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Bad memories are not easy to live down. Demonetisation is one of these memories, etched into the psyche of the nation as a step that led to widespread disruption, the loss of lives and the derailment of the Indian economy. So, it’s not surprising that the withdrawal of the Rs. 2000 denomination note brings back ugly reminders of that dreaded demonetisation which the former Prime Minister Dr. Manmohan Singh described as “organised loot and legalised plunder”, his harshest comment on the Modi establishment. Everyone knew that this fear would come rushing back as the Rs. 2000 banknote is laid to rest. The Reserve Bank of India made it a point to put it in its headline for the press release, circular and the associated FAQs to that the notes will continue to be legal tender.
It appears quite easy to disrupt Indian banking and branch operations with Indian notes
The caution and the qualification were necessary because of fears that the move will be misread. To be sure, this time it’s not a case of demonetisation but a planned withdrawal from circulation, pending which the note remains legal tender. Citizens have time till September 30 to deposit the notes into their accounts or exchange the notes with other denomination notes at bank counters. The exchange comes with a slight hurdle though – only up to Rs. 20,000 at one go to avoid disruption at bank branches. There is no limit for deposits, with applicable KYC norms.
To put it in the words of the RBI: “With a view to minimise inconvenience to the public, to ensure operational convenience and avoid disruption of the regular activities of bank branches, all banks may exchange Rs. 2000 banknotes up to a limit of Rs. 20,000/- at a time.” One way to look at it is that the RBI wants an orderly exchange that is not disruptive. The flip side of this view is that it appears quite easy to disrupt Indian banking and branch operations with Indian notes! In general, the 2000 Rupee note with its unique purple colour will go down as the shortest-lived Indian currency note in the history of independent India at least.
The note fulfilled an urgent need to feed a cash-starved nation. Over time, however, the note’s commonplaceness has been brought down in a planned glide that saw the numbers - value of the notes and their volume – come down. Printing of the notes stopped in 2018-19
The withdrawal of the high denomination note is a step in the right direction. The high currency note was introduced as a desperate measure to fill the vacuum caused by the sucking out of almost all cash from the Indian system in a nation that till then (and even now in many parts) lives on cash transactions. Yet, it was clear early on that one purported aim of the demonetisation programme, which was to flush out black money from the system, was defeated with the introduction of the high currency note. It is easier to hoard cash when it is in a higher denomination. Consequently, any discouragement towards cash holding should mean that the bulk of the currency should be in smaller denominations. Across the developed world, notes are not issued in higher denominations. For example, in the United States, the Federal Reserve Board currently issues banknotes in denominations of 1, 2, 5, 10, 20, 50 and 100 dollars. Higher denominations were last printed in 1945 and discontinued way back in 1969.
‘Gotcha’ policy does not consider the serious adverse impact, expected and unexpected, on the weakest sections of the population
In India, demonetisation was announced on Nov. 08, 2016. As of March 2017, the then newly introduced 2000 Rupee banknote accounted for over 50% of the value of total value of currency in circulation but just 3.3% of the total volume of currency in circulation. The note fulfilled an urgent need to feed a cash-starved nation. Over time, however, the note’s commonplaceness has been brought down in a planned glide that saw the numbers - value of the notes and their volume – come down. Printing of the notes stopped in 2018-19.
This has been a case of wise and pro-people decision-making, quite the opposite of the suddenness with which some other policy measures of the government have been announced, notably demonetisation and the lockdown when Covid-19 had just begun to erupt.
There are lessons to be learned from the introduction as well as the withdrawal of the 2000 Rupee note, the first of which is that the objective of decision is lost when the disruption it causes is heavy. If the policy was meant to flush out black money (none of which was found), then the introduction of the high currency note was a textbook case of what is not to be done to encourage black money and hoarding, but had to be done simply to ease the immediate pain.
The older citizenry who keep cash just for safety and emergency needs, the labourer who hardly has cash and must depend on his or her daily earnings to feed the family, the technology-unfriendly who do not rely on digital payments were all unintended victims of the harshness of demonetisation
The second is that the government is not here to catch the people unawares. A ‘gotcha’ policy will bring disaster. It presumes that people are adversaries, unworthy and unwilling or unable to cooperate for the collective good. Second, ‘gotcha’ policy does not consider the serious adverse impact, expected and unexpected, on the weakest sections of the population. The older citizenry who keep cash just for safety and emergency needs, the labourer who hardly has cash and must depend on his or her daily earnings to feed the family, the technology-unfriendly who do not rely on digital payments were all unintended victims of the harshness of demonetisation. Ditto was the case with the sudden lockdown, when the announcements asked people not to step out of their homes, unmindful that a large number of people do not have homes and the economy depends so much on migratory labourers who had to trek all the way back home with nothing to drink or eat, their pockets empty, their wages lost or unpaid.
Well planned and thought through policy that does not get into the trap of event creation or headline grabbing also carries the benefit of multiple pros and cons being discussed and well considered so that the final outcomes can be that much better. One of the key aspects of decision-making is to think about Gandhi’s simple message in one of the last notes he left behind in 1948, expressing his deepest social thought:
“I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions? Then you will find your doubts and your self melt away."
(The writer is a journalist and faculty member at SPJIMR. Views are personal)