Dr Manmohan Singh is a man of few words. He speaks softly and is careful not to offend anyone. These, in my view, are excellent attributes of a leader but, in a loud and raucous democracy, they are regarded as failings. Our democracy is poorer for encouraging lung power. Our debates are poorer because fact and logic are overwhelmed by falsehood and rhetoric.
Dr Singh spoke in the Rajya Sabha on Thursday, November 24, 2016. He spoke for barely seven minutes, softly, haltingly, almost apologetically for intruding into the business of the House! He said that in the implementation of the decision to demonetise currency notes, the government was guilty of “monumental mismanagement”.
The Prime Minister was present but, inexplicably, did not choose to respond.
However kind the media may be to the government (some sections have been disgustingly indulgent and unctuous), they were obliged to report Dr Singh’s remarks. So, the words “monumental mismanagement” were played over and over again on television and were repeated in the social and print media. They have left an indelible impression in the minds of the people.
‘Monumental mismanagement’ seems to be the signature tune of the NDA government. Any challenge that they take up, ends up more complex and dangerous than before. Demonetisation is the latest example. It is now clear, by putting together private first-person accounts and the movement of the persons concerned, that only four officials had been taken into confidence and tasked to carry out demonetisation. None of them had sufficient knowledge of currency production and management and, therefore, none of the following critical questions was asked or answered:
1. How many discrete currency notes will cease to be legal tender on the midnight of November 8-9, 2016? Ans: 2,300 crore notes.
2. What is the capacity of the government’s and RBI’s printing presses? Ans: 300 crore notes per month.
3. How long will it take to replace the demonetised notes by new notes? Ans: If we replace note for like note, it will take seven months. If we replace a 500-rupee note by a 100-rupee note, it will take five times longer. If we print more 2,000-rupee notes, the time will be shorter.
4. Is there a justification to introduce 2,000-rupee notes? Ans: None at all. If the problems of corruption and black money stem from high denomination notes, and hence 500- and 1,000-rupee notes will be demonetised, there is absolutely no case for introducing a higher denomination note.
5. Can the new notes be distributed through ATMs immediately? Ans: No. The ATMs have to be re-calibrated to stack and dispense the new 2000- and 500-rupee notes. Re-calibrating 2,15,000 ATMs will need a month, perhaps more.
6. So, how will the new notes be distributed quickly? Ans: They cannot be distributed quickly because of limitations of bank branches and bank staff.
7. Will there be a currency shortage and for how long? Ans: There will be an acute currency shortage and it will last for a long time. Apart from the limitations mentioned above, the more crucial factor is the skewed distribution of bank branches and ATMs:
Bank branches (Total: 1,38,626)
* Two-thirds are located in metro, urban and semi-urban areas.
* Only about a third (47,443) are in rural areas and the distance to the nearest branch could be several kilometres.
ATMs (Total: 2,15,000)
* 55,690 ATMs are located in the seven metro cities.
* 90% of all ATMs are located in 16 states.
* Only 10% of all ATMs (21,810) are located in 13 states and seven Union Territories.
* The seven states in the north-east have only 5,199 ATMs, of which 3,645 are in Assam.
Cost to economy
8What will be the cost of demonetisation to the economy? Ans: The cost will be significant. Assume, conservatively, that GDP will drop by 1%. According to the Budget papers, the size of the GDP at the end of 2016-17 will be about R150 lakh crore. One per cent of that will be R1.5 lakh crore.
The Centre for Monitoring Indian Economy has calculated the cost of demonetisation for the 50-day period from November 8 to December 30 as R1,28,000 crore:
* Households (queuing, transaction cost): R15,000 crore
* Government & RBI (printing): R16,800 crore
* Business (loss of business, sales): R61,500 crore
* Banks (staff cost): R35,100 crore
9 How much of the demonetised currency will return to the system through exchange of notes or deposits? Ans: The total value of the demonetised notes as on March 31 was R14,17,000 crore. If 90% of the notes, by value, returns to the system, the ‘effective’ demonetisation will be only R1,40,000 crore, that will be more than wiped out by the loss of GDP.
(As on November 27, R8,44,982 crore, by value, of notes had been exchanged or deposited. My sources tell me that over R11,00,000 crore had been deposited until Friday last. If deposits will be made at the same rate over the next four weeks, the notes that could return to the system may exceed 90% of the demonetised notes!)
10 If it is possible that nearly all the ‘demonetised’ notes could return to the system, why should we do this exercise? Ans: Because, sometimes a government amuses itself with khoda pahad nikli chuhia!