Queues get longer, patience runs out- Copyright Indian Express Group.
I dunno if people heard or didn’t hear about the demonetisation of INR 500 and INR 1000 which happened in India on 8th November 2016 with new currency designed in India of INR 2000 and INR 500.
What they did was from that moment onwards, paper currency of INR 500 and INR 1000 notes were declared invalid except few places (Government Hospitals, Petrol Pumps, Booking of Air and Train tickets) . The reasons given were as –
a. End of corruption – There is/was suspicion that there are people who have loads of unaccounted wealth which they keep in the form of Cash in hand,
b. Charge against fake/duplicate currency – There is/was suspicion that quite a bit of the money esp, high value notes such as INR 500 and INR 1000, so having made them illegal, people had to hand over cash to banks and fake money would go outside the system.
c. Terror funding – This is related with the above point. There is a popular theory/myth/fact that terrorists use fake money to buy people, arms and ammunition while further devaluing the value of INR against dollar and basket of other high-value currencies that Indian currency follows/bases itself on.
Each of these theories/myths/facts has been contested. Every day we are seeing and reading reports of people being caught with new currency in absurd numbers while RBI , our central bank and Lender of Last Resort has had to play multiple roles such as policing along with the country’s Income Tax Department as well as pumping in new notes of the NEW INR 2000/- and INR 500/- into ATM’s and Bank branches around the country.
Now while the above may seem to be reasonable, there have been multiple factors which has made the whole exercise less effective while implementing –
a. Banking reach – While India does and can boast of somewhat good indicators of banking reach . But –
Quarter of these accounts were opened only in the last couple of years under the ‘Pradhan Mantri Jan Dhana Yojana‘.
There are quite a few limitations of such accounts. It is a good scheme as if you develop a good rapport with a bank and show good credit/debit understanding then there is possibility to move to normal full-fledged bank account.
Almost all of these accounts had zero-balances till the demonetization move.
Many of these accounts are suspected to have been conduits to convert black money to white as the Govt. had said it will not scrutinize small savings bank accounts.
Also many bank accounts historically have laid dormant over the years. One of my first jobs was of a data entry operator in a bank and I used to see hundreds of bank accounts lying dormant for years together. This was in bank digitization in early 90s.
Small Savings accounts would not be scrutinized if they bring upto INR 250000 while Jan Dhan accounts have an upper limit of only INR 50000 .
Even then, it has lead to a huge surge in balances specifically in Zero balances account.
What begs the question is if it is their hard-earned money why hadn’t they deposited money before 8th November 2016.
While I can’t speak about them, I can certainly speak about myself. I hardly keep at the most INR INR 5/10K for medical emergencies in-house for number of years.
Unless you are a businessman who has need of cash or have some function, nobody that I know would keep such amounts in their homes, simply for the possibility of theft in homes.
So how did such people who are not able to open a full-fledged saving account get access to such large amounts?
In most public sector banks, to have a full-fledged savings account the only requirements are –
a. Have INR 500 to 1000 as balance at all times.
b. Have permanent identity and residential proof
c. Two photographs
d. 2-3 people who are account holders who can act as guarantor.
Of the above, b. and d. are probably sticking points for most migrants, while d. may be a sticking point for labourers, craftsman etc. hence the need for that specific scheme.
Which leads to the natural suspicion that they may have been white-washing somebody’s untaxed, unaccounted money which is being put into bank and made into legitimate white money.
People do not have to file an Income Tax Return (ITR) unless they earn more than 250,000 in a single financial year.
One good off-shot of the scheme though is the transparency gained about Bank Mitras
b. Number of banks, quality of Bank services, number of people per bank at least in Nationalized Banks leaves much to be desired. We can’t even try to compare with other BRIC countries, leave alone Germany.
Mobile ATM – Copyright – PTI
One another positive off-shoot has been the introduction of Mobile ATM Vans around the country.
I had experienced such vans in Mumbai since ages, but not anywhere else.
I do hope that both Bank Mitras as well as such ‘Van Mobile ATMs’ happen more. There are huge swathes of people who are currently unbanked. Getting them into the banking infrastructure, getting them to *think* about taking rational financial decisions, i.e. saving and spending, different types of saving etc. should not make citizens and the banking systems more productive and efficient, but hopefully improves our GDP and make it more resilient to any outside financial shocks.
c. Many bank websites have everything in English. That norm needs to change.
I do have few queries though, one of the countries who is supposed to be a prominent supporter and user of ‘cashless’ society is supposed to be Canada. Could any Canadians (also because debconf is going to happen in Canada in 2017) share how and if they had seen the Canadian banking system evolve in their country ?
Also how much of the country’s economy is cashless i.e used to Electronic Money Transfer and other means (but not cash) and how much is cash, more in day-to-day usage and transactions rather than some website.
Also what, if any charges/commission are paid to the bank for paying via card/electronic money transfer. I ask as India has reduced charges overall to 1% from 2% for making transactions upto INR 2000 in a day.
There has also been recent talk of plastic notes instead of paper currency. Plastic notes are supposed to be more copy-proof and also will work for much longer time. They will not soil as paper notes do.
How have countries been looking at Plastic currencies. I do suspect there would be issues while destroying plastic money vis-a-vis paper currencies.
A sort of interesting discussion that I had with Bernelle before venturing into South Africa was asking her about monetary transactions in SA. She had replied that the highest denomination notes was 200 ZAR which is roughly equal to ( ZAR 200 x 5 = INR 1000) . What is/was interesting that Bernelle told me to be careful and as far as possible not to show 200 ZAR note, whereas in India, even the cheapest worker I have met, they have seen and used INR 1000 note. The context of the discussion was being safe in South Africa and doing transactions with people around as to what works.
It would be curiouser to know how things work in Canada for instance ?
Also has Canada or any other country have experimented with plastic notes. If yes, how has the experience been ?
I would have to say this is in no way a definitive guide of the different impressions and repercussion that the decision and the way it’s playing out even now.
Another thing, while researching for the article there were lots of interesting knowledge, for e.g. the Big Mac Index and it’s limitations which I didn’t know how to integrate into the decision and Policy taken. I also came to know/saw that lots of Policy initiatives being taken by the current (NDA)Government is similar to initiatives taken elsewhere in the world..
Whether the Policy would be fruitful in getting the desired outcome or would it lead to more chaos and down-turn will know in next quarter only.
It would be nice and interesting if people have observed something similar in their country’s economic policies as well.
Filed under: Miscellenous Tagged: #Bank Mitra, #Bank reach, #blackmoney, #debconf17, #Demonetisation, #fake currencies, #full-fledged savings account, #Jan Dhan scheme, #Moile ATM Van, #Plastic money, #Public Sector Banks (PSB), #Reserve Bank of India, Big Mac Index
