In the current heated debate over demon (short for demonetisation), it is being contended that the whole operation was highly confidential with only a handful of people at the very top planning it. These people could not visualise the operational hurdles and consultation with lower level people was ruled out. This is the reason for the chaos and the people at the receiving end should put up bravely with it in the larger interest.
I feel that it is not the lack of knowledge of minute operational details, but extremely poor conceptualisation coupled with uncalled for bravado that has led to the current mayhem. And I will be too happy to be proved wrong.
The countrywide state of panic that is causing huge disruptions and drawing much flak is mostly because of the dramatic announcement that all OHDs have been suddenly reduced to pieces of paper (that could only be deposited or exchanged in a bank but not used for transactions.)
Let us consider a case where some highly wanted criminals are hiding in a city and a manhunt has been launched to catch them. Now the sensible thing would be to impose rigorous checks at each and every exit point from the city. If an overly aggressive police was to block traffic at each intersection, you can easily imagine the chaos that will result. This is what is happening all over the country. Further if the police knew for sure that the criminals had only a couple of months lifespan left, heavily manning all the exit routes for a couple of months was all that was required.
On these lines, the sensible thing thing to do would have been to stop all cash transactions in gold, luxury items - anything costing above say 10K, property, commodity stock, foreign exchange and even purchase of financial instruments like drafts, mutual funds, insurance policies, also disbursement of loans in cash et al, while allowing OHDs in day-to-day transactions in the normal way for a period of one or two quarters. Individuals could be encouraged to use their entire holding of OHDs for such normal transactions. The traders and service providers could be asked to deposit all proceeds in OHDs into their account periodically and withdraw into NHDs. It would be even better if there were no NHDs and all withdrawals were only in notes of INR 100 or lower denominations. The government could have printed large amounts of OLDs with a little less concern about secrecy.
On the appointed date all holders of residual balance of OHDs could be asked to deposit it into their accounts. The banks could then be asked to report those accounts where the credit turnover has been more than 2 * the turnover in the equal preceding period. These persons could be given a chance to explain and unexplained deviants penalised. Additionally, individuals who had made any heavy withdrawals because of marriage etc. could be permitted to deposit it back without any fear of being reported. They could then be encouraged to make payments through cheque / electronic transfer.
Before I close I would like to add that in some debates on TV channels on the second day of demon, some speakers had suggested that traders could continue accepting OHDs in normal transactions as these could after all be deposited into their accounts up to the given date. This only underscores what I have said. That the trader community chose to disregard this advice is specifically because of the alarming bravado that marked the demon exercise.
I grant that this relaxed scheme could permit some leakages. But would it be more than the money converted today using hired manpower and without being routed through an account?
I feel that it is not the lack of knowledge of minute operational details, but extremely poor conceptualisation coupled with uncalled for bravado that has led to the current mayhem. And I will be too happy to be proved wrong.
The countrywide state of panic that is causing huge disruptions and drawing much flak is mostly because of the dramatic announcement that all OHDs have been suddenly reduced to pieces of paper (that could only be deposited or exchanged in a bank but not used for transactions.)
Let us consider a case where some highly wanted criminals are hiding in a city and a manhunt has been launched to catch them. Now the sensible thing would be to impose rigorous checks at each and every exit point from the city. If an overly aggressive police was to block traffic at each intersection, you can easily imagine the chaos that will result. This is what is happening all over the country. Further if the police knew for sure that the criminals had only a couple of months lifespan left, heavily manning all the exit routes for a couple of months was all that was required.
On these lines, the sensible thing thing to do would have been to stop all cash transactions in gold, luxury items - anything costing above say 10K, property, commodity stock, foreign exchange and even purchase of financial instruments like drafts, mutual funds, insurance policies, also disbursement of loans in cash et al, while allowing OHDs in day-to-day transactions in the normal way for a period of one or two quarters. Individuals could be encouraged to use their entire holding of OHDs for such normal transactions. The traders and service providers could be asked to deposit all proceeds in OHDs into their account periodically and withdraw into NHDs. It would be even better if there were no NHDs and all withdrawals were only in notes of INR 100 or lower denominations. The government could have printed large amounts of OLDs with a little less concern about secrecy.
On the appointed date all holders of residual balance of OHDs could be asked to deposit it into their accounts. The banks could then be asked to report those accounts where the credit turnover has been more than 2 * the turnover in the equal preceding period. These persons could be given a chance to explain and unexplained deviants penalised. Additionally, individuals who had made any heavy withdrawals because of marriage etc. could be permitted to deposit it back without any fear of being reported. They could then be encouraged to make payments through cheque / electronic transfer.
Before I close I would like to add that in some debates on TV channels on the second day of demon, some speakers had suggested that traders could continue accepting OHDs in normal transactions as these could after all be deposited into their accounts up to the given date. This only underscores what I have said. That the trader community chose to disregard this advice is specifically because of the alarming bravado that marked the demon exercise.
I grant that this relaxed scheme could permit some leakages. But would it be more than the money converted today using hired manpower and without being routed through an account?
On the face of it looks great. Say. On the face of it because I am not a banker. Further Prof R.Vaidyanthan , prof in finance at IIMB had suggested the demonetisation a few years ago. So I will wait for what your Banker friends post.
ReplyDeleteLegal tender is one which can be legitimately be used to pay and which can not be refused to be accepted. Even the current situation is not different from the suggestion above. Even now people can accept old notes and transact business. Only it can not be forced to be accepted. However the receiver runs the risk of depositing it before the deadline
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