Since Modi ji a) is so inclined towards a clean up; and b) can do no wrong, why didn’t he do something simpler, more elegant, and targeted on demonetization? Here’s a thought.
In May 2014 or soon thereafter, he could’ve issued a notification to start Rs2,000 and Rs5,000 currency notes. Maybe even a Rs10,000 note. It could’ve been easily justified since he had harped so much about the inflation that UPA policies had caused. Large transactions in the cash economy would’ve shifted to these new currency notes and the (imagined) massive hoards of cash would’ve also been converted to these. Perhaps even some of the bullion holding would’ve moved to currency, given the much higher liquidity and safety vs gold coins/bars.
Alongside this, over a 2-2.5 year period, Modi could’ve encouraged a stronger shift towards e / digital payments to reduce dependence on cash especially for small transactions. He has done a bit but nowhere near enough. I am given discounts by MSEB (a state undertaking) to pay my electricity bills in cash at their counter. If I want to pay by card, I do not get the discount for early payment and in fact I am charged an extra processing fee! What shit! Have your mug on front page Paytm ads ex-post doesn’t do much good.
Cut to 2.5 years later, he could’ve abruptly issued a notification (as he did) stating that these new, high value notes are no longer legal tender. Rest of the process would be the same as the current demonetization exercise except that people would be given less time to exchange or deposit (say 30 days vs the extant 52). Since the number of people holding these notes would be much smaller, a smaller time window is justified. Phasing out of old 500/1000 notes could also be an option, though not as abruptly.
In that case, who would suffer disproportionately and deservedly? The black-marketers. Who wouldn’t suffer needlessly? The general public, the people without IDs but with legit savings that over time have accumulated to a substantial sum, traders who cannot shift away from cash this quickly, their customers, etc.
The intent behind the issuance could’ve remained an even tighter secret. In fact, no one other than Modi need have known. The problem with this would be that black-marketers would rush to convert 2000s and 5000s into 1000s. However, with the shorter time frame for complete de-legitimization, who would offer legal tender in exchange? The other drawback of this idea would seem to be that it is one-trick pony and that trick can also be pulled only once. No black marketer would put faith in very large currency again – but then, isn’t that a solution in itself?! 🙂
Since everyone so strongly believes that physical cash is the biggest problem (IT IS NOT!), this would’ve served the purpose just as well without the rest of the misery.
Am I missing something? Is this too simple? Does this make too much sense?
This is not hindsight speak. This is a common sense question.