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How demonetisation could have been better executed

By Dr. V. Raghunathan

There has been little doubt in anyone’s mind that demonetization has been an excellent idea in waging a war against black money and fake currency racket, aided and abetted greatly by Pakistan to fan and fund terrorism. The criticism has chiefly revolved around the manner in which the entire mammoth exercise has been executed. Virtually the entire nation, especially the weakest sections, comprising millions upon millions of people, have paid and continue to pay the price for the sins of the few who are the prime culprits in the generation and hoarding of black money.

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Could the exercise have been better handled? This question was repeatedly asked yesterday night by the articulate anchor of Magicbricks Now (of Times Group), Faye D’Souza, in which I too was a panellist. And I regret to say, that no one, myself included, could answer satisfactorily her simple question: Whether the exercise could have been better handled, without compromising the confidentiality of the exercise (which everyone agreed was necessary).

Indian residents queue to try to withdraw money from an ATM in Allahabad on November 15, 2016. India is to use indelible ink to prevent people from exchanging old notes more than once, the government said, a week after the withdrawal of high-value banknotes from circulation in a crackdown on "black money". / AFP PHOTO / SANJAY KANOJIA

In none of the discussions on the many channels or myriad articles in the press have I come across any clear alternate plan that may have put the population to less inconvenience without compromising confidentiality of the exercise.

It was while discussing the problem with my good wife an hour ago, that she pointed out the basic flaw in the thinking that has guided the entire exercise thus far. And she provided a simple solution, as only wives can, that could have significantly improved the way the plan has been executed.

A large part of the failure of the senior functionaries in the government and RBI in managing the exercise smoothly, arises from the mix up of the demonetization problem with the introduction of the new currency problem. And once this problem has been presented as a joint exercise, the “experts” (myself included) also did not see beyond the blinkers. And everybody has been presenting the issue as if, if we were to have confidentiality, the mess we are seeing was more or less inevitable. It turns out it may not be.

Mumbai: A man showing his new Rs 2000 notes with 100 rupees notes as others queue up to change their notes at outside of RBI, in Mumbai on Thursday. PTI Photo by Santosh Hirlekar (PTI11_10_2016_000104B)

The solution is ridiculously simple; not unlike some of those wire puzzles that look virtually unsolvable at first, but once you know the solution, it looks ridiculously easy, and you may even be forgiven if you think you actually had the problem in your grip all along.

The solution to better implementation of the plan lies in separating the demonetisation problem from the new currency problem. Suppose the following had been the sequence of events:
The government could have announced openly, say on November 1, its intention to introduce the new currency of Rs 2,000 into the economy (It might have helped if they had kept the size of the currency the same as, say the Rs 1,000 notes).

All the banks could have been given 15 days to configure their ATMs to enable them to accept the new currency at the end of the 15-day period. It could also have been publicly announced that the new currency would be available on the ATMs effective, say November 16. Given the spread out time, none of the normal operations of ATM would have been impacted unduly. There was no question of the confidentiality of anything, since the exercise would have been only about introduction of new currency. This would have taken care of all the software and loading issues substantially.

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The PM could have gone on the air, say on November 15 night and announced the demonetisation move effective midnight. Under this situation, as the ATMs would have been more or less ready to dispense the new currency, and the kind of disruption witnessed now may have been substantially mitigated, if not altogether eliminated. No exercise of this magnitude can be without substantial disruption to the everyday life, especially of those at the bottom of the pyramid. But it didn’t have to be this bad.

It is a tragic reality, that whether it is natural disasters like floods, epidemics or water scarcity or inflation or riots or war or demonetization, hoarding or black-marketing, it is those in the lowest socio-economic strata that pay the maximum price, while those at the top, who are often the prime cause of most disruptions, virtually go without having to share the pain. It seems tragic that the lion’s share of the burden of cleaning up of the country’s corrupt politicians, corrupt babus, corrupt police, corrupt judiciary, corrupt builders, corrupt land-sharks, hoarders, assorted black-marketers, rioters, terrorists et al should fall upon the entirely innocent poorest of the poor. Worse, the successive governments over seven decades have done little to improve the life of the majority of these down-trodden.

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Perhaps the PM’s good intention should have started with electoral reforms, land reforms, stamp-duty reforms, Lokpal Bill, locking up of the real thugs, whether among politicos, businessmen or builders, rather than dish out amnesty schemes which for all practical purposes incentivise the racketeers – the prima donnas who are seldom caught or their ill-gotten monies rarely confiscated. Had the government initiated these measured before the demonetization exercise, the common man would have felt assured that his suffering was worth the price and would have felt much more encouraged.

DISCLAIMER : Views expressed above are the author’s own.

The article first appeared in Times Of India.

Dr. V. Raghunathan
Dr. V. Raghunathan

Written By Dr. V. Raghunathan

V Raghunathan is Director, India campus of Schulich School of Business, York University, Toronto & a corporate CEO. He is a former professor of IIM, Ahmedabad and former president of ING Vysya Bank. He is an adjunct professor at SDA Bocconi, Milan & Schulich School of Business. He is also an author and a columnist, with over 12 books and 500 papers and articles. His latest book is Beyond the Call of Duty (Harper Collins, 2015), others being Duryodhana; Locks, Mahabharata and Mathematics; Don’t Sprint the Marathon – from Harper Collins, and Ganesha on the Dashboard; Corruption Conundrum; and Games Indians Play – from Penguin. He is listed among the top 50 global Indian thinkers of Thinkers50.

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