The Big Story: Taking notes

On the evening of November 8, Prime Minister Narendra Modi announced that, in a few hours, all Rs 500 and Rs 1,000 notes would become just pretty pieces of paper. The move, he said, would cleanse the system of black money. Overnight, 86% of currency notes in circulation became invalid. For one month now, Scroll.in has tracked demonetisation, the good, the bad and the ugly.

The morning after the announcement, people on the streets were struggling to break their Rs 500 notes, some saying they had not eaten all day. By the next day, the bank queues had started. It would be a harrowing month for bank employees as they faced the tide of people frantically trying to exchange notes. As the government came out with new regulations, banks in some places started using indelible ink to keep track of the people who had already been served.

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Soon, the effects of demonetisation rippled across the country, hitting those whose livelihoods depended on the flow of cash, from wholesalers to daily wage earners to migrant workers. In the border villages Karnataka and Tamil Nadu, small traders were badly hit. In Varanasi, it disrupted the informal economy of the sari-fabric industry. In Nagaland, residents from rural areas had no nearby banks to exchange their cash and no transport to take them to banks farther away. In poll-bound states such as Uttar Pradesh and Punjab, it was predicted that state parties would be hit as small traders were crippled by the cash crunch.

In North Bengal, tea estate workers had to go without their weekly wages in cash, though they claimed they were fine with it. While a currency presses in rural Bengal churned out new notes, the farmers who lived around them were starved of cash. Meanwhile, Malda, the fake currency capital of the country, was feeling the demonetisation pinch. In Kashmir, however, traders were still accepting demonetised notes as frequent internet bans have made the use of plastic money difficult.

In many parts of the country, low-income patients who had travelled to cities for treatment were stranded. Food markets across the country had frozen overnight, as demonetisation hit both trade in food and the planting of the winter crop. There were other hidden effects of demonetisation, for women who had stored cash to escape abuse or feed their children, for sex workers who depended on reserves of cash for access to contraceptives and healthcare.

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But initially, at least, voices from various parts of the country said the pain was worth the gain. Indeed, in the temples of Ayodhya, there was a sudden spike in high-value currency donations. Other temple towns also rejoiced that politicians with stashes of illegal cash were suffering too.

Experts and commentators, however, worried that demonetisation had been a mis-step. Economic theory had no roadmap to show what kind of impact such a move would have and in one stroke, demonetisation had shaken the trust that our monetary system is based on. The government sold it as a “surgical strike” on black money, but the measure seemed to lack depth and did not promise to solve the problem. It was not merely an “inconvenience” for the poor, it could cause a substantial welfare shock.

Meanwhile, a working paper produced by a research institution under the Ministry of Finance found that demonetisation was a large shock to the Indian economy, with little impact on black money. Agencies predicted a sharp drop in the gross domestic product. Moreover, the move depended on people’s access to banks, but if India’s unbanked population were a country, it would be the seventh largest in the world. Still, for India’s middle classes, demonetisation was a great moral project.

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As the month wore on and the winter session of Parliament started, the Opposition launched a concerted attack on demonetisation, with the former prime minister, Manmohan Singh, calling it “organised loot”. Even the Reserve Bank of India has finally admitted that the effects of demonetisation are bad, though temporary. It now emerges that demonetisation has hit 80% of the country’s small businesses, leaving the sector in shambles.

As November turned to December, India’s cash woes showed no signs of easing up. Pay day arrived, with no sign of salaries for many workers. Factory workers complained that lining up to withdraw cash meant losing a whole day’s work and pay. The government had also pitched demonetisation as a means to transform into a cashless economy, and Modi had joked that even beggars had learnt to use swipe machines. In the streets of Delhi, beggars said alms had dried up after November 8. The moral project continues.

Political pickings

  1. The RBI has lowered growth estimates, but left key rates unchanged.
  2. In the Rajya Sabha, Finance Minister Arun Jaitley and the Left’s Sitaram Yechury spar over “self-importance”.
  3. Union Minister Venkaiah Naidu says Tamil Nadu’s All India Anna Dravida Munnetra Kazhagam is “ideologically near” to the Bharatiya Janata Party.

Punditry

  1. In the Indian Express, Manasi Misra on why the Assam government’s diktat on madrasas is misguided.
  2. In the Hindu, K Venkataramanan outlines the importance of parties like the AIADMK and the Dravida Munnetra Kazhagam for Indian federalism.
  3. In the Telegraph, SL Rao argues that much more needs to be done to eliminate black money.

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“Natarajan never hid his opinion about Jayalalithaa. In an interview to NDTV in 2014, he said it was not Jayalalithaa but he who chose to break contact. While he did try to protect the leader’s image with regard to the disproportionate assets case by claiming that much of the wealth belonged to Sasikala and her family, it was clear that he was desperately trying to project the estrangement as temporary, and that he was more important than people assumed. He even said that once the disproportionate assets case pending before the Supreme Court, in which Sasikala is a co-accused, gets over, his wife would return to him.”