Cover Story: Democracy Demonetized

Forcing people to queue outside banks and ATMs even after fifty days is undemocratic as the government sits on public’s hard earned money causing a plethora of practical problems

By Asit Manohar

In a bid to unleash a comprehensive crackdown on the black money, the Prime Minister of India announced to demonetize `500 and `1000 notes. While his followers and supporters dubbed this move as a master stroke to tackle internal and external insurgency, fake and counterfeit currency, and black money hording his detractors called this move as immature and a move taken in a hurry that would bring problems for the common man who constitute around 99 percent of the Indian population. Modi critics were of the opinion that only one percent of the Indian population is indulged in black money stashing and hording but the Indian Prime Minister took a decision that forced public in general to stand in queue outside banks and ATMs to fish their hard earned money. This move was even dubbed as breaking of the RBI promise to pay the amount mentioned on the note.

These opposition jibes on demonetization got further boost when Indian PM called people of Indian through his ‘Man Ki Baat’ to go cashless. Rather than giving a counter to the oppositions allegations, PM choose to twist the objective of the move putting a question mark over the whole exercise. As, the 50 days demanded by the Indian Prime Minister is over, it’s high time to check the government’s chest thumping break through and the opposition allegations.


The opposition parties are alleging that the government’s decision of demonetization has demeaned the RBI Governor as the office bearer promises the note holder to pay the amount mentioned on the currency. At the same time, it should have been announced by the RBI Governor Urijit Patel not the PM as `500 and `1000 notes are released and printed by the RBI. An RTI in this regard was filed and the reply given to this RTI has nullified the allegation as the RTI cites, “Prime Minister of India immediately announced the demonetization after the government received the central bank’s recommendation for demonetization.” The RTI establishes the RBI Act 1934 which states, “Central Government has the power to demonetize any of the Indian currency provided it has the recommendation of the RBI Central Board in this regard.”

As per the media brief given by the RBI, eight out of ten board members of the RBI had attended the required meeting before recommending the demonetization move to the government of India. On the question of preparations before recommending the demonetization the RBI reported that it had already printed `4.94 lakh crore in the form of `2000 notes before recommending for the demonetization of `500 and `1000 notes. So, on paper, it doesn’t reflect any case of demeaning the post of RBI Governor as there was no violation of the RBI Act 1934.


This huge gamble on notes that accounted for 86 percent of the value of currency in circulation left the business community stunned, up till then India had been cruising with a growth rate of over 7 percent and was tagged as the fastest-growing economy in the world.

Jean Dreze, a well known development economist said, “Demonetization in a booming economy is like shooting at the tires of a racing car.” Though a bit of an exaggeration, this has turned out to become a harsh reality for India; international ratings agency Fitch reported a lowered GDP growth forecast of 6.9 percent, down from the earlier forecasted 7.4 percent. The report also stated that consumers do not have the cash needed to complete purchases, and time spent queuing in banks is also likely to have affected general productivity; the impact on GDP growth is likely to increase as the disruption continues for a longer period of time.

As an integral part of the economy, India’s vibrant startup ecosystem has seen demonetization as an experiment that could turn out to be a boon or a curse. Over the past month, startups have experienced fixed fortunes, where few enterprises have shown signs of gaining ground whereas others have posted losses.

This move has helped the e-wallet service providers like Oxigen, Paytm, FreeCharge, MobiKwik etc to cash-in on the cash crisis that got created during the 50 days period. Data from ministry of electronics and information technology shows that the number of daily transactions through e-wallet services such as Oxigen, Paytm, FreeCharge and MobiKwik has shot up from 1.7 million — recorded on November 8 when demonetization was announced — to 6.3 million as of December 7 — more than 250 percent growth.

But, the question is, how does it helped Indian economy to fish out the parallel economy taking Oxygen from its blood. It is well known that small and medium sized units were finding it hard to pay their employees and hence they had to stop operations for the time being. As a result, employees who had migrated from various parts of rural India went back to their native place leading to production paralysis. So, the move has hit the startups dearly and it would take quite some time to come back on track.

“One of the smartest routes to drive growth in India’s startup economy would be to find new sources of funding from angel investors and micro-vc’s. This can happen by disrupting the grey (cash) economy that exists today, and compelling more Indians to pay taxes. If government policy incentives the taxpayers and businesses to submit unpaid tax via an anonymous amnesty (like the UK Government did with offshore tax avoidance), and imposes a strong penalty and/or rule change for those who don’t comply, then the system will transform rapidly,” said Aftab Malhotra, Co-founder, GrowthEnabler.


