Note Ban: 5 Lapses That Show the Govt Forgot to Do Its Homework

The government’s piecemeal solutions to the note ban crisis suggests they hadn’t thought implementation through.

The cash withdrawal limit has been reset several times; half-measures announced for some sections to calm fraying nerves; multiple extensions given to designated places to accept old currency notes; and different arms of the government working at cross purposes – this has been the story of the first 10 days following the “big bang” demonetisation announcement.

Call it course correction or admission of execution lapses, the government has done many muddled things in the last few days which suggest that very little planning – and very few brains – went into managing the ensuing chaos. Here are some of the prominent ones.

U-Turns on Exchange Limit

A finance ministry statement on 8 November said, “old high denomination bank notes of aggregate value of Rs 4,000/- only or below” could be exchanged. The government decided to be more generous five days later and raised the limit to Rs. 4,500.

Was the government aware of the cash position in the system? Did it anticipate far greater inflow of new currency notes? If the inflow was expected to pick up, what was the need to revise the limit downward to just Rs 2,000 on November 17? Does the downward revision suggest a precarious cash situation or the inability to stuff banks and ATMs with enough cash? We have now answer to all these questions.

Supply of Essential Items Getting Disrupted? Try This

In the editorial meeting following the big announcement to ban high denomination notes, we decided to send one of our colleagues to a nearby mandi to find out how traders and farmers were coping with the gradually crippling situation.

It is a common knowledge that most of the transactions at APMC-operated mandis, considered lifeline for supply of essential items like grains, fruits and vegetables, take place in cash. Taking cash out of the system meant transactions at these mandis would come to a halt.

But it took the government a good nine days to address this issue. It was announced on 17 November that traders registered with APMCs could withdraw up to Rs 50,000 in a week. Doesn’t this say a lot about 10 months of planning?

Need Cash for Sowing? Try Standing in Queue Before That

The rabi sowing season starts in October-November. Farmers need cash to buy seeds and fertiliser. They also need cash to pay farm labour. Take out cash and sowing stops.

It took many days and constant shouting from several members of Parliament for the government to realise that the issue needed urgent attention.

An announcement came on 17 November allowing farmers to withdraw Rs 25,000 a week against sanctioned crop loans. What about farmers who don’t have sanctioned crop loans? And what if bank branches nearby are unable to dispense required cash?

Multiple Trips to ATMs and Banks Must Precede Honeymoon

Multiple trips to ATMs and banks must precede the honeymoon.

The weeks following the festival of Diwali are considered auspicious for marriages. The big announcement in the middle of the marriage season created panic among would be brides and grooms. Once again, the government reacted rather late.

The supposed relief, in the form of allowing the bride or groom to withdraw Rs 2,50,000, is subject to availability of cash in banks. One of our colleagues is getting married on Monday and he is making rounds in various banks only to be told that there is no cash to disburse. While he may not get the much needed money, others willing to give cuts will and that is a sad reality.

‘Unscrupulous Elements’ Beware, Indelible Ink Coming. But Will It?

Realising that long queues in front of banks and ATMs were becoming a regular feature, the government came out with an unthinkable solution - of putting indelible link in fingers of those coming to exchange notes. The Election Commission has asked the government not to do this.

These belated and reactive moves have not worked for the simple reason that there is not enough cash in the system and the Reserve Bank of India cannot print so many new notes in such a short period.

The statement issued by the Finance Ministry on the day of the “big-bang” demonetisation announcement says: “It may be noted that while the total number of bank notes in circulation rose by 40 percent between 2011 and 2016, the increase in number of notes of Rs 500/- denomination was 76 percent and for Rs 1,000/- denomination was 109 percent during this period.”

The government therefore was fully aware that the demand for higher denomination notes would be much higher as they are de facto notes for everyday transactions. It had a fair idea of what was to come and how difficult it would be to manage the ensuing inevitable chaos.

However, the piecemeal solutions being offered are akin to putting band-aids on an ever-deepening surface wound. One gets the impression that very little planning went into executing the massive demonetisation drive that has now begun to slowly cripple the economy.