India is no longer the same from 820pm on the 8th of November, 2016, when the government withdrew high denomination notes of INR500 and INR1000 as legal tender. following up on the earlier blog on this we now look at the execution part of the decision.
It is hailed as a bold move and to quote Humphery on this :
[How to guide ministers to making the right decisions] Sir Humphrey: If you want to be really sure that the Minister doesn't accept it, you must say the decision is "courageous". Bernard: And that's worse than "controversial"? Sir Humphrey: Oh, yes! "Controversial" only means "this will lose you votes". "Courageous" means "this will lose you the election"!
So as we watch the long queues, one is left with the feeling that perhaps this was more a courageous decision than a bold one!! As mentioned in the earlier blog on this subject, 2019 will tell us if Modi and BjP got this right or not. whether the people will reward them for delivering this sucker punch on those who deal in and hoard black money OR consign them to the history books.
Now coming to what the government could have done.
1. ATM's recalibration: That INR2000 notes were being introduced, was no secret. The government could have got banks to recalibrate ATM beforehand for their introduction by eliminating 1000 tray in the ATM's - this way ATM's would have all been up and running.
2. Replenishment of ATM's: This is one place the govt really messed up. The army could have been used in this. ATM's are last replenished around 9-10pm - with the army this could have been a 24hr affair thereby saving a lot of angst on the ground.
3. Bank deposits/exchange : All gazetted government department employees should have also been pressed into service in banks in their local areas so that additional points of contact can be created. For eg for each table 30 people per hour can be cleared - assuming 150000 such officers working for 10hours, we have an extra 150000 x 30 x 10 = 4,50,00,000 transactions which would have by now cleared all the exchange problems and the crowds would have by now petered out.
4. NRI's - This is a group of people that the Government has totally ignored (or forgotten?) as they have not been given an option to convert their currencies in the indian embassies abroad or in foreign Branches of Indian Banks. This is something the government should rectify at the earliest as the amount that an individual can hold today abroad of indian currency is INR25000 (corrected - earlier noted as 5000/-) which is close to 400$ per person.
5. foreign travellers - there are umpteen foreigners who have landed in india on the week before the announcement who suddenly have no recourse to exchange their monies. For quite a lot of them it has become an unforgettable holiday - this could have been easily avoided by allowing railway gazetted officers to exchange against proof of their earlier conversion from forex to INR whatever cash they had at one go - this would have been a seamless experience instead of the confusion that one is witnessing in the streets today besides the loss of business from these customers who have only come to spend and have a good time.
6. Domestic travellers - A lot of domestic travellers have also been caught in the wrong foot especially those who have gone on business trips which entail only cash deposits for auctions of certain natural commodities -such people now cant even go back to their places nor use the existing currencies to participate in such auctions etc. The exemptions given to postal, govt services, hospitals etc have to be extended till such time, queues are normalised from the current 3/4hours to under 30 minutes at least.
Unintended consequences:
1. Poor people who have been saving all their lives and are unbanked will end up paying taxes if they have more than 2.5lacs.
2. People without proper knowledge of taxation rules like the telangana woman who committed suicide as she had 50lacs in her house from the sale of her agricultural land. As agri land is exempt from tax - this was a truly sad collateral
3. As the 2000 note does not have RFID tagging this entire process is only a one time clean up process - hence the hawala operators are only biding their time and issuing their own iou's to those who have unbanked monies with a promise to pay over the next few months. of course what cant be exchanged before 31st march 2017 is once and for all lost to the black money hoarder.
Net net, a bold move has been frittered away by some below average planning of the nitty gritties and poor on ground execution which has been the bane of independent india.
Maybe the PM would have been better served by first setting the executive in order before this decision to make the entire economy clients of the friendly neighborhood hawala operator?
It is hailed as a bold move and to quote Humphery on this :
So as we watch the long queues, one is left with the feeling that perhaps this was more a courageous decision than a bold one!! As mentioned in the earlier blog on this subject, 2019 will tell us if Modi and BjP got this right or not. whether the people will reward them for delivering this sucker punch on those who deal in and hoard black money OR consign them to the history books.
Now coming to what the government could have done.
1. ATM's recalibration: That INR2000 notes were being introduced, was no secret. The government could have got banks to recalibrate ATM beforehand for their introduction by eliminating 1000 tray in the ATM's - this way ATM's would have all been up and running.
2. Replenishment of ATM's: This is one place the govt really messed up. The army could have been used in this. ATM's are last replenished around 9-10pm - with the army this could have been a 24hr affair thereby saving a lot of angst on the ground.
3. Bank deposits/exchange : All gazetted government department employees should have also been pressed into service in banks in their local areas so that additional points of contact can be created. For eg for each table 30 people per hour can be cleared - assuming 150000 such officers working for 10hours, we have an extra 150000 x 30 x 10 = 4,50,00,000 transactions which would have by now cleared all the exchange problems and the crowds would have by now petered out.
4. NRI's - This is a group of people that the Government has totally ignored (or forgotten?) as they have not been given an option to convert their currencies in the indian embassies abroad or in foreign Branches of Indian Banks. This is something the government should rectify at the earliest as the amount that an individual can hold today abroad of indian currency is INR25000 (corrected - earlier noted as 5000/-) which is close to 400$ per person.
5. foreign travellers - there are umpteen foreigners who have landed in india on the week before the announcement who suddenly have no recourse to exchange their monies. For quite a lot of them it has become an unforgettable holiday - this could have been easily avoided by allowing railway gazetted officers to exchange against proof of their earlier conversion from forex to INR whatever cash they had at one go - this would have been a seamless experience instead of the confusion that one is witnessing in the streets today besides the loss of business from these customers who have only come to spend and have a good time.
6. Domestic travellers - A lot of domestic travellers have also been caught in the wrong foot especially those who have gone on business trips which entail only cash deposits for auctions of certain natural commodities -such people now cant even go back to their places nor use the existing currencies to participate in such auctions etc. The exemptions given to postal, govt services, hospitals etc have to be extended till such time, queues are normalised from the current 3/4hours to under 30 minutes at least.
Unintended consequences:
1. Poor people who have been saving all their lives and are unbanked will end up paying taxes if they have more than 2.5lacs.
2. People without proper knowledge of taxation rules like the telangana woman who committed suicide as she had 50lacs in her house from the sale of her agricultural land. As agri land is exempt from tax - this was a truly sad collateral
3. As the 2000 note does not have RFID tagging this entire process is only a one time clean up process - hence the hawala operators are only biding their time and issuing their own iou's to those who have unbanked monies with a promise to pay over the next few months. of course what cant be exchanged before 31st march 2017 is once and for all lost to the black money hoarder.
Net net, a bold move has been frittered away by some below average planning of the nitty gritties and poor on ground execution which has been the bane of independent india.
Maybe the PM would have been better served by first setting the executive in order before this decision to make the entire economy clients of the friendly neighborhood hawala operator?
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