However, the Ministry of Labour had other side of the coin too. A senior level official into the Ministry of Labour informed, “Payment through banks would enable us to count the actual number of employees in the company. If it goes past 10 then the employer would be forced to give Provident Fund (PF) and ECS while in case of above five years of service the employee would be able to get the benefit of Gratuity. Similarly, if the number of employees goes above 20 then other benefits would come into play. So, the payment through banks to the employees would ensure timely payment along with minimum wages, job security and social security.

However, on the question of employer’s being hit by these information coming to the government records, the official said, “There are plans to award the employers too.” So, the government is in mood to make a level playing field for both employees and the employers. When asked about the lack of bank accounts among the employees working at various startups, the official said, “The Ministry of Labour is engaging with banks to open bank accounts of the startup employees and in remote parts we are trying to at least double the bank correspondents in next few months so that the required objectives can be met at minimum investment.” He said that the Ministry of Labour has the data which suggests the government has successfully opened bank accounts of the employees working in various startups of the country. He said that the government has opened near 1,50,000 accounts a day which itself speaks about the Himalayan task being done on the banking part.


India’s 1.3 billion people get by with less than 200,000 ATMs in the country and 87 percent of transactions are cash. Putting this in perspective for American readers, by the World Bank’s definition, middle income Indians make between 680 and 3,400 rupees a day. The last time the US faced a disruption of this size to its money supply was during the bank runs after the Great Crash of 1929.

This move won’t cause India’s banks to crash; people are rushing to exchange the soon to be worthless notes, and the banks don’t have enough new notes to cover them, so their balances are swelling. But there is a downturn happening across the entire economy, as day to day activities decline due to the lack of liquidity needed to settle transactions.


However, what the government would do if the employer sticks to his norm that it would not hire more than 9 work forces at its unit, the official had no answer. He also failed to answer how it became possible for the black money hoarders to withdraw crores of new currency notes when there was gag on bank accounts and ATM withdrawal.

To answer the malpractices taking place at various banks a Comptroller and Accounts General (CGA) top official said, “The government is keeping its vigilant eyes on the various banks and its branches whose work doesn’t match with their report. We are also going to check the fake accounts being operated by various bankers at their branches to serve the black money holders.” When asked if there would be any action taken against Axis Bank and the Kotak Mahindra Bank the CGA officer said, “Yes. Action is for sure but to what tune only time will tell as we are currently focused on delivering our promises within the time limit that the government has given to the people of India.”


Demonetization helped government to control local insurgency as per its wish. According to the Ministry of Home Affairs report, around `800-1200 crore cash currency flows in each of the five states which are highly affected by the Naxalites. The ministry further reports that in Orissa only, around 800 surrenders took place and more than `800 crore had been seized from the Naxalite affected region in Chhattisgarh. The MHA report suggests that in one month, the state police have seized around `4200 crore from the local insurgent group which was the backbone of their operation as they were used to the high denomination cash transaction. The demonetization makes those tenders illegal and the Naxalites had no option but to stop operation and join the mainstream.

Similarly, terrorist groups were also expected to face the heat and the move seems to have made a dent in the right direction. Terrorist groups operating in the Kashmir valley have been forced to indulge in nut trade which they are bringing from Pakistan and generating money by selling them into the valley market. These nuts are of export quality and can easily generate lakhs of Indian rupee and it is generating rupee but this is not enough for the terror organizations to meet their requirements. Recent bank robbery in J&K has to be seen in this light.


Nearly 70-80 percent door step services in healthcare such as diagnostics or home care are paid at the time of visit in cash. These services are going to get affected by a lot of cancellation in the absence of cash.

“Old high denomination ban will impact the private healthcare sector for next 3 to 6 months, and the impact would be higher for home healthcare service providers and door step service providers. If we look at consumers such as patients with chronic illness and old patients, they always keep cash with them for all sorts of medical needs and usually old patients living alone always ensure they have sufficient cash for emergencies,” adding, “Looking at the new limits for withdrawal it will take time for these people who rarely go to a bank to recollect sufficient cash. Even once the bank gets opened everyone would like to use cash for daily needs until there is an emergency. I am afraid that medical services being part of urgency and critical category are kept out from the ban. This also could result in the delay in treatment for many patients,” said Deepak Sahni, CEO & Founder,

However, being a democratic country, question is not about achieving the monetary targets; it’s about achieving the monetary and economic targets in a manner which is democratically acceptable. When demonetization was announced on November 8, the prime Minister had promised the nation that it would like labour pain that every mother has to go through before attaining the motherhood. People of India responded positively citing ‘move is for the betterment of the poor.’


