Post Demonetization: Scenario II

            The India's ruling party Bhartiya Janata Party (BJP) desires to take benefit of demonetization policy in electoral politics.  If the elections are held in January and February - Before the X and XII class board examination - the BJP will likely to sweep the polls, BJP sources said.  The TIME Magazine’s Person of Year award is recently announced.  Modi received 18% votes in reader’s poll well ahead of US President Barack Obama and many global stalwarts.  The party wants to cash the popularity of Mr Modi.  Prime Minister’s charisma may get eroded and the success of demonetization will not be transformed into vote bank if elections are deferred.

 

            Two Axis Bank managers allegedly played major role by accepting two per cent commission in money laundering racket of Rs 39 crore.  More than 3 kg gold bars were retrieved from their possession, Enforcement Directorate announced.  Many more persons were arrested including the Director of Beagles Marketing who is a daily wager and has no idea about the illegal activity.  In another case, the CBI has booked two bank officials – Chief Manager of Karnataka Bank and Branch Manager of Dhanlaxmi Bank – for allegedly facilitating the laundering of unaccounted money.  A fraud of Rs 5 crore has been detected.  It is likely that ED and CBI are going to conduct many more nationwide raids to unearth illegal transactions.

            Story of Sambhal district of Western Uttar Prasdesh is an eye opener for policy makers.  There are more than 75 thousand Jan Dhan accounts in Prathama bank.  Before November 8, a total amount deposited was Rs 44.70 crore and after the date Rs 73.16 crore.  In many accounts cash of Rs 49,000 was deposited.  Deposits under Rs 50 thousand in Jan Dhan accounts do not attract income tax scrutiny.  Ms Rinku Verma – Rs 49 thousand deposited in Jan Dhan account – said that her employer - Shivam Varshneya, Rice Mill owner – has given cash for father’s treatment and was substantiated by the owner.  When both the parties are hand in glove, how the black money is to be traced?  A small shopkeeper form Gazipur District of UP has deposited Rs 27 lacks in his Jan Dhan account on November 11; before that the amount deposited was paltry Rs 500.  His account was seized by CBI.  The shop owner claimed that the cash belongs to his mother who is saving money in wardrobe from last 20 years.  Other family members were unaware of the amount.  After she came to know about the news of demonetization, she asked her son to deposit the amount.  The story may be true or false.  In India, the age old practice is to store cash and ornaments at home only.  Housewives do keep cash at home; without the knowledge of husband and that too intentionally.  However, it is true that the Jan Dhan accounts are scrupulously misused, better not to speak about saving and current accounts.  Crores of unaccounted money has been transmuted to white money through varied ways and means.  Almost fifty per cent of money in circulation before November 8 was a black money.

            The finance ministry informed the government departments to make e-payment as and when the amount shall exceed Rs five thousand.  The government asked the shopkeepers to deploy point of sale (PoS) machine terminals or use different mobile apps as against money transaction.  Digital transaction will automatically deposit amount in bank account that will facilitate the account holder to take advantage of different bank schemes.  A total of 14 lack different devices are installed across the country.  The government is trying to reduce cost of point of sale machine.  The cost of machine must be attractive enough for small shopkeepers (1.5 crore) and small and medium businessmen (3.6 crore).  It is expected that 10 lack PoS machines will be installed before the end of financial year.  State Bank of India alone installing 1 to 2 thousand PoS machines per day as against 200 POS machines a year before.  The cost of the machine ranges between Rs 5,000 to 35,000 depends on different features.  Many national and international companies are advertising e-wallet apps; even PSU banks are not far behind.  At present, India has two POS terminal per thousand debit card holders, far lagging behind than emerging economies.  ‘India will need 2 crore PoS terminals as against the current 2 lakh’ RBI Deputy Governor, R Gandhi said.  In order to achieve the cashless transaction goal it will require two years or more.

            The service sector and manufacturing sector affected due to reduction in money supply.  The Nikkei India Services Purchasing Managers’ Index (PMI) reduced down to 46.7 in November from 54.5 in October for service sector.  As and when the index goes below 50 indicates sector is not performing well, PMI above 50 means the sector is expanding.     

