Former Finance Secretary Subash Chandra Garg has called for another round of demonetisation, this time — ironically — of the ₹2,000-notes that rose from the throes of the crisis and angst-ridden days of the 2016 Demonetisation. His rationale is that ₹2,000 notes, though accounting for a third of the currencies issued in terms of value, are hardly in circulation, what with bad characters eagerly starting to hoard them.
Lately, there have been reports of the RBI mopping the notes up with a view to eventually easing them out of circulation, so much so that when Demonetisation-II is announced, it would be painless with only the residuary notes tucked away under pillows seeking deposit into bank accounts. But Garg’s story has greater plausibility —It is not the RBI which is mopping them up, but crooks.
Too much latitude
In 2016, ₹500 and ₹1,000 notes were rendered valueless and redundant. The exchange counters at banks, where one could surrender the notes, were kept open for 21 days.
These counters witnessed serpentine and often labyrinthine queues with people sweating it out as they waited to deposit their now-defunct notes. In fact, this — along with the latitude given to launder the demonetised notes at petrol bunks and hospitals — proved to be the undoing of the otherwise noble scheme whose objective was to cripple the moneybags strutting the subterranean economy.
That the poor, the jetsam and flotsam of the society grinned and bore the travails of standing in queues (to withdraw from ATMs) and forgave the subsequent cash shortage and vaporisation of business opportunities by resoundingly voting for Narendra Modi in the 2019 general elections validate his noble intentions, in hindsight.
In Demonetisation-I, 86 per cent of the currency in circulation in terms of value was rendered valueless. Yet it was touted a failure, as evidenced by the well-known RBI statistic — as much as 99 per cent of the notes demonetised wormed their way back into the banking system. Of course, the government is right in its assertion that by merely depositing the notes into banks does not remove the illegal tag on them.
But it has taken an inordinate time in examining the quality of the money, even though poring over 18 lakh suspect bank accounts is a herculean task.
Garg says in DeMo-II, only 33 per cent of the currency issued would be rendered valueless, but if done properly without leakage and latitude, it can leave the unscrupulous characters quaking in their boots. Garg says the demonetised ₹2000 notes must only be deposited in banks, period, if and when DeMo-II is done. One couldn’t agree with him more.
Chance for redemption
Modi has been pilloried by his detractors as well as by his well-meaning critics for DeMo-I. But then, it went awry because there was a lack of preparedness in remonetisation, as well as the many latitudes given to crooks to find loopholes.
Modi has a point to prove. He can redeem himself and emerge out of the doghouse by demonetising the ₹2,000 notes — which should not have been introduced in the first place, as affirmed by former Finance Minister P Chidambaram. They beckon the crooks. One suitcase full of such notes is enough for them, when it took four such suitcases to keep their ill-gotten ₹500 notes. Logistics bother the netherworld as well. Wrenching away this very high denomination note would be the penance for Modi’s twin follies — botching up DeMo-I and cosequently ushering in these notes into circulation.
The writer is a Chennai-based chartered accountant