At stroke of midnight on 9th November 2016, Govt of India

invalidated high denomination currency notes of Rs. 500 and Rs.

1000. The value of withdrawn currency is Rs. 14.08 lakh crores,
which is 86.4% of the total value (Rs. 16.4 lakh crores) of currency
notes in circulation. The stringent limits on cash withdrawals, long
queues outside banks and non functioning ATMs indicate not only
the governments unpreparedness to handle the situation, but
perhaps thoughtlessness as to short and long term consequences of
the act; moreover some hidden motives behind the drastic action
rather the stated ones.
Obscure Motive and flawed reasoning behind the move
The stated objectives for demonetization have been to stop terror
funding, to remove counterfeit currency and the much-hyped intent
of flushing out black money,
Terror funding: The stand of Govt of India on terror has always
been that the major problem of terrorism in India is not home grown
terrorism but cross-border terrorism. Cross-border terrorism is
sponsored by international funding, its source is outside India and
the currency is not Indian rupees but other international currencies.
Demonetization of Indian currency doesnt really address the
problem.
Counterfeit currency: The problem of counterfeit notes was not
such a big one as to necessitate such a drastic action. According to
a study done by Indian Statistical Institute in 2015, at any given
point of time, counterfeit notes of an approx. value of Rs. 400 crores
were in circulation which is a mere 0.025% of total budget outlay of
Rs. 19.78 lakh crores. Just the printing cost of the withdrawn notes is
approx. Rs. 12,000 crore. What sense does it make to waste Rs.
12,000 crore investment in printing the notes just to put out of
circulation counterfeit notes worth Rs. 400 crores? Not to mention
the additional cost of printing new ones!
Flushing out black money: Cash money consists of a miniscule
percentage of the total black economy. According to some
estimates, cash money consists of just 6% of unaccounted wealth.
The rest is turned into turned into other forms of unaccounted
wealth by investment into real estate, bullions, foreign currencies,
hundis, foreign accounts etc. Even by conservative estimates, the
black wealth is around 20% of GDP. This means the annual
generation of black wealth is around Rs. 30 lakh crore. The value of
the withdrawn currency is approx. 14 lakh crore. Not all of the
withdrawn currency is black. Even if half of it is unaccounted money,
still the figure is really less compared to the total amount of black
wealth generated annually. Much of this unaccounted money will get
back into the parallel economy eventually through money-

laundering. There are rackets buying old notes at a discount, selling

gold and foreign currency illegally. With this sudden act, the govt
has effectively incentivized unproductive consumption. By
withdrawing higher denomination currency is not going to make any
major impact on the black economy as it doesnt address the
genesis of the problem of generation of black money. Without
structural changes, institutional and tax policy reforms, its not
possible to hit out at the root causes that generates black wealth
and operates as a parallel economy.
Faulty Planning and Implementation
The sudden announcement to demonetize the high denomination
notes has unleashed a reign of chaos on unsuspecting citizens. The
long queues outside banks and ATMs, severe restrictions on cash
withdrawals, and the quick change in govt positions as indicated
through 18 notifications in 9 days clearly signify utter lack of
planning and complete lack of preparedness of the govt to handle
the situation.
Currency Supply Management: Mr. Modi said that within 50 days,
things would normalize. However, the existing capacity for printing
currency notes indicates otherwise.
As per experts, decision of monetisation dated 8th November has led
to withdrawal of 86% of currency in circulation. As a result, 1,658
crore notes of Rs.500 and Rs.668 crore notes of Rs.1000 i.e. a total
of 2,327 crore notes valuing about Rs.14.08 lakh crore, have been
withdrawn. 1000 rupee notes are printed by Bhartiya Reserve Bank
Note Mudran Private Limited. It has a capacity to print 133 crore
notes per month in two shifts. Even if three shifts were to work, this
company can print 200 crore notes per month. If this government
company was to print new Rs.2000 notes as against the old Rs.1000
notes which are 668 crore in number, entire operation will take 3
months. Rs.500 notes are printed by Security Printing and Minting
Corporation of India Limited, which has a capacity to print 100 crore
notes per month. If this capacity is doubled over night, it will still
take nearly eight months or more to print 1658 crore notes of
Rs.500.
The quantum of replacement of smaller denomination notes
(Rs.100, Rs.50, Rs.20, Rs.10) due to normal attrition of notes every
3.6 to 4 years is about 11 billion pieces. With Rs. 2000 notes coming
into circulation, the demand of smaller denomination notes will be
higher. Add to that the additional pieces of such notes to support a
growing economy and inflation. So the number of such notes
required to be printed during he year could be around 15 billion
pieces. At current capacity of currency notes production, even if
maximized fully, a shortage will prevail at least for 12-15 months.

The demand for currency note production will be so high that

printing of notes to keep as reserves to cover unforeseen events like
calamities, inflation, GDP growth etc will be severely constrained.
Calibration of ATMs: Banks do not have cash and ATMs do not
have notes.
In a country of 125 crore people, there are only 2 lakh ATMs. As per
Finance
Minister, only 22,250 ATMs have been recalibrated and upgraded in
last 10 days.
If this figure is correct, it will take 110 days to recalibrate and
upgrade all the
2 lakh ATMs.
Confusion Galore: Modi Government has changed the rules and
directives
on demonetisation18 times in nine days.
On 8th November, limit of Rs.4,000 per person was fixed for change
of old
currency into new. On 13th November, this limit was refixed at
Rs.4,500 per
person. Today, i.e. on 18th November, this limit has been reduced to
Rs.2,000
per person. On one hand, government claimed that sufficient new
notes
are available but on the other, it continues to reduce the amount
that can
be exchanged. In a similar fashion, limit of withdrawal from ones
bank account
was fixed at Rs.20,000 on 8th November. On 13th November, this
limit was re-fixed
at Rs.24,000. On 17th November, this limit has been fixed at
Rs.25,000 for the
farmer and Rs.50,000 for the trader. In a similar fashion, a limit of
Rs.2,000 was
fixed per person on 8th November for withdrawal of money from
ATM.
On 13th November, this limit was re-fixed at Rs.2500 but ATMs do
not work at all.
On 15th November, Government decided to put ink on everyones
finger coming to change currency. Today, i.e. on 18th November,
Election Commission of India has negated the decision to put ink.
Truth is that Governments right hand does not know as to what is
being done by the left hand. Confusion confounds Modi Government
completely.
Fallout: Economic and Human Cost