            The sad part of the story is, more than hundred people lost their life from the day Demonetization policy were declared.  In the recent past, 65 year ex-serviceman died while standing in a queue at Amritsar;  a lady of Aligarh, Uttar Pradesh immolate herself for failing to exchange six notes of Rs 500.  Many were died in long queues across the country.  It is imperative on the part of government to provide all facilities so as to keep people comfortable when they are in queue.

   

Post Demonetization: scenario I

            There is spurt in illegal exchange of currency notes of Rs 500 and Rs 1,000.  Income Tax department had raided caterer and dental implant equipment supplier from Mumbai.  There was news that employees being used for exchange of old notes on the basis of commission.  The tiffin service provider outsourced his 60 employees.  The delivery men exchanged old currency notes over the bank counters many a time; in return, the caterer received a hefty commission.  During raid, IT department recovered Rs 40 lack cash of old notes and Rs 80 lack cash of valid legal tender notes.  Amount of Rs 60 lacks was sized from dental equipment supplier.  He has adjusted his account book by giving backdated receipt of sales to his clients.  Two Axis bank managers were arrested in Delhi.  They were involved in alleged exchange of Rs 40 crore old currencies to new notes.  Across India, IT and ED department are conducting raids after raids.  IT department booked two real estate firms for backdating sale of flats.  The clients are from reputed high income group category.  The IT department has recently detected undisclosed amount of Rs 1.64 crore from Jan Dhan account.  The deposit of Jan Dhan account has increased from Rs 27 thousand crores to more than Rs 72 thousand crores in two weeks time.  The department has initiated action against such account holders.  More than eight crore of cash was seized from Odisha state.  It seems, many players like gold and diamond jewelers, real estate firms, businessmen, bankers and many more have already played major role in illegal exchange of currency.  The government agencies are issuing notices after notices to those who are under suspicion.  A lot number of experts will be required to analysis the suspicious accounts of firm/businessman, where huge cash in hand had declared.  Chartered Accountant of these firms is under scanner.  To check each and every thing will be a hazardous task.  Vehicle checking throughout the country is unearthing the unaccounted money in crores.  It is good that the unaccounted money is making its way into the formal channel.  The Reserve Bank of India will circulate small denomination notes of Rs 20 and Rs 50; the distribution of Rs 500 currency will ease the present crises.  This will ease the burden of availability of small currency.  There is an urgent need to provide relief at rural level, as livelihood has disturbed due to cash crunch.  Even banks have rationalized the notes to the customer; though no such circular is being issued by the bank authority.  Bank Manger has allowed withdrawing of Rs 24,000 amount a week barring medical and other emergencies.      

            Shivraj Singh Chauhan, Madhya Pradesh Chief Minister welcomed the PM demonetization scheme.  While addressing gathering he said that party workers should adapt the cashless technology and spread massage among their constituencies by training the poor among poor masses.  He said the demonetization will break the backbone of terrorism.  The Goods and Service Tax law along with the present policy will tremendously reduce the generation of black money.   Mr Adi Godrej, supremo of Godrej Industry and MD and CEO of Yes bank Mr Rana Kapoor welcomed the PM monetary policy.  Godrej said ‘a cashless economy is trying to achieve too much too soon’.  The policy will have positive impact in medium and long run term, he said.  Mr Kapoor described it as tectonic shift.  ‘Demonetization to remonetization would involve some short-term pain.  The multitude of benefits the economy to accrue in medium to long term’ he stated.  Cashless transaction results into higher accountability, the thing that person with pathological mindset never accepts.  As the cashless transactions are increasing the cyber crimes are also expanding their horizon. 

Serpentine lines are noticed at toll plazas; it happened due to non-availability of small denomination notes.  Daily, toll Plazas are collecting hundreds of crores of cash.  Suggestion is convert manual system of toll collection to e-tolling to avoid long queue.  E-tolling will not only save time and reduce pollution but save fuel cost.  Former Road Transport and Highways Secretary Vijay Chibber said ‘There is a need for a strong push to the FASTag project’.  The amount will be automatically deducted from the account as and when vehicle will pass from the booth.  Union Minister Meghaval said that the new monetary policy will push GDP growth of two per cent as against two per cent fall predicted by most of the economist.

