I have been reading the news about demonetization ever since it was announced at 8th of November, 2016. It is surely a day that will stand out in history, like on 16th January, 1978. That year, that day, the currency notes of Rs 1,000, Rs 5,000 and Rs 10,000 were scrapped. I do not even remotely remember those notes, of course, I was not born yet. If there has to be any parallels to be drawn, you can say that the then Janta party coalition and Bharatiya Janta Party are related. Apart from, black money, that is.
Oh, and it was a Patel (Indraprasad Gordhanbhai Patel) heading the Governor’s office at Reserve Bank of India. Of course, a Gujarati (born Bulsar, Bombay Presidency – today, Valsad, Gujarat) as the Prime Minister in Morarji Desai. The first time demonetization happened was in January 1946, when Rs. 1,000 and Rs. 10,000 banknotes were withdrawn, only to be re-introduced in 1954 and to be repelled again in January of 1978.
Another Patel, Hirubhai Mulljibhai Patel, was the then finance minister, if that adds up. The RBI history (third volume) does capture a few interesting details including that the RBI Governor was not happy with the demonetization. And his theory was that not everyone who has black money will be holding cash, to a large extent will be invested in immovable properties. Today, those are still the questions people have – including investments overseas.
So, history repeating itself? I am not sure, but the parallels do throw up a question in your mind.
Demonetization and impact
The demonetization announced by Prime Minister Modi was sudden, and came as a shock. People who were born after 1978 would not remember anything about the past demonetization, except for those who read the history, which was announced over All India Radio. Then, India was not digital enough. We did not have too many banks. But today, it is slightly a different story.
An immediate impact to this demonetization drive is – people with limited exposure to tax and hold a lot of currency notes in 500 and 1000 denominations are going to be troubled. People who have paid tax for certain portion of their income, but withheld the remaining are also going to be troubled. People who have paid tax, and still hold a large sum of money in cash, will go through scrutiny. The last set of people will also face raised eyebrows they do not deserve – name calling is easy in this country.
People who have paid taxes for the cash they hold in their hands will go through unnecessary scrutiny, awkward glances and may be billed as black money hoarder. Not a good feeling!
After having spoken about people with too much cash money in their hands, lets talk about real common man. The men and women who have cash in their hands as part of their idea of savings, accumulating cash for an emergency expense. A habit from the past without ATMs and Digital Banking. I do not see that habit changing, especially given the fact that money from ATMs is now limited and does not depend on your account. I had a daily withdrawal limit Rs. 100,000 on my cards combined, which has come to naught.
The world for the common men and women has changed upside down. There are businessmen who do not hold bank accounts or rather have a revenue of less than Rs. 3000 a day – the road side sellers. They are probably cursing PM Modi.