I had written the blogs below when effects of demonetization were at their peak. Almost no ATMs had cash. The very few that had would attract interminable queues. Sometimes after standing in a queue for a long time (it could be anything between half an hour to an hour or more) when your turn would be just a person away, the security guard would announce the ATM wouldn’t have cash beyond the person in front of you in the queue. You would go to another ATM to try your luck.
It was the same situation everywhere. The government had suddenly decided to starve the country of cash. Normalcy looked far off; some even wondered if it was the new normal. Reports of people staying in rural areas travelling to distant places for cash and returning home disappointed, people standing in long ATM queues dying of excessive heat, were coming in.
Nothing could be a better situation for the opposition. Yet they failed to seize the opportunity. People somehow had believed demonetization was good for the country. Observers said the poor felt the rich were suffering more than them; that people indeed believed demonization would bring better times and so on.
When the nation was still discussing whether demonetization was good or bad, UP elections arrived – and BJP won. Whatever little flak the government was receiving from the opposition parties and the media died down. In a country where the success of policies is measured in terms of their electoral effects, there could not be a more decisive answer than a win in UP, the most politically important state in India.
Slowly cash returned to ATMs (it took roughly two months). People forgot.
But demonetization is back into news after a substantial drop in GDP has been attributed to the effects of demonetization by experts.
The following blogs will help you recollect the period after the November 8th announcement: that 500 and 1000 rupee notes would no more be legal tenders.
Monday, December 5, 2016
It’s been sometime I have been at the receiving end of the effects of demonetization. I still am confused whether what the government is telling is right, that it’s today’s pain and tomorrow’s gain. Or what the opposition parties are claiming is true, that it’s not going to serve the intended purpose of eliminating black money, that it’s legalized loot, that nothing will prevent counterfeiters from counterfeiting the newly introduced notes and so on.
Whichever side of the argument you are on, a few things are very clear. It’s almost a month since demonetization and the situation on ground is still not back to normal. Most ATMs are not functioning, barring a few located in prominent places per area. The load on these few functioning ATMs is so high, as a result, that they are running out of cash within a few hours of refill. I stood in long queues of several such ATMs and the cash ran out when my turn was two to three people away. The luckiest ones walked away with 100 rupee notes, the luckier with 2000, some (including me) had to return emptyhanded. Even if you are lucky to get some cash, there is restriction to how much you can draw. Until some time ago ATMs cards from banks other than the host bank were not working. Now they are.
Like many of you, I am tracking this development closely and have read several articles and heard some interviews. Posthumously, they say a range of things which could have prevented or at least brought down the scale of the crisis. Instead of banning both 500 and 1000 rupee notes, they say, the government could have banned one – preferably 1000 – and left the other, which would have given them time to replenish the banned notes and also the option of targeting the 500 rupee denomination later. If they had taken some time to make all the notes the same size, which is how it is in many countries, the ATM machines would not require recalibration, they say.
These ‘should have beens’ may not bother us much now that it’s too late, but at a national and personal level there are a few possible outcomes of them. The happy political consensus over GST seems to have dissipated and reorganized itself as a pan India opposition against the government over demonetization. No one seems to mind the purported goals – end of black money, cashless economy etc – of demonetization; given their lofty nature, they are slightly unchallengeable. The opposition parties seem to smell a political opportunity in how demonetization has been carried out. And that seems to be the bone of contention for the amm janta too…who may think, if the mainstream media reports are to go by, that little bit of pain is worth the long term gains. But as each day goes by without the situation coming under control, the concern that’s becoming bigger and bigger is: how long the patience will hold out?
The answer to that lies in several things. How long will the government take to pull the situation under control? How soon, in what forms and how tangibly will people see the benefits of the pain they are undergoing? How long the government will be able to prevent the growing voice of a uniting opposition into becoming a nationwide roar (something like the G scams)?
A lot of this will require perception handling. Also, as the government works towards getting things in order, care has to be taken to make sure that nothing undermines the ground which is being covered on the way to normalcy. The system has countless holes through which illegal money can travel back and forth having a termite-like effect. And there is enough evidence that this is happening. New notes worth over Rs 4 crore have been seized in income tax raids in Bengaluru. Similar incidents have been reported from other parts of the country. And there are inherent challenges. One of them is the unorganized economy in India is intricately entwined with the mainstream economy and the former is mostly (unless it is illegal) cash based.
On ground a few things need to be made smooth so that after I get a 2000 rupee note it’s easy for me to find change or there are enough 100 notes in ATMs. The number of functioning ATMs should start growing so that I don’t have to stand in queues for too long. If the problem is to linger for a few more months, then special arrangements should be made on payment days, either by pumping in more currencies or devising ways to identify and move as many as possible to crediting their stuff salary into their accounts. None is easy. And what makes it difficult is this hydraheaded monster has to be tamed FAST.
Tuesday, January 17, 2017
It’s been sometime since I wrote the earlier blog on demonetization – and the situation has changed since then. We have got used to the new normal – that ATMs will not be the same again, that some visits to ATMs will be disappointing, some fruitful, that 2000 rupee notes will be in greater use than 1000 rupee denomination ever was and therefore getting it changed will always be a concern, that although a complete cashlessness may still be some years away, more and more number of small shops, the most formidable bastions of cashbased transactions, will offer digital options for payment. In sum, liquid cash will become less and less part of our day to day lives.
Well, all this is good news, but is it the whole picture or just an urban snapshot? From the reports that are emerging, rural India is still smarting under the effects of demo. A few days ago a news portal solely reporting on the effects of demonetization on rural India reported that in Maharashtra prices of some vegetables have dropped substantially due to over supply resulting from the inability of middle men to buy them due to lack of cash availability (these transactions are almost always cashbased). Some rural regions are not receiving enough cash supply in their banks – and it’s a bigger concern in rural areas than in urban ones.
And even in urban areas, even by the standard of the new normal, order has not completely returned. Most ATMs are still out of cash. Most of those that are working are mostly dispensing Rs 2000 notes. Many have concluded that visits to banks to draw cash via cheques is a better option than depending on ATMs; but then if that is so, then does it not defeat the whole purpose of demonetization?
By now it is undeniable that the implementation has been a disaster. How the government and various financial institutions have reacted to situations suggests they were not foreseen and planned for earlier. Surprisingly though, as it appears, demo hasn’t hurt the government politically, although many would suspend their judgement about it until UP delivers its verdict.
Apart from Modi’s thunderous speeches, what has helped the government is that the opposition continues to be hopeless. To start with, there is hardly any opposition unity. Some parties are ambiguous about their stand on demo, some are half-heartedly supporting it by maintaining silence, some are mindlessly hurling accusations none of which is sticking.
Amidst this chaos, though, one thing is becoming clear: emergence of a new order of payment methods, networks etc. The problem is how fast people can get used to the emerging order. The lightning speed with which demo was brought by the government will keep people on their toes, causing them to rush to the new transaction practices, in terms of learning them and making them an integral part of their day-to-day financial transactions.
Good or bad, this attitude towards government-brought changes is another bequest of demonetization. In the past, whenever it came to matters relating the government, people felt things would largely remain the same and they would be able to bypass the minor changes and survive the effects. Such comforting assurances have become a thing of the past.
In the meantime, stories will keep emerging, some funny, some tragic. Let us look at this one from Karnataka. To raise funds, to help a depleted exchequer, the government is invoking an old law where pubs will have to achieve a minimum target of liquor sale set by the government, falling short of the target will attract penalties.