Modi’s Concern

            Prime Minister Narendra Modi while addressing a ralley ‘parivartan yatra’ at Moradabad UP, said ‘The line I have made you stand in, it is the last line’.  Whether it is election's empty trust or reality, the time will tell the truth.  He urged farmers not to withdraw money from Jan Dhan account provided the money has been deposited by hoarders.  PM assured poor people to contact him if somebody threatened them.  ‘The hardship farmers are facing due to demonetization policy will be appropriately rewarded’ he assured.  He advocated people to accept mobile and internet banking system.  He implore youngster to educate general public regarding mobile banking and shopping and make India digital at a faster pace.  He ensured people to reward them and for that he is thinking the ways and means.  Prime Minister is a good orator; nevertheless, the hardship experiencing by the public will have negative impact on vote bank.  They must get back something in the form of kind or money in coming months.  Otherwise, defeat is eminent.

   

        Meanwhile Nitish Kumar, Chief Minister of Bihar supported invalidation of high denomination currencies.  Rajya Sabha MP, Sharad Yadav squarely criticized central government over the demonetization drive.  Janta Dal (U) is likely to split vertically due to ideological differences between both stalwarts.  Sharad Yadav alleged government to safe guard the interest of PUS banks that are sinking due to enhancement in non-performing assets, the public in general is harassed on streets.  Rampant corruption in the society must be weeded out said Nitish Kumar.  The move must be followed by hard hit on benami property and money hoarded in the form of gold and diamond.  He reiterated that no differences exist between he and Sharad Yadav and both welcome the move.  It seems, both Nitish Kumar and BJP likely to share the same platform for a longer time.  Fight against corruption is everlasting mission. Missionary zeal is required to root out corruption from the society.

            From inner source, P. Chidambaram, Congress Rajya Sabha MP and ex Finance Minister said, till date Rs 11 lakh crore of high valued currency has been deposited.  The cost of demonetization was calculated by Centre for Monitoring Indian Economy is Rs 1,28 lakh crore.  ‘It is likely that nearly all demonetized notes could return to the system’ he said.  Question is, if all the money return to the system then it will be the biggest setback to the PM Modi and his party.  During the tenure, P. Chidambaram and his party has not implemented any scheme to curb corruption, why not the party is supporting the Modi's move wholeheartedly?  Disturbing both the houses from December 16, shouting on the streets, writing articles after articles, interview on channels is worthless unless one contribute positively when in power.  Uncalled suggestion is, better to imprint good quality thoughts on offspring rather than to impress public posing as a messiah.  He may be a good advocate; however, he is not a good Papa.

Politics of Choice

While tarnishing the image of Narendra Modi in the Congress Parliamentary Party meeting, Rahul Gandhi attacked on two front, demonetization and Pakistan policy.  His tailor made remarks are ‘PM is the prisoner of his own image’.  He further elaborated that PM decisions are based on TRP rather than reality.  His objection is on autocratic attitude of Mr Modi; the way decisions are taken single-handedly by surpassing the intellectuals from his cabinet and party.  ‘The result of the catastrophic soon will be revealed to the entire world’ he said.  He genuinely pointed out that the poor are waiting in line while the corrupt are being given a free bypass through the new Income Tax Law.  To make Modi an effective PM, his suggestion is valid that the PM should attend the Parliament and to listen the views of parliamentarian.  ‘Rahul Gandhi himself suffered from arrogance and incompetence’ BJP’s attacked Gandhi over his observations.  Both the parties have opposite views; it is the public to give verdict by exercising the franchise at an appropriate time.

Meanwhile, PM Modi addressed a new middle class section of the professionals through Linkedin.  He evoked the tech savvy professionals to cooperate the Government in the mission of cashless society for uprooting the menace of corruption and black money.  He said ‘young friends to lead the change and inspire others to turn towards cashless transactions’.  The Supreme Court categorically stated that the Modi government should take appropriate steps to reduce inconvenience caused to villagers.  Further, ‘all concerned should sit together for proper categorization of the matter’ the bench said.  Many state administrations have initiated steps to get momentum to the movement of cashless economy.

