Gains? Pains unlimited!

It’s was a fine November evening when most Indians were planning for dinner , a short half hour address by Prime Minister Narendra Modi left them thrown off balance and many have not been able to get back to reality yet. Since then, the nation has been standing in queues –first to deposit the old bills of Rs 500 and Rs 1000, that were banned within four hours of the address and then to gather new bills of Rs 2000. Having campaigned on removing the “demons of black money”, any measure aimed at targeting the same was welcomed by a majority of Indians, however the euphoria soon died down. Many stories have done their rounds in the media and the social media about the suffering of the masses. With over 60 reported deaths of those waiting in the queues, there are more victims than the beneficiaries of the scheme.

Many stories have done their rounds in the media and social media about the sufferings of the rural masses, who are as much victims of demonetization as there are hidden beneficiaries in the urban middle-class. There are many ways in which Indians land up having a bulk of those notes. One –corruption indulged in by politicians; two- evasion of taxes; criminal & peddlers; and those who work on the cash economy. Going by the scams that were unearthed it is fair to say that one of the largest hoarders of the black money have been none other than politicians and to some extent the bureaucrat who have to indulge in order to maintain the need for black money of the politicians. The second kind of – through tax evasion finds its way back in the system and to a large extent leads to employment generation. The view was expressed by leading charted accountant, over social media that most of the tax evaders were comfortable investing in real estate that employs a large number of lowest of the pyramid. Thus such a kind of evasion comes back into the system and becomes lawful, as the user of that cash may deposit some part of his tax. Those who had gathered the money through extortion and other illegal means, are expected to continue the same and may remain unaffected and perhaps would have changed the banned bills through some of the illicit means. The biggest strata of the society that survives, supports on the cash economy are the traders, farmers, vegetable vendors; labor, rickshaws pullers, maids, the night watchman, the driver and that constitute almost 80 percent of the economy.

Indians have now begun to realize that the objectives of the scheme are excellent however the economic benefits are less and the cost is more with Prime Minister not having being briefed properly on the subject; as it is apparent from the way the scheme is being implemented. Bankers and Bank employees, who have been in the thick and thin of the implementation process, were caught unaware.

Every other day, the ministry comes out with new rules, giving enough evidence that not many economists were on board.  A section of experts claim that even the cabinet was only briefed just few minutes before and where not allowed to leave the room till the time Narendra Modi’s address to the nation was over.

Prime Minister Modi very well realized that black money is with the rich. However it’s the poor who have been forced to leave their daily chores and stand in queues to deposit cash and later withdraw the same.  Farmers are left with hardly any cash to buy seeds. Those getting married have been made to get affidavits to get the money withdrawn from their own accounts and in the latest diktat- those withdrawing cash for marriages are now required to submit copies of the receipts to the banks.  Almost 90 percent of the affected section is part of the cash economy and now they are left with hardly any cash to get their lives back to normal.

Prime Minister in his address has described this as a hardship for a week and later asked Indians to exercise patience for 50 days. However, now the banks have realized, that they would be doing this job of changing the notes, managing the cash, managing the crowds for next two months. People will be busier with these things and thus the economy will get affected.  There is a liquidity crunch and the same is likely to continue with the volume of transactions going down in days to come.  It’s likely to impact the economic growth and government’s tax collection is also likely to come down.

Policies are finer if it is directed at masses. Here in order to grab a few hoarders of black money, a majority of Indians are getting affected. Though the gains are expected to be there however the pain for the masses needs to be minimized. Someone rightly described the situation as –Crocodiles have survived while the fish are dying.