Could the government have done this better?

People exchange their old Rs 500 and 1000 notes in Amritsar.
Cash crunch: It should have been announced that 500 & 1,000 notes would be invalid after one month, but shall be accepted by banks for now


There is no doubt that demonetisation will bring lot of benefits both in the short and long run, so there is no debate on if it was the right thing to do. However, due to umpteen number of hardships being faced by countrymen during its implementation, we need to ponder, if there was a better way to implement the same.

Steps before announcing demonetisation

♦ RBI should have printed more 100 notes and pushed them into circulation, so that there would have been enough of these in circulation when demonetisation was implemented.
♦ As many 1,000 notes as possible should have been sucked out from the system by stopping their issue from banks, but accepting them while depositing.
♦ They could have printed new 500 notes of the same size and dimensions, so that dispensing them from ATMs became easier when demonetisation was implemented.
♦ Loopholes for transfer of money by hawala route should have been closed beforehand.
♦ All jewellers should have been forced to declare their stock of gold and keep records of all sales after demonetisation was implemented.
♦ An ordinance could have been brought by virtue of which rich farmers with substantial land holdings would come in the tax net.
♦ Professional money laundering firms should have been caught, so that they could not convert black money into white once demonetisation is implemented.

Steps at the time of announcing demonetisation
♦ It should have been announced that
500 & 1,000 notes would be invalid after one month, but shall be accepted in banks for one month more.
♦ There was no need to print 1,000 or 2,000 currency notes. Only new 500 notes could have been dispensed.
♦ No exchange of currency should have been allowed.
The only way to get the new currency should have been to first deposit the old currency.
♦ For people not having bank accounts, zero balance accounts should have been opened in banks at a special counter. There should have been a special provision for making Aadhar cards for those do not have one.
♦ No questions should have been asked for deposit of 2.5 lakh per account with PAN and 50,000 per Jan Dhan account.
♦ Special provisions can still be made in post offices for socially ostracised communities (who are again disproportionately cut off from the banking systems) — like transgender communities, homeless persons, sex workers, refugees — to change their currency without going to the bank.

India’s central bank should have printed more 100 notes and pushed them into circulation before demonetisation  initiative was implemented

♦ There would be no panic, as old currency would be valid for another month and people would have sufficient time to change them.
♦ The same would also be facilitated for people without a bank account or Aadhar Card.
♦ Since the new 500 note would be of the same size and dimensions, so there would be no delay in dispensing them from ATMs.
♦ For people with black money, the only way would be to convert it to gold, buy real estate or move it out through hawala. All three would be addressed if initial steps take effectively, before demonetization.
♦ If somebody tried to buy property or any other commodity to accommodate his black money during the first 30 days, the seller would be hesitant to accept the old currency, as he could be stuck with that after the initial 30 days.
♦ Since rich farmers with substantial land holdings would already have come in the tax net, they would not be able to convert black money into white.

Possible advantages when compared with the current implementation:
♦ No queues outside ATMs
♦ ATMs would not run out of cash
♦ Problems because of withdrawal limit would be nullified, as there would be enough 500 notes printed in advance.
♦ There would have been no suffering for small farmers, sellers, merchants, daily wage labourers and traders, as old currency notes would be valid for a month
♦ Sluggish demand in the economy due to lack of currency would have been avoided
♦ No one would have died due to lack of money or standing in queues
♦ With information available in advance that the currency would be banned after a certain date, they would plan accordingly.
♦ Fall in GDP for 1 or 2 quarters would have been minimal
♦ As for the outcry by the Opposition, they would not doubt have found other issues to raise in Parliament!

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