Effect of demonetisation Good & Bad - 500, 1000 Rs. Notes

This post I am copy posting from my another blog (exchangeoldrupeenotes.in) Effect of demonetisation Good & Bad – 500, 1000 Rs. Notes

Demonetisation of Rs. 500 and Rs. 1000 notes have been done by government curb black money, fake currency. As planning of steps have to be done in secrecy to have better effect and control. There would be some issues and inconvenience that will pop up. There are some other effects as well on the society which have occurred other than main agenda. To curb this government is taking some steps. Along with these steps there are some public steps as well.

Step 1 – Convert Black money to White by declaring

Step 2 – Demonetisation

Step 3 – Action against Defaulters

Step 4 – Remaking Black money

Motive Effect

The main motive is to get back black money, identify people with black money, control on fake currency. Let us see these points.

Black money can be made from many forms. 2 mains forms can be – One when someone doesn’t pay tax on the earned money. Secondly, when someone gets money illegally or from some illegal source
Hard earn money by putting in extra efforts and not paying additional taxes can add to black money. People avoid paying so much taxes as they feel that amount of tax levied is very high.
People who takes unaccounted money for doing some task, giving preferences are adding to black money. This article would include more details on this point.

People Effect

People or almost everyone is doing the rounds of Banks, ATMs, Post Office. Some life have been lost in queues. Govt. has formulated rules on how things will work after demonetisation, news channels and other forums have provided good information on these rules. But even after these preparations people have gone through inconvenience. Though there are no boards with messages like Work in progress or Inconvenience is regretted but still things are working. People have to go through this.

There are long queues outside banks, ATMs, post-offices. ATMs are not despensing cash, banks are out of cash
People are coming early morning spending some hours to get some money
People doing jobs have real trouble to get jobs. Employers are not giving time off so that employees can go to bank and exchange, withdraw money. They are waiting for holiday or weekends
Govt. should ask employers to give some time off to employees for the purpose

Bank Effect

Bank employees are working like anything. They are co-operative, helping people in every way. They are doing overtime, working on weekends. But they would get tired soon.

Would bank employees get some bonus time? Would govt. have some provision for this?
Should bank have prepared well in advance
Bank should restrict other operations for some days. Align other resources to demonetisation activities. Ask people to work in shifts so that there is continuous flow of exchange and people are divided over 24 hours rather than 8 hours (queues would be 30% shorter?)
Why not introducing tokens system for every queue. There are generally 4 tasks – Exchange old currency, Withdraw by slip, Withdraw by Cash, Deposit. Introduce 4 colour tokens or 4 numbered/named tokens. Apply rules that come according to number. If you miss your number upto next 4 tokens turns then you need to retake another token. Tokens will have activity identification number, activity name, token number, date & time of issue, bank code/branch/city to make it unique. This will help people to spend less time in queue

Lmit Effect

Some limits have been kept by government on amount of transaction.

4000 exchange till 24th Nov. – Initially people thought it as daily exchange limit. In that case it was fine that one can exchange 4000 Rs. daily and meet day to day expeneses (which are generally much less than 4000). But on later confirmation that maximum exchange is 4000 till 24th Nov. seems to be less amount It should have been more around 10000 or more with weekly limit
ATM withdrawal of Rs 2000 till 24th Nov. – This initial limit is less and fine. As it is a daily limit it seems to be ok but again and again going to ATM for amount of Rs. 2000 and standing in long queues is not a good idea. ATM machines can’t hold much of 100 Rs. notes, so be fair and serve more people in a day it seems fine
Deposit Unlimited – It’s fine
Withdrawal Cash – 4000 – Seems less. If there are contraints of not having much 100 Rs. notes available then this amount is fine so as to be fair and have more people having some amount then having few people having large amounts. This limit should increase as new 500 and 2000 Rs. notes come into circulation
Withdrawal Cheque Savings -Amount or Rs. 10000 (or 20000 in a week) seems to be fine. This limit now has been increased
Withdrawal Cheque Current – Amount of Rs. 10000 (or 20000 in a week) seems to be less for current account. Limit has increase now.

Time Effect

A lot of time is being used whether it be of bank employees or people. People are taking off more offices and work place. They have to travel and stand in long queues, come early before banks open. Production is getting affected.

Necessity Effect

There are lot of things which are essential and required for day to day tasks. Be it buying vegetables, grocery, medicines, doctor visit, operation, petrol, gas and some others. Legal currency is required to buy these. When people are short of such currency, shopkeepers doesn’t have change then how people will transact. People who are at private hospitals are not able to buy medicines, eat from the canteens there as they are not accepting 500/1000 Rs. notes. Vegetable vendors and small grocery stores are afraid of these big notes after they not legal tender any more. From where one should purchase things in initial days?

No Business Effect

There are entities not of one kind but many who are having no or little business. People didn’t have small currency notes to spend. Small vendors like Tea, Vegetable; grocery stores etc. had almost no or less business.

More Business Effect

Some entities have gained more business due to monetisation. Some business are directly gaining and others indirectly.

Directly gaining
- Photostat (forms and ids, jsut photostat and photostat)
- Parking lots
- Tea vendors
- Pen (are selling like anything to fill forms)
Indirectly gaining
- Paper Industry
- Petrol Pumps (people are travelling to banks more and more)

Income Effect

As news came in early days of month (but after 5th) much of the salaries would have been given and bills paid. But still in some cases these would have remain pending. People are now giving genuine reasons to delay such things. An extension should be given in case bills have to be submitted.

Timing Effect

The announcement came in the month of November on Tuesday Night. Five things have to be considered – Month, Date of Month, Day of Week, Time of Day and Season. It is end month of year, around middle month of financial year, starting day of week (away from weekend), late hours of the day and start of a season.

Month – November. Deadlines given are 50 days to exchange and deposit. It seems to be a long duration. November is much before financial year ending and it seems fine.
Date of Month – 8th. Generally all bills are paid by 5th, salaries given, rents given, mobile bills paid. 8th marks the start of 2nd week of month. Most people would have done with paying salaries for employees, household workers, mobile bills, utility bills etc. So, the date seems to be appropriate. If it would have been in start of month say before 5th then it would have much more worse effect. People are not able to pay bills, give salaries. People wouldn’t have received salaries and they wouldn’t have been able to spend for daily needs.
Day of Week – Tuesday. Announcing at the start of week and making weekends working. Good for people to plan and utilise weekend, to divide rush in banks. Has this been done on Friday or weekend then some people are on holidays/vacation. If during this time cash crunch occurs (you don’t have 100 Rs. notes to spend) then more people would faced trouble.
Time of Day – 8 PM. Again good timing. People doesn’t have much chance to convert to black to white on same day as most of businesses closes soon after that time.
Season –
- After Diwali – People spend a lot in dresses, sweets, gifts anf fire crackers. If this would have been done before Diwali festival then it would have been more trouble for people, bankers and government
- Wedding Season – Wedding season is on. People need to buy many things like dresses, food, sweets, jewellery and many other items. There is no money with people to buy things. It doesn’t seem to be a good decision during wedding season
- Winters to set in – The step 2 has been executed just before winters are setting in. People are out of home and office on week days and week ends for money. Standing in queues in open for many hours. If it would have been peak season of winter or summer then it would have caused more health issues like cold, fever etc. Season timing seems to be fine

Cost Effect

How this activity would have cost the nation. Some cost components could be:

Low production (people standing in queues)
Less sales
Less expenditure (though its good)
New notes printing
Banking activities
Destroying old notes
Paper work, photostat papers, form papers

Resources Effect

Everywhere we read save natural resources. Save paper. But due to this activity paper is being used like anything. Be it in forms of cheque leaves (would be many but comparatively less as compared to other forms), deposit slips, withdrawal slips, forms, id proofs. Id proofs are being asked for almost every transaction at banks. The need of Id proofs have made people to get them photostated like anything. There could be crores of papers required in form of Id proof papers for this activity.

Motive Effect Reloaded

Let us assume that after this 2nd step of demonetisation (1st step being allowing people to convert Black into White), govt. knows who all have/had black money. Who deposited more amount to bank. Govt. or IT department will take action (step 3) against those. This seems to be fine. Now taking the point mentioned in Motive Effect on unaccounted money collected through doing tasks, giving preferences by officials. Will these people stop taking bribes? What will happen if these people continue to take bribes again (step 4)? Wouldn’t that money be called black money? How that would be controlled? Would this cycle be executed again.
- Step 1 – Black to White
- Step 2 – Demonetisation
- Step 3 – Action against defaulters
There is some check required to stop bribes (step 4). If bribes are not stopped or tackled, there would be more black money in the form or Rs. 2000/- now
When Step 1 was executed by government earlier this gave a chance to many to convert it into white. Shouldn’t step 2 have been executed first by government instead of Step 1. This would have given no chance for people with black money. Why step 1 was necessary?

Introduction of new 500 Rs. and 2000 Rs. notes

So, now when new 500 Rs. and 2000 Rs. notes are available which are said to be more secure will it provide complete shield from face notes? In case it does then we have still fight against black money. In case it does not then we are in the same situation and will we be doing Steps 1, 2 and 3 again? or we should do Step 2 only again and again or finding an alternative cheap replacement for Step 2.

Summary

Overall steps taken are good and well planned. Some inconvenience have caused to people as things are being done at large scale with billion people involved. There should have been more digital payments awareness beforehand, more 100 Rs. dispensing machines available round the clock.

Results and after effects would come to know from February onwards (or later) only. 4 steps have been mentioned above, 3 by government and 1 by people. If there are some more planned steps after step 3 by government then there may not be step 4 by people (even if it is there it will be of low value/effect).