‘Change is hard at first, messy in the middle and gorgeous at the end’. Indian Prime Minister Narendra Modi’s demonetization is justifying this famous quote as RBI has forecast to fall in GDP in the first quarter. World renowned Economist and former PM Dr. Manmohan Singh has called it as ‘travesty’ of the govt.’s fundamental duty protect citizens’ right of livelihood as India lost 