With each post-demonetisation day passing by, what is as disturbing as its impact on the common people is the complete lack of preparedness and anticipation of consequences by the central government, and that is becoming more and more evident. On Wednesday, when former finance minister P Chidambaram said that the capacity of our banks and currency printing presses was not good enough to mitigate the ongoing impact, the government looked completely exposed.
In an interview to the India Today TV channel Chidambaram said that the printing of new ₹500 and ₹1,000 notes would take about seven months because the capacity of India's currency presses was only 300 crore pieces per month. The total number of currency that has been withdrawn is seven times higher. The Indian Express in a report immediately after the demonetisation announcement had flagged this issue. Quoting the RBI annual report, it said that there were 2203 crore pieces of ₹500 and ₹1000 notes in circulation.
Clearly, the shortage of money supply is not going to get better any time soon, even if there were enough bank branches and ATMs. The impact on the economy and its multiplier effect, some of which will be hard to reverse, is too complex to fathom. Even the most comprehensive statistical models might not be able to see all the sides of this emerging catastrophe. Some pro-government economists say that after the initial contraction – interestingly they don't shy away from the thought that it could even turn negative - the economy will bounce back; but the reality, as past experiences from the rest of the world show, is that economic shocks devastate a large number of people. Some sectors, particularly small and medium industries, including agriculture may be irreversibly damaged because of the vicious cycle of shortage of money, dwindling demand, losses and the unviable financing costs.
A smirking Chidambaram highlighted a couple of more points in his interview that make one worry about the quality of governance in the country. He said that about 13 crore people may be queuing up every day now for some cash in front of the two lakh bank branches and 1.2 lakh (functioning ones) ATMs (at an average of 400 people per branch and ATM). With the present number of bank branches and ATMs, it's impossible to serve a country of 120 crore. Some people will come back again and again, and the queues may go on for ever. Besides their hardship, it also keeps them out of work.
Had the government looked at these simple facts that are all there in its records - the number of pieces of notes required, the capacity of the currency printing presses, the banking and postal infrastructure and the number of people to be reached - it wouldn't have rolled out the demonetisation in its current form. More over, the knee-jerk decision to mark people with indelible ink also showed that the government was unaware of the possible shortcuts black money hoarders would take.
The government either didn't consider these unmissable facts and consequences (with all the might of the revenue intelligence, I-T department and Enforcement Directorate) or wantonly overlooked them. Either way, it betrayed its people with shoddy governance and a complete disregard for their lives.
Chidambaram said that the government didn't seem to have consulted the Chief Economic Advisor and the senioor officers of the banking, economic affairs and revenue sectors. He is probably right - had they been kept in the loop they wouldn't have supported such an amateurish misadventure because India has a well-oiled bureaucracy.
The shoddiness doesn't stop with the institutional failure to print and distribute new currency in the shortest possible period, but also extends to the design of the new notes. By changing the size of the new bills, the government has rendered about 2.2 lakh ATMs useless for dispensing them. According to the biggest ATM maker in the country, that has a marketshare of 47% of the machines in India, it will take 45 days to get them back to work. Of course it will also cost a lot of money.
Forget about the "unmitigated design disaster", that the new ₹2000 exemplifies in terms of layout, typography, mistakes and aesthetics, what did the government gain by making its size different from that of the old ₹1000 bill? It's not without reason that all US currency bills are of the same size. In fact, the government should have used this opportunity to standardise the sizes of the Indian currency. Even a less boastful country such as Philippines had done it in the 1980s and continues to keep the size of all its bills the same. Incidentally, Philippines also demonetised its Peso recently and the process lasted two years. What began on 1 January 2015 will continue till 31 December 2016, although the number of notes involved is only 72.9 crore, a fraction of what India has. Currency makeover every ten years is a standard practice by the central banks (the equivalent of RBI) around the world, mainly to introduce new safety features and to fight counterfeiting.
Many critics of the present drive were not cynical initially because of the assumption that the government was ready with a replacement plan. The simple thought was that, despite some efforts by black money hoarders to rig the system, the effort will purge untaxed and counterfeit money, and replace it with clean currency. Transitioning into new currency notes didn't appear to be very daunting, given that the country is used to complex and large-scale operations such as general elections, polio vaccinations and Aadhaar enrolment.
However, what's unfolding is shameful. The world will be certainly laughing at us. We look like a banana republic. The images of desperate people in front of the banks and the ATMs in India resemble that of the people who were sleeping overnight outside the banks in Zimbabwe recently for their cash.