                            

            The finance ministry has suspended 27 officials of PSU banks and transferred six officers connected with allegedly indulged in irregular and unauthorized transactions of currency.  The ministry has detected few cases of money laundering, gold and bullion market investor.  Appropriate action has been initiated by concerned agencies.  Finance Minister Mr Arun Jaitley said that demonetization policy along with GST bill will help to create larger and cleaner economy, higher and cleaner GDP.  He indicated lower interest rate in near future.   Ruling party and opposition have opposite views on almost all matter of public interest.

Parliamentary Lock Jam

From the day one in both the houses the opposition parties are disrupting the proceedings.  In upper house the oppositions are demanding apology from Prime Minister Narendra Modi for his outside of parliament statement allegedly describing opposition parties as supporter of black money.  The treasury benches refuted the opposition allegations and further vouched that the PM is ready for intervention during debate.  The other demand of opposition is PM should remain present throughout the debate over demonetization.  ‘The oppositions are trapped in the web of their own cleverness’ said M. A. Naqvi, Minister of State, Parliamentary Affairs.  Amid exchange of words between opposition members Jairam Ramesh and P. Chidambaram with deputy chairman P. J. Kurian, the deputy chairman demonstrated inability to run the badger house as remarks were too abrasive.   He expunged the remarks of both the members from the proceedings.  On outset, in lower house the stance of opposition was the debate should be continued under rule 56 where consent of government is mandatory.  Under rule 56 the opposition can censure the government after voting.  The ruling party was pragmatic on rule 193 which has no provision of voting but disputation.  At last, the opposition showed willingness to debate under rule 184, where government consent is not required but voting is compulsory.  Some of the opposition parties have shown willingness to debate under rule 193 culminated to interstitials in opposition unity.  To break the existing lock jam, astute parliamentarians under the leadership of Mr Rahul Gandhi met the President for his intervention.  ‘The voice of the people is being suppressed across the country’ Rahul said after submission of their demands to the President.

Mr Arun Jaitley, Finance Minister said that the journalists are focusing on negative aspect of demonetization.  So far political class and journalists have not accepted the policy, even though, people at large are happy.  The speed with which the hidden currency notes are coming out is commendable.  Remonetisation process will boost up the GDP and strengthen the economy, he reiterated.  The finance ministry annunciated that old Rs 500 note will not be espoused at petrol pumps and airport counters from midnight of December 2.  But, continue to accept for payment of water, electricity bills, LPG cylinder, school and college fees and purchase of railway tickets till December 15.  The new currency note has given respite to finance ministry.  Public has demonstrated happiness over partial payment of their hard earned salary, but, shown anger for inconvenience due to long queues.  Government is stressing on digital transaction that has made significant improvement in every walk of the economy.  Almost half of the ATMs have been recalibrated but seldom are with cash.  PSU banks in collaboration with Bharat Sanchar Nigam Limited is developing mobile app for e-wallet.  The app will be ready by mid December.  Through electronic wallet the public will carry out their financial transactions.  The demand for PoS machines has augmented manifold.  Next week is a crucial week for treasury benches.  Floor managers will find out solution over lock jam.

Cash Crunch

Travel across the country, the people at large is in one or the other queue. Go to any bank of your choice any branch or ATM you will notice a serpentine queue due to acute shortage of cash.  There are two schools of thoughts, to support or to protest the government decision.  Those who have exasperation against money hoarders and black marketers exhibiting approbation for the policy, notwithstanding the difficulties the incumbent is facing.  Others are evoking sharp and extreme reaction at every street and corner.  The division was noticed equally in city and rural areas.  It is postulated that the demonetization of high currency note will have hugely adverse impact over ensuing election results.  Opposition parties are adding fuel from the day one, even though not a single politician – barring Rahul Gandhi – was noticed in a long and unending queue.  Media and ruling alliance criticized Rahul baba’s dastardly act as vote bank politics.  BJP victory in local body polls after cash crunch move of November 8 should not be considered as mandate.  The election in five states is scheduled in the first quarter of the next year will be the litmus test.  Modi’s ambitious step that has astonished the nation will have positive ictus on result or not, needs to be ascertained.  In the present context one can state that the calculations gone wrong somewhere culminated to haywire and hardship at every step.

