Post Demonetization: 34th Day

            The government has circulated Rs 5 lakh crore of new currency.  It is approximated that a total of Rs 7 lakh crore old and new currency notes are in circulation.  Rs 13.23 lakh crore of old currency of Rs 500 and Rs 1,000 has been deposited in banks.  On an average, daily Rs 12,500 crore to 15,000 crore of new notes are produced and distributed.  So the total figure the government is likely to add is Rs 2.5 lack crore of new notes within next 20 days.  Approximately, Rs 9 to 10 lack crore notes will be in use by the end of December 30.  Now-a-days old notes are deposited in the banks at an average rate of Rs 12,500 crore per day as against 45,000 crore at the commencement of the policy.  The withdrawal rate has enhanced to Rs 16,000 crore per day and expected to increase the demand on every passing day.

            To mitigate the demand of currency notes and special ink, the government is planning to import 20 thousand tons of currency paper; the general demand is 8 thousand tons.  The general comprehension is that the country import currency paper; however, most of the paper is manufacture by Reserve Bank of India.  The purchase order will be distributed among the firms that have already obtained security clearance.

            Demonetization scheme has negative aftermath over manufacturing sector.  In and around capital, thousand of regular workers became jobless as the production has halted due to currency crises.  About 70 thousand workers from a thousand utensil manufacture units have given lay off.  Instead of going back to respective villages the unorganized workers are searching new jobs with less pay and dignity.  It is astonishing to note that, the owners have paid them cash with old notes of Rs 500 and Rs 1,000.  The government should take stern action on businessmen at an earliest so that the workers will resume their old jobs without any monetary losses and tribulation.

            Harish Damodaran has extensively elaborated the concept of money in the context of present policy.  The extract is, the money is in physical form with public and deposits in banks called ‘store of value’.  As inflation increases the money value dwindles and hence money is transmuted in to financial asset say share/debentures, mutual funds, government bonds, insurance policies, provident funds etc and physical asset say gold, land and property.  “When saving accumulates to certain level, a significant part gets converted into non-monetary assets” Harish said.  The animadversion behind present policy is that the Modi government is targeting arduously 6 per cent of total black economy.  He said only 40% of annual saving is in ‘financial form’ and of which ten percent in currency form.  Approximately, 45% is in bank deposit form.  The total money available on October 28 was Rs 124.15 lakh crore (currency + bank deposits); of which share of currency notes was Rs 17.01 lakh crore (13.7%).  So, 87% old currency of Rs 500 and Rs 1,000 was demonetized (Rs 15.44 lakh crore).  He said, the whole economy (GDP) lies on sale and purchases of goods and services, veraciously the currency notes in circulation only.  The present policy has rived the back bone of economy.  “It has caused an unprecedented loss of the vital medium of exchange, or oil lubricating the wheels of commerce” Harish added.  As per RBI circular hardly 28% currency has been replaced till December 7.  Well, the solution is how fast the lost liquidity can be restored; one through replacement of currency by new notes and disseminating cashless economy.

            Nandagopal Rajan in his article expounded pros and cons of cashless economy.  He warned government the pace at which cashless economy is being bestowed to general public.  In his opinion the digital safety is more important than digital swiftness.  Cashless economy will open Alibaba’s door for hackers.  Giant personalities like Rahul Gandhi have got the bitter taste of hacking, so better not to talk about illiterate masses.  “Crime related to fraudulent digital payments will be news of the day” he anticipates soon.  “Digital safety is more important even if it is not that swiftly” he said.  In his opinion, first and foremost duty is formulate stringent laws and penalties.  He has rightly pointed out that the general masses should be taught how to stay safe online than cashless benefits.

            One fifth of the total 25.8 crore Jan Dhan accounts are still with zero balance.  The total balance in accounts is Rs 74.6 thousand crore of which Rs 29 thousand crore deposited after proclamation of the policy.  The good part of the story is the rate of deposition of amount in these accounts is declining as the days advances.

            It is felicitous to cultivate masses with regards to cashless economy and menace prevailed while dealing online business/transactions.  The government should look after the safety side of the public money by formulating stringent laws and also cyber security.  Fire walls needs to be established at each step.  Specialist from the field of cyber crime should be educated regarding various methods of control of hacking.  Hackers from Pakistan, Nigeria and many more countries will play havoc if cashless economy will flourish without comgerment.  Second, the government should take stern action on gold and benami property holders that are controlling 94% of our precious economy.