On 8 November 2016, Prime Minister of India, Narendra Modi made a surprising announcement in an unscheduled live televised address to the nation at 20:15 IST. In the now landmark announcement Mr Modi declared that circulation of all Rs 500 and Rs 1000 banknotes of the ‘Mahatma Gandhi series’ invalid effective the midnight of the same day, and announced the issuance of new Rs 500 and Rs2000 bank notes of the Mahatma Gandhi New Series in exchange for the old bank notes. And India, for, perhaps the first time in its seventy years of existence became collectively richer (or in some cases poorer) by one more English word, DEMONETIZATION! As most of us now know, Demonetization is the act of stripping a currency unit of its status as legal tender. And as expected, Mr Modi’s well-placed kick to the groin of India’s underbelly used to feeding off the parallel economy nourished by ‘black money’, did stir up quite a hornet’s nest. Subsequently, the governor of the Reserve Bank of India, Urjit Patel, and economic affairs secretary Shaktikanta Das explained in a press conference that one purpose of the action was to fight terrorism funded by counterfeit notes. While the supply of notes of all denominations had increased by 40% between 2011 and 2016, the Rs500 and Rs 1000 bank notes increased by 76% and 109% respectively, thanks mainly to domestic and international counterfeiters.
This declaration caused a sensation in the whole country. Social media was flooded with messages and (Mis)information. People started counting the cash they had accumulated for years legally or illegally. Rumours ran rampant. Some tried to invest their dying currency in gold. Some contacted their near and dear ones in this miserable hour. According to the government’s plan of action, people could get only Rs 4000/ of old denomination exchanged with the new ones per day.Long queues before the banks and ATMs became the order of the day. Instead of getting shorter, these queues became longer with every passing day. Some sections of the society, especially those who had been hoarding money illegally, were up in arms but the commoners, for the most part, claimed to support what was seen as a refreshingly bold move by a Prime Minister unafraid to take on the rich and the powerful.
The main objective of this move was to curb the black money, corruption and the menace of fake currency plaguing the Indian society. The flabbergasted political opposition, surprised, taken mum surprised, claimed to welcome the move while handing out backhanded compliments to Prime Minister Modi and his team. It took a few days before the opposition parties could gather their wits and launched their tirades, this time claiming to champion the common man. In a travesty of solidarity, some opposition leaders, bodyguards and retinues in tow, went to local banks; ostensibly in order to ‘experience the plight’ of the common man. They didn’t achieve much, by most accounts, apart from exacerbating already complicated situations and aggravating an already frustrated public who had to bear the brunt of these politicians’ ‘magnanimity’. Other members of the opposition were content to call this action draconian and wanted the government to roll back it. And while the elephant of what’s now popularly termed ‘Modi’s Demonetization policy’ sashayed forward at its leisurely pace the media hounds brayed themselves hoarse to no avail.
People did face a lot of inconveniences owing to shortage of new currency but by and large, the masses welcomed the move. Some even lauded the Modi government for this big move. Our Prime Minister, while refraining from personally striking back at his detractors, launched his own media campaign, often recoursing to rhetoric to sway the country to his side. He went to the extent of telling his countrymen at every opportunity that demonetization was a part of a “ mahayojna”, a grand plan, and they must offer their own ahuti(sacrifices) for the betterment of our country.
At the height of this whole hoopla, which threatened to destabilize the national economy, the governor of the Reserve Bank of India ,Urjit Patel, who had until showed an unusual fondness for anonymity, finally crawled out of the woodwork to claim that the central bank is monitoring the situation on a daily basis and taking all necessary actions to ‘ease the genuine pain of citizens’ with a clear intent to normalize things as early as possible. The RBI governor also urged people to start using cash substitutes like debit cards and digital wallets, saying it will make transactions cheaper and easier and in the long term, it will help India “ leapfrog into a less cash – use economy on a par with more developed nations”. The demand for point of sales(PoS) or card swipe machines has increased. E-payment options like PayTM and Instamojo Payment Gateway, PayUMoney has also seen a rise. According to data of Pine Labs, the debit card transactions rose by 108% and credit card transactions by 60% on 9 November 2016.
As the use of demonetized notes had been allowed by the government for the payment of municipal and local body taxes, it led to people using the demonetized Rs 500 and Rs 1000 notes to pay large amounts of outstanding and advance taxes. The tax collection by local bodies have surged over 260% and more than 15000 crore rupees were collected after just 14 days of demonetization. The total indirect tax collection rose to 14.2% in the month of December, according to Finance Minister Arun Jaitley. The Specified Bank Notes Ordinance, 2016 was issued by the government of India on 28 December 2016 ceasing the liability of the government for the banned bank notes. However, petrol, CNG and gas stations, government hospitals, railway and airline booking counters, state government recognised dairies and ration stores and crematoriums were allowed to accept the banned Rs 500 and Rs 1000 bank notes until December 2, 2016.
Demonetization, it is claimed by Mr Modi’s supporters, may have several long term effects on Indian polity and society. Firstly impact people will have lower expenditure power. With that, they will not be able to spend mindlessly on luxury. There shall be no ostentatious expenditures on marriages and other ceremonies. So the society will grow less materialistic and people more prudent. Secondly, with counterfeited currency rendered impotent, Indian economy will see a big boom while the so far booming but artificially bloated real estate sector shall crumble and deny the corrupt the chance to hoard property by investing their ill-gotten gains in land acquisitions and housing development projects. And lowered realistic housing rates would allow even the commoner's opportunities to buy their houses. Apparently, the concentration of wealth will, with a flick of Mr Modi’s magic wand, change to the distribution of wealth! Finally, there shall be a great check on the terror-related funding and therefore on terrorist activities. Corruption shall be down to a great extent as people will stop the tendency of accumulating money using wrong means.
It’s still too early to say if Mr Modi’s demonetization is merely a gimmick to gain political leverage in times to come or if his policies can flush out the malignancy and corruption that permeates our society, but I, an ordinary Indian citizen, for the first time, feel proud that I’m lead by a man who, while he may not empower the common man, is not afraid to take on the corrupt and the privileged. A man, who’s at least trying to cleanse the long festering wounds that afflict my country.