                  

High power committee was constituted to look after all aspects of digitalization and to suggest ways and means to reduce dependency on currency.  Think about the poor, illiterate, honest rural masses that have not seen the face of bank till date due to fear and pavor.  How digitalization will reach to the farmer’s door is the biggest question.  First and foremost step in this direction is to literate them of complete digitalization process.  It will be time consuming activity.  Rural mass is the main junk of electorate who has exhibited their power – many a time - to topple towering and gigantic personalities from the arena of politics.  Reserve bank has restricted the withdrawal from KYC Jan-Dhan account to Rs 10,000 per month and Rs 5,000 from non-KYC account.  Precautionary measures have taken by RBI to hamper misuse of Jan-Dhan account by money launders and others.  Specialist stated that as fertilizer consumption has reduced during rabi season, cash crunch has negative impact on sowing, difficulties in e-payments and co-operative banks routine activities; will certainly hamper production cycle.  Anarchy at rural level culminates in to lower production, price rise and inflation.  Introduction of custom-made point of service machine at rural level will be the only answer to the present man made crises.

   

Banks are directed to circulate old and defaced notes of lower denominations.  PSU and private Banks are conceding less than 50 per cent of currency quota from Reserve bank.    Looking at heavy rush, bank union has strongly condemned the move and asked management to give police protection to their employees.  Banks are finding it difficult to face the wrath, rage and resentment of the valued customers.   The salaried and pensioner class will swarm near banks and ATM for next 10 days.  Police force shall have to maintain law and order situation.  Customers are reluctant to accept high value currency of Rs 2,000.  Several instructions from higher authority have created confusion among the masses.  So, cash crunch will be the biggest problem.

Wages and Income Tax amnesty scheme

              How to pay the monthly wages and pensions to millions of employees and pensioners across the country?  Even if the partial payment is made through banks, few million currency notes will be required.  Small firms started coupon distribution business as weekly or fortnightly wages as an alternative to currency.  The utility of coupons is limited, as coupon is not a hard earned currency.  Private companies are directed to digitize the payment system.  This will ease some pressure on currency distribution.  Simultaneously, the central bank is printing and issuing different denomination notes day and night.  Reserve Bank of India has released less number of Rs 500 notes that has hampered routine transactions.  Banks are trying to ease the inconvenience caused to salaried class.  Now-a-days calibration of ATM work is in final stage.  Public is utilizing ATM services for withdrawal of Rs 2,500 a day or Rs 24,000 a week.  Fraction of country wide transaction is in digital mode; further enhancement of digitalization in the shortest span of time is a challenging task.  Government has recently directed banks to disburse small currency notes in rural area to cater the demand of unorganized sector.  It seems, the government is still on oxygen.  The first week of December is the test week for Modi Government.

            By now, more than Rs 9 lakh crore of Rs 5,000 and Rs 1,000 notes are deposited in banks.  It comes to about 60 to 65 per cent of the high value currency in circulation.  By this speed about 90 to 95 per cent currency will be deposited by December end.  This indicates only Rs fifty thousand to one lakh crore quantum of black money will not return back to the main stream.  How to distinguish between black money and hard earned money from the total amount deposited in banks and post offices is the biggest question?  Income tax department will have to find out ways and means to isolate the quantum of black money from the total high currency notes deposited at different destinations.  The whole exercise will be gigantic, cumbersome, complex, time consuming, painstaking and expensive.  To identify and punish the culprit is not only adamantine but practically unthinkable.

               Politicians will be the first tribe to malign the image of PM Modi provided the government fails to address both these burning issues.  Perhaps amnesty scheme is the outcome of the face saver and fiasco fear.