When he started his television address to the nation on Tuesday evening, speaking of the government’s achievements and its commitment to the poor, there appeared to be little of consequence in the speech. The bombshell came halfway through the address, when Prime Minister Narendra Modi announced that less than four hours from that moment Rs 500 and Rs 1000 notes would be illegal tender. By making 86 per cent of the currency in circulation invalid, the Prime Minister played a masterstroke, in containing black money, fake currency and funding of terrorism activities in the State, such that has never been attempted in the past.
The last time high value currency notes had been demonetised was in 1978 by the Janata government, but the notes returned some years later.
As a shocked nation heard him on television it was the suddenness of the act that sent people scurrying out of their homes to ATMs, petrol pumps and retail stores, which were the only commercial outlets open at that late hour, as they attempted to get a few Rs 100 notes in exchange for the Rs 500 and Rs 1000 notes they had to tide over the next 48 hours when banks would be closed and ATMs barred from dispensing cash. While, Modi and his government took a calculated risk in this demonetisation, that act of the people of rushing out at night in a bid to change their high denomination notes for lower denomination currency, was an indication of just how unpredictable can be the human reaction to any decision.
Modi and his government may have planned the demonetisation thoroughly, but the success of the decision will depend on how the people react over the next few weeks.
For a couple of days, millions across India will suffer, as banks will not have enough of new currency notes to dispense to the people. But in the long term, this is perhaps the best move in the nation’s fight against corruption. This leads us to the question of whether the demonetisation of high value currency notes will bring the desired result, which is flushing out black money? A simple answer to this would be yes, and this would account for only the quantity that is stored in people’s homes or bank lockers. It will not bring back the black money that has been stashed abroad in offshore accounts or bank vaults, a promise that the Bharatiya Janata Party had made during the campaign for the 2014 Lok Sabha elections.
Yet, success of the move will depend on the coming days and people’s reactions, when the common man is going to be queuing up outside banks to deposit their Rs 500 and Rs 1000 notes and withdraw legal tender in smaller currency notes or new notes. If banks do not have enough to pay out, it could lead to an economic crisis. But, the exchange is not going to be simple and has a rider attached.
Not all the now invalid Rs 500 and Rs 1000 notes will be easily exchangeable. Union Finance Minister Arun Jaitley has categorically said that people depositing legitimate money previously withdrawn from the bank or that has been legally earned, saved and disclosed have nothing to worry about. There is trouble for those who would be depositing illegally earned money, for it is only those notes that are not legally exchanged or deposited in the banks that will be demonetised. Suddenly, the person who for years has been diligently filing his returns and paying his taxes has become the winner, while the person who has been fudging his tax returns will be asked to account for the extra money.
While the success of this measure is awaited, the Union government’s next task would be getting back the black money abroad. It is only if this is done, that the government can claim victory.
