50 days of PM Modi's big demonetization "experiment" are over. The whole world has been watching India in those 50 days. A lot has been said and written about it in those 50 days. I'm no economist. And I'm not going to pretend to be one for the sake of this article. I'm just going to share my experiences and observations during those 50 days of demonetization.
1. Overall Experience.
In a country with 1.25 billion people, scrapping 86% of the total currency in circulation, is bound to create problems. It cannot possibly be a seamless transition. Considering the magnitude of the operation, I have to say, this entire operation happened more smoothly than I expected.
2. Queues Outside Banks and ATMs.
I didn't go to the ATM even once in 50 days, although I was tipped off that our neighborhood ATM (State Bank group) gets filled at around 6 pm every day. As for banks, my first trip to the bank (SBI) was on 19th November, the day when cash exchange was allowed only for senior citizens. So the queue was considerably shorter. Still, it took us (Dad & me) an hour.
But the queue was extremely well-behaved, the guard had full authority to deal with trouble-makers, senior citizens were being sent in first, and there was a table outside with drinking water and deposit/withdrawal slips. By the time our turn came though, Rs.100 notes were finished. We could choose from Rs.2000 or Rs.10 notes. But they did have sufficient cash.
The second time we went to the bank was on 6th December. There was no queue, normal crowd inside. We were in and out within 3 minutes. Sufficient cash, but again no Rs.100 or new Rs.500 notes.
3. Cash Crunch.
Our local vegetable vendor had a severe cash crisis the very first morning, i.e. 9th November. He went to the mandi to buy fresh vegetables for the day, but nobody would accept the old Rs.500 and Rs.1000 notes. Eventually, they just gave him the fresh stock on credit, as he buys from them every morning.
I personally didn't face any major cash crunch problem, because sales at a neighborhood stationery store happen in petty cash mostly.
Salaried people would have been in a real tight spot though. Limit on ATM withdrawals, long queues, not enough small denomination currency. Can't imagine how they managed, especially for the first couple of weeks.
4. Affect on Businesses.
For the first few days (less than a week), yes, sales dipped. People were buying only the necessities. But things got more-or-less normal soon after. My sister was here in the first week of December. We did a lot of shopping then. Most stores accepted cards, and the ones that didn't, had sufficient change for Rs.2000 notes.
On being asked, the shop-owners said that their trade hadn't suffered by more than 10-15%. I actually ended up spending more with my card than I would have with cash! (Mind you, these are the non-necessities I'm talking about right now.)
Overall, I didn't see much difference in retail markets. But yes, wholesale markets seemed slower than normal. There were fewer customers there (even in December) AND less stock too.
5. Brought People Together.
Neighborhood shops may not have POS machines, but they have other support mechanisms, because the residents and shop owners are all usually known to each other. In my colony, some regular customers were given goods on credit. Others could open their "pre-paid accounts" with our local kirana store and vegetable vendor, with the otherwise-useless Rs.2000 note.
I installed paytm on my phone, to accept payments from customers who didn't have cash. But one lady didn't want to use paytm either, 'coz she badly needed change for her Rs.2000 note. So the kirana store and I pooled in our Rs.100 notes, to help her out.
Residents have also been helping their domestic maids with small cash advances, as well as in getting their Aadhaar cards and new bank accounts. Together, we have pulled through.
6. Value Reversal.
These last 50 days have witnessed a strange phenomenon. There were very few takers for the Rs.2000 note. The Rs.100 note suddenly became more valuable than the Rs.2000 note. Even Rs.10 notes, from kids' gullaks, became more valuable than the new pink note. And the new Rs.500 notes are still like those rare Colombian emeralds! Everybody wants them, and the few who do have them, show them off like Sharukh Khan's Nerolac-painted-house in that "ghar bula ke to dekho" TV ad.
Yes, this operation required a high level of secrecy in order to be successful. Despite that, Team-Modi could have been slightly better prepared. I mean, some of the loopholes were pretty obvious. Daily cash exchange, misuse of Jan-dhan accounts, opening of new fake accounts, jewellery purchase. They could have anticipated at least these few loopholes, and taken proactive steps against their exploitation.
Many people got carried away in their greed and misconception, and exploited the various loopholes. The railway ticket route was effectively blocked right away. Jewellery stores are already under the scanner. Deposits in fake accounts and other people's accounts can easily be flagged with the use of software. Contrary to what most people believe, they don't need to scan all bank accounts manually. A simple query can reveal all suspicious transactions in any bank account. Multiple bank accounts can be linked by PAN numbers. Non-KYC accounts can anyway be flagged for further inspection. It's not as difficult as some people would have you believe. But it will take time and continued vigilance by Team-Modi. All culprits can be caught if Team-Modi wants them to get caught.
9. Government Responsiveness.
In India, all government bodies are known for their bureaucratic procedures and lack of decision-making will. They usually take ages to act on any matter. As such, I found it a pleasant surprise that Team-Modi was constantly on its toes and ready to take immediate action. Some people may ridicule them for making "54 changes in 42 days" (or whatever the final numbers were), but I thought it was a welcome change from their usual inertia.
10. The People of India.
I am truly amazed! The way everyone stood patiently in queues, without creating any law & order problem, despite the magnitude of the operation, AND the constant provocation by news reporters and opposition members... it is just incredible! I would have never, in my wildest imagination, thought it possible. They must have a lot of faith in Mr. Modi.
The demonetization drive was a necessary step, but, by no means was this the final step. Whether it was successful in achieving its intended objectives or not, only time will tell. Time, and continued action on the part of Team Modi. But it has set in motion certain things that would not have happened so soon otherwise. This article has already become too long, so I will write about them in my next post.
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