But, soon this move became movement for cashless economy and in this period GOI went on to change its rulings on numerous occasions making mockery of the Aam Aadmi all the while making exceptions for political parties.

While public in general supported the government for his bold move, Modi government broke its promise that after 50 days, business would be as usual. But, since it is more than 50 days, bank account holders are still queuing outside banks and ATMs. Money withdrawal norms which were imposed after the November 8 announcement are still persisting. The government had claimed that it would keep the name of the bank account holder under cover if they announce the unaccounted money before September 30, 2016. However, Rohit Tandon’s name first emerged into their plane when he deposited `125 crore unaccounted cash in the given balck money announcement period given by the government. If Tandon had not corrected his ways post September 30, then what government did would have served him right. The question on  how the `125 crore surfaced into the public domain is a matter of great concern as it challenges the credibility of the central government’s promise as it is itself not abiding by its own words.  


Similarly, the government of India had waved off any bar on political parties depositing demonetized notes into their account. If Mayawati’s BSP had some discrepancy in its Karol Bagh account, the ED or Income Tax department should have send notice asking for the details of the money deposited into the party account. It’s above anybody’s guess as to how the news was leaked into the media before ED or Income Tax department could take any future course of action. Such development suggests that the government is trying to take political mileage of these developments as was pointed out by Samajwadi Party’s Upper House lawmaker, Naresh Aggarwal, who alleged on the floor of the parliament that even if black money control was the objective of the government, yet it was clearly being implemented keeping the UP assembly polls in mind. The way BSP was targeted without any action being taken by ED or Income Tax Department; Naresh Aggarwal’s allegations have enough to establish its worthiness.

In democracy, a government is expected to keep the opposition with it on policy decision of great importance. So, the Prime Minister was expected to make his parliamentary colleagues to know this decision from the government rather from the news channels. It’s not necessary that the government should ask for the permission from the opposition but it can inform the opposition parties — a gesture which reflects about the healthy democracy. But, the government didn’t do that.

If the government was not sticking to the healthy norms of democracy, opposition was also not far behind. They continuously disrupted the parliamentary proceedings with unwanted obstinate demand that PM should be present in the house till the debate over the demonetization continues — a demand which looks more aimed at derailing the debate than to continue with it. Had the debate over the demonetization taken place, people of India who are still confused over the move after 50 days, would have the chance to understand the pros and cons of this move? So, in a gamut of political stunts, it was democracy which suffered the most severe hit rather the economy or the public in general. The opposition tried to gun the government by using shoulders of the Aam Aadmi while the ruling coalition was gunning its opponents to win the fast approaching assembly polls through the same tactics.

The way demonetization was painted as a ‘surgical strike’ on the black money hoarders, people of India were shy of criticizing the government. They were content with the statement that ‘move is good but its implementation is bad.’ It’s enough to express the volume of hit suffered by our democracy where public is shy of criticizing its government so that they are not pronounced anti-national. Since, 50 days have passed; it’s opportune for Modi to analyze his implementation follies without chest thumping via media which he has done through BSP Karol Bagh account and Rohit Tandon’s case. He must fix the bank officials and other government institutions which derailed the implementation plans. Apart from this, he is also expected to discuss the effect of this demonetization with all 16 opposition parties ahead of the most important Budget Session and ensure smooth sailing of the parliamentary sessions ahead.

Modi needs to remember, during emergency, India’s economic growth averaged a healthy 6 percent — a figure that is comparable to the “boom” of the 1980s. The increase in per capita GDP was accompanied by an increase in productivity owing to higher capital investment. Family planning was able to achieve its targets during emergency too. But, how many of us would laud emergency? So, it’s up to the Modi government, he wants to remain into the public domain through his decisions like emergency or he would rather want to remain in public perception like Mahatama Gandhi. Interestingly both hails from Gujarat but Gandhi became global icon of peace because the ‘saint from Sabarmati’ believed in actual ‘Sabka Saath Sabka Vikaas’ which PM Modi has boasted on numerous occasions.

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