It has been about twenty odd days since Prime Minister Narendra Modi addressed the nation on 8 November, announcing the currency ban that has since plunged the nation into a state of limbo. As on 28 November, amid several attempts from the Centre to assure the common man that demonetisation is indeed a boon, opposition parties have declared war against the policy, condemning it as one that completely ignores the hardships being faced by the nation's population.
While the Centre claims that the ban on 500 and 1000 currency notes is primarily aimed at doing away with the massive amounts of black money that is in circulation, a New York Times report brings to light the fact that there are bigger problems at hand that have to be taken care of in order to eradicate the shadow economy that accounts for nearly one-fifth of the country's GDP.
"The government's wish to tackle these problems is laudable, but demonetization is a ham-fisted move that will put only a temporary dent in corruption, if even that, and is likely to rock the entire economy," reads the NYT report.
Owing to the fact that the bulk of the black money that is in circulation is held in gold, silver, real estate and overseas bank accounts, demonetisation has ended up inconveniencing, and adversely affecting people who aren't its intended targets.
Alongside choked up bank counters, serpentine queues leading up to ATM counters, and those without bank accounts left in the lurch, 20 days of demonetisation has already claimed the lives of over 50 people. "So far its effects have been disastrous for the middle- and lower-middle classes, as well as the poor. And the worst may be yet to come," reports the NYT.
"In a country like India, where the illegal economy is so intimately intertwined with the mainstream economy, one inept government intervention against shadow activities can do a lot of harm to the vast majority, who are just trying to make a legitimate living," the report reads.
As a direct effect of the currency ban, there is a great risk of depreciation in the value of the Indian rupee, as investors and the general public scurry onto more robust currencies. The program also fails to take into account that all those in possession of cash reserves have not necessarily evaded taxes, and therefore their savings do not amount to "black money".
Furthermore, the move has prompted people to expend less money in an attempt to economise and, has in turn, caused a dip in the demand for certain basic goods. Small producers and farmers would have the most to lose as a result, which would eventually drive them to scale back on their activities.
Instead of the purported aim of flushing out black money, what the demonetisation program has unleashed a slew of inconveniences to a vast majority of the population who have been using the now banned currency as legal tender: those who haven't had any contribution towards generating black money in the first place.
"Even if demonetisation can flush out the black money that is held in cash, with no improvement in catching and punishing tax evaders, people with ill-gotten gains will simply start saving in the new bills currently being issued," the NYT report points out.
Curbing terrorism financing, and dampening inflation were two of the justifications cited by the government for implementing demonetisation. Both of these justifications are flawed, reports NYT. "Catching fake notes already in circulation neither helps trap the terrorists who minted them nor prevents more such money from being injected into the economy," says the report.
"The government's demonetization dragnet will no doubt catch some illicit cash. Some people will turn in their black money and pay a penalty; others will destroy part of their illegal stashes in order not to draw attention to their businesses. But the overall benefits will be small and fleeting," it further adds.