grill manufacturers, welders, food vendors, vegetable vendors, etc., that employ two or three employees operate only through cash still. These classes of enterprises and employees working there do not have a bank account and even if they had one, they do not operate. In fact, several of such workers could be migrants from Bihar, MP, Orissa, etc.

Heavens would not have fallen if there had been a four-day holiday for the banks that would have enabled them to plan for the entire exchange programme as the economy is used to tolerate such lag when festivals join on either side of the week-ends. RBI would have chalked out a plan for dealing with substituting the withdrawn currency with the 10% of the volume of lower denominations at their disposal immediately and graduating to at least 30% within the next fortnight to a month thereafter. Planning was in fits and starts. This is a fact.
Nobody was able to understand how, while demonetising the large notes, a larger note twice and four times value – Rs.2000 was pushed to substitute and whose interest were going to be served with such release? This was subject matter of large scale resentment with all the strong supporters of demonetisation. People behind such release clearly lacked foresight.

Rural areas initially were not on the radar at all. It was only on the 12th November that the Government and RBI roped in the BCs and BFs. PACS and DCCBs that have large presence and where the SF and MF were having their accounts in large numbers were out of the loop that had to fight for their legal right to serve their clients!! Bank Mitra structure could not help either exchange of demonetised currency or take the deposits at the speed of a branch counter. This is a fact.

The dawn of Digital India should have seen the start of POS machines, mobile payments, white ATMs, large scale use of RuPay cards etc. Unfortunately this got a boost only post demonetisation. Further, even now, net transactions do not have incentive though there were announcements of incentives from the rooftops of the state governments and central government. When I paid my electricity and water bills today through internet banking the straight outgo was of the order of 0.75% to 1.75% of the bill additionally.

Very surprisingly, ICICI Bank, HDFC Bank, Axis Bank, Citi Bank are all net savvy banks and 20-90 percent of their clients do transactions through net and cards. Why there was need for the RBI to pump cash almost equivalent to or only a tad less than the State Bank group to the first four of the above during the first week of demonetisation?

People are asking another right question: For an intended cashless economy, where is the need for ATMs to get calibrated for Rs.2000 denomination to deliver? ATMs dispense daily or weekly cash requirements of persons and they should have 50s, 100s and 500s currency notes in their dispensers. The limit need not be Rs.40000 but can be restricted to Rs.10000. During the last five weeks 98% ATMs greet you with shutters down. But the Banks keep bluffing that the ATMs are functional and one Dy.Managing Director of a PSB announced that 95% ATMS are functional on the 15th November 2016 with absolute impunity when not even 5% were working.

During the last fifteen days crores and crores of Rs.2000 cash was caught as unaccounted cash!! How such cash in the first place got delivered to the errant? It is obvious that there is large scale fraudulent exchange that took place in the banks as the Axis Bank branch proved and it is just tip of the ice berg. The errant knows that it would take long many years to book them and punish them going by Gali Janardhan Reddy type of cases. Not a single such large fish has been punished during the last two and half years!! On the other hand, they move as honourable citizens and perform marriages with pomp and extravaganza.
The premium for corruption has gone up and the shapes in which this gets into the future will unfold.

If the IT department had functioned as it should then the incidence of black money would have been negligible. Probity is lacking in the department and the Finance Ministry's trust in them is misplaced. 

Let me conclude by mentioning that excellent measure has been rendered by monumental failure in planning and erratic bureaucracy forcing itself. India can never become cash less economy but for sure will be less cash economy than the least cash developed economies in the next two years if not more provided regulators behave sensibly and judiciary functions with speedy justice.