Now, it has been week when we woke
up to a realization that ₹ 500 and $ 1000 notes that many of us had are no more
a legal tender. After the frenzied 1st day, when everyone kept
strategizing about their response, 2nd day onwards, we are witnessing
long queues in bank branches and ATMs. There are reports of 25 deaths in the
country during the week which are reported to be due to demonetization
decision. Market has been in the red, though on the first day, after collapsing
for about more than 1500 points, it recovered back strongly. But then 14th
and 15th November, market has collapsed further. (As I am writing
this on 16th November morning around 9 AM, market is up by about 150
points.)
Newspapers have been reporting
about long queues and slow sales. Somehow, there is no way that one can credibly
verify what is happening in different parts of the country. Social media is
abuzz with mainly support and little critique. That’s the grip of current
government on minds. I think politically there have been gains so far, and
unless economic stress goes beyond control, political gains will not evaporate.
The economic stress will increasingly relaxing as cash becomes increasingly
available. The decision to increase withdrawal limits hint at feedback being
positive.
Yet, we can agree that apart from
few hearsay accounts of how individuals with unaccountable currency are
terrified, what we have witnessed and we will agree about, is anxiety and time
lost in standing in queues. (Some of us might mock whether this a great loss at
all and hail all the potential benefits, yet to be realized!) I have not stood in
the ATM or bank queue so far, but I realize that moment is near around the
weekend corner unless I meet some surplus currency (new and white!) angels. J I have observed that
shelves in jewelry shops are empty or some jewelry shops are closed. But snacks
corners and shops are functioning, so as hotels, with some cash problems. I
haven’t witnessed any panic or expression of loss, but I have witnessed heated
arguments in the queue for exchange about whose queue is the right queue or
whether there is some usurper.
I haven’t read reports of violence
or mob gone out of control at bank branches. It is being a week and I think if
nothing of that sort has happened in first week, it will not happen in the remaining
days. The anxiety will be waning now. I do not know how those who planned the
move have thought about the reaction of crores of Indians and possibility of
violence. But they must have thought something. The post-Diwali timing reveals
damage-minimizing (to common buyers who make purchases of durables or jewelry
during the period) and probability maximizing (of catching individuals flush
with unaccountable cash) approach. Lack of violence or mob frenzy can be
indicator of good judgement of public’s action by those who designed the move or
may be troubles have not yet come to boil (which I think is less likely). And,
this lack of violent incidences or expressions can also be an indicator that great
number of Indians are finding the move agreeable. This agreement is not due to
complete understanding of cost and benefit of move (benefits are in fact yet to
be seen), but mostly because envy and anger at the riches of others, a
phenomenon which is ubiquitous. UP and other elections will tell us if this
reasoning is right or wrong.
--
I keep thinking what sort of
information I would like to examine about this experiment of demonetization.
1.
I would like to see city level/ branch level
daily data of currency deposits and exchanges for the demonetization period
2.
I would like to know distribution of accounts
for number of transactions witnessed during the period and balance in the
accounts (same information for PAN numbers if transactions are simply
exchanges)
3.
The gap between stock of old currency and total
of invalid currency which has been exchanged by 30th December 2016
and eventually 31st March 2017
I keep wondering about few
implications (seen as benefits) of the demonetization. I haven’t figured them
completely yet.
1.
Effect on interest rate due to increase in bank
deposits (may not happen in this case, but as a theoretical question)
2.
Shift to cash-less mode of transactions
3.
Bounty for RBI or government assuming some stock
of old currency never find its way back to RBI
The way I make sense of the current
move is as follows:
1.
‘Sudden’ move aimed at catching hoarders of currency
unaware
2.
These hoarders include terror and naxalism funders,
drug dealers, individuals involved in human trafficking and flesh trade etc.
3.
Wealth tax on hoarders of unaccountable cash
(either they just destruct their value or lose part of it in the exchange)
4.
Some offenders will be punished after 30th
December 2016 with due process of inquiry (I think government will act and there
will be terror funders who will be caught. I am increasingly assuming that this
government will act, act with surprise and shrewd judgement and based on continuous
feedback it gathers through its eyes and ears on social media and society, will
keep on tweaking and communicating through media and social media.) Culling of
some culprits will be essential to successfully garner the political mileage.
--
I would like to see end/reduction
of black economy since that can improve tax collection and can force check on
terror, human trafficking and drugs. Yet, as much I welcome the current move
(provided some follow-up actions as promised), I would like to state that
demonetization can provide only a good start. We must understand that many of
us were partner in the crime when we thought of saving on taxes by paying
through cash. We might reason that home or an appliance I bought was much more valuable
than realization of I am doing something wrong, and hence I did it. But, then
will we accept the same argument from others, those with much more wealth? Is responsibility
of doing ‘right’ is increasing function of income and wealth? I think, if we
are going to accept such defense, then our opposition to black money is simply
envy and not a justified position.
--
I keep observing this experiment
with earnest interest. If nothing else, I will end up having better
understanding of many of the monetary economics concepts. That is no less gain!