India is in a soul-searching debate about the effectiveness and consequences of PM Modi’s demonetization war on black money. The debate is started and led by the academicians and the media, and fortunately, it is yet to reach the common man. Ordinary people take pride that their sacrifice is worthful to bring down the rich and disloyal in their neighborhood.
Their belief and commitment are indeed the best asset for the government to survive any potential popular outrage. PM Modi is perhaps one of the rare post-independence leaders who secures such a jealous level of trusts of the common man.
But popular sentiments sometimes have only short run life. Especially they may die in the context of continuous sufferings. Food and money are inevitable. Bernard Shaw once mentioned ‘Lack of money is the root of all evil.’
Here lies the political risk for the PM. Peoples’ inconvenience will go up with each day given the difficulty of providing adequate cash in the present context. Not to forget that we need nearly 16000 mn Rs 500 notes and we can print only 8 mn per day. India’s demonetization experiment is a unique one in modern monetary history in terms of its scale, depth and lack of preparations.
The real danger in the coming days will happen when the currency scarcity graduates into income fall due to slowed economic activities. The destruction of consumption and collapse of demand will eat away low income people’s employment. Forget about the liquidity crisis; but soon it may turn into an employment crisis for daily and contractual workers, discontent may surface. Lack of money may combine with lack of employment to make people to take a u turn in their approach. In this scenario, the political risk of this poor monetization decision may produce uncontrollable unrest as the Supreme Court has observed.
This is the area where government should get prepared before things turn from bad to worse.
When such a situation makes a face to face with the government, it should design an emergency monetization plan, and not just a law and order plan. Some sort of an exit from the demonetization is inevitable as the liquidity crunch may not be solved immediately. Exemptions and concessions and bank-specific policies regionally for the use of existing currencies will not be workable. Rather a pan India intervention may be effected.
For example, an alternative monetization policy is to allow people to use old Rs 500 notes for executing PAN quoted transactions. This will ease cash stringency at the same time limiting black money hoarding.
Any such orderly half exit from the current demonetization will help the government to tide over the difficulty. At the same time, it will insulate the economy, common man and the government as well. For this we should change the present format of demonetization.
Here government can come out with an alternative and pre-planned and immediate monetization plan with the help of RBI officials. Never rely on the technically ignorant civil service brigade who created this demonetization chaos. Rather the technical persons with the RBI should be used.
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