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India’s Demonetization Exercise: 5 Eye Openers

India's demonetization exercise

India’s demonetization exercise

Source: http://i.amz.mshcdn.com/khu9H4ll176QP-6UAz3L7e-LNh4=/950×534/2016%2F11%2F14%2Fc4%2FAP_16318310145601.dd930.jpg

Since 8th November 2016 when the Indian Prime Minister made the dramatic announcement to de-legalize Rs 500 and Rs 1000 notes in order to fight the huge problem of black money in the country, there have been views and counter views of all and sundry on each and every move associated with this major exercise.

While there is a lot of support among the general public, there are a lot many dissenting voices too with opinions ranging from the bizarre to ones that are much more thoughtful and balanced. Whatever be the case, this has been the major topic of discussion in news rooms, at bus stops, at shopping malls, at markets, at restaurants, at movie theaters, at hospitals and almost any either place you could think of.

Rather than going into the pros and cons of this move, I will list down a few eye openers regarding this exercise.

86% of cash

Before 8th November, did you all know that 86% (Rs 14 trillion) of the cash flow in India consisted of Rs 500 and Rs 1000 notes? This high percentage is also one of the key reasons that we have more than 90% transactions in India in cash making it a cash based economy. Now if I think of it, I almost always struggled to get Rs 100 notes from ATMs. There was always a constant need to get change from the nearest shop once the cash was withdrawn.

Housewives coming out of the closet with their currency

There had always been jokes on how housewives must have hidden a lot of currency in their rooms without knowing how much would have accumulated over the years. Once this exercise began, these women were forced to search their rooms upside down and count all the cash that had added up. And that’s where the hundreds of thousands of rupees started to tumble out of the closets. In many cases, husbands were astonished to see this amount of money lying with their wives. All of it had been gifted by friends and family over the years.

Cost of printing the currency notes

The cost of printing a Rs 10 note is about Rs 0.96 which is about 10% of it’s face value. But the cost of printing a Rs 1000 note is about Rs 3.16 which is just about 0.32% of it’s face value. This shows that it’s much cheaper to print notes of higher denominations and is also the reason why 86% of the currency in circulation before this exercise began consisted of Rs 500 and Rs 1000 notes.

Shortage of currency

There are 4 currency printing presses in the country – Nashik (Maharashtra), Dewas (Madhya Pradesh), Mysuru (Karnataka) and Salboni (West Bengal). RBI calculates the cash requirement in the country based on the current and projected GDP growth and also takes into account the current currency notes in circulation and the ones which were destroyed previously. This cash requirement is then given to the printing presses.

The government expects about Rs 10 trillion to come back into the economy based on the returns by the people. In order to replace these notes about 13 billion notes would have to be printed and based on the current capacity of the print presses (3 billion notes per month), this entire exercise would take about 4 months. So your wait for things to settle down soon enough could extend longer.

Media frenzy 

The media – 4th pillar of democracy or the 4th estate as many call it has been playing quite an interesting role in this entire demonetization exercise. While there is no dearth of analytical discussions or articles by renowned personalities, the bias of these media outlets to the different political parties supporting or against this exercise has come to the fore quite strongly. While on one channel hundreds are dying due to this exercise, on another channel or media outlet this is being compared to facing a minor inconvenience in doing something for the nation. If you question the move, you are declared anti – national and if you support it, you are being declared as patriotic. I honestly wonder how did all this come to pass.

While there’s a long way to go for this move to be deemed a success or a failure, it surely has generated a lot of heated debate and the debates are bound to continue in the next few weeks and months.

Linking to Indispire Edition 144: What is your idea/reaction/experience about the recent demonetization of Rs 500 and Rs 1000 Currency notes? Do you welcome it? Will it ensure development? Will it reduce corruption and Black Money?

 NaBloPoMo November 2016

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1 Comment

  1. Very true and a well researched article .The entire thing could definitely have been planned better.I wonder why we are a cash based nation.
    Is it because of the uneducated masses who can’t use plastic money?

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