"Don’t rush to deposit cash and create panic at bank branches. You have enough time."
"Okay rush now, but do it just once and also explain to our satisfaction why you didn’t rush until now."
"Rush now and it's fine no questions will be asked if it is just once."
These three lines sum up the notifications, clarifications and additional clarifications issued by Prime Minister Narendra Modi, the finance ministry, Reserve Bank of India (RBI) and finance minister Arun Jaitley so far on depositing old, invalidated Rs 500, Rs 1000 notes since 8 November, the evening the recall of 86 percent of currency in circulation (by value) was announced on national television.
Little thought, it seems, is going into even critical communications from the RBI and finance ministry on demonetisation-related issues. Lack of co-ordination between different authorities is more than obvious. “There seems to be a lack of disconnect among authorities on what they are doing,” said Devendra Pant, chief economist at India Ratings and Research.
“This is creating confusions among public and bankers,” Pant said. On Monday, both the RBI and finance ministry, in separate circulars, said that in the remaining days of this month (till 30 December), only once people can deposit old Rs 500, Rs 1000 notes above Rs 5,000 in value, that too explaining why they didn’t do it so far.
“The credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation. The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS to that effect so that no more tenders are allowed,” the RBI said.
The ministry circular too sounded similar. “The banks have been advised to conduct due diligence regarding the reasons for not depositing these notes earlier.” But, later, on Monday night, Jaitley again clarified, rather contradicted, the above two circulars earlier in the day saying, no questions will be asked for the one-time deposit above Rs 5,000.
Remember, all these flip-flops are coming after PM Modi and FM Jaitley repeatedly assuring the citizens that there is no need to rush to bank counters to deposit old notes in the early days of demonetisation. What does one understand from the endlessly changing rules? One, there isn’t proper coordination between the responsible authorities on how to go about the demonetisation implementation.
Second, decisions are being made on the go rather than coming as the outcome of an original plan.
Third, both the government and RBI seem to be unaware about the ground situation and the practical difficulties faced by the bankers and common customers.
Bankers and economists have pointed out that the new Rs 5,000 deposit rule will be difficult to implement. This is because branches will find it difficult to depute two officers for each deposit and handle the additional paper work. All India Bank Employees Association (AIBEA) on Tuesday threatened further protests highlighting the problems faced by the bankers and customers during the demonetisation episode.
For instance, a banker who has received the RBI circular but missed the late night clarification from finance minister Arun Jaitely is bound to question the customer at the counter who has above Rs 5,000 in old currencies. The condition of a ‘satisfactory explanation’ to why the customer didn’t deposit the money so far is a very subjective matter, which can open channels for harassment, corruption and further chaos at bank branches. Given that transparency and clarity of communications is paramount while rolling out a mammoth exercise such as demonetisation of 86 percent currency in circulation in one go, the government, RBI should have coordinated in a much better way to give clarity to the citizens on the rules.
The government’s intention of putting fresh curbs on deposits is clear— it wants to cut off fresh inflow of black money into banking system in the remaining days of this month. But, it is not clear how far the move will see results given that crooks. This is because, as this writer pointed out in an earlier Firstpost column, the tax cheats would have found many ways to deposit their money much earlier in small doses either by creating fake accounts (like in the Axis Bank episode), donating to one of the 1866 political parties that enjoy no tax, no scrutiny under the current laws, by splitting the amount to several small bundles or depositing it multiple benami accounts. Probably, the government failed miserably to foresee how crooks will find alternative ways to beat demonetisation from the very beginning.
With just 10 days left to the 30 December deadline offered by PM Narendra Modi to put an end to the demonetisation pain of common man, PM Modi’s first big test is to keep his 50-days promise. So far, there are no signs of that happening. Queues at ATMs and bank branches have shortened for sure but that is more because of the fact that there is not enough cash in lower denominations available, rather than a sign of a normalisation. Also, due to the tough restrictions the government/RBI has imposed on withdrawals and deposits. The Rs 5,000 rule adds to the confusions. The government mint’s capacity to print enough lower denomination notes so soon is doubtful as this IndiaSpend analysis points out.
The PM’s second test will be to resolve the cash-crunch at the earliest. Even his political rivals would be praying for the current mess to end fast, since the cash-crunch has impacted majority of Indians in some or other way. The economic impact, some of which are already visible, will be profound if the cash-crunch lasts longer. An economic crisis can negate any promise. Finally, Modi’s third test will be to show the stated tangible results of the demonetisation exercise—elimination of black money, corruption and terror funding. Change to a cashless economy is a far-fetched idea for India, so one can forget discussing it at this point.
A cost benefit analysis of this entire demonetisation exercise will be done sooner or later and the pain of demonetisation will be weighed against the supposed gains. There aren’t any leaders as Modi who has risked his entire political capital to push an economic reform agenda in this fashion, either willingly or without understanding it fully. Either Modi will emerge as a hero of demonetisation or the currency ban will go down in history as his Waterloo. Modi’s first big test is to keep his 50-day promise.
Updated Date: Dec 20, 2016 13:48:30 IST