Demonetisation: A War With No Plan

The surgery on 85 per cent of india’s cash can’t stanch the flow of common misery. even those who agree with the idea bemoan the absence of wise, steady hands.

- Lola Nayar

Misery cannot be audited: it does not show up on balance sheets. Nor will the three dozen ‘demonetisation deaths’, reported over a week of panic and financial chaos that lay in the wake of the November 8 announcement that Rs 500 and Rs 1,000 notes would cease to be legal tender. What exact effect this sudden shift of the financial system’s tectonic plates will have—in the short, medium and long term—on India’s economic life can only be speculated about. A contraction of economic activity may be inevitable in the first stage—hopefully leading up to a more transparent, accounted-for system. For the present, the sense is that India has ventured into a minefield without a location guide, and the very distortions it seeks to eliminate are vitiating the transition process.

The signs are all over. Manisha, a working woman from a poor family, faces great pressure, with her brother asking her to deposit Rs 2.5 lakh in her bank account. The money belongs to an unknown businessman. The deal is simple: return Rs 2 lakh after a few months, keep Rs 50,000 as service fee for doing the laundry. People with unaccounted money are exploring every avenue and loophole to legalise their stash. Gold was the first choice, but that may ebb after raids on jeweler Rs. Now real estate deals are being offered in Uttar Pradesh at a 60:40 ratio—Rs 1 lakh in old notes will be worth Rs 60,000. Bulk SMSes are going out offering this new exchange rate. Cooperative banks are dealing out backdated fixed deposits. Factory owners are paying advance wages—for the whole of next year. Across the country, factory operations are on hold, as workers have en masse turned into ‘mules’, standing in queues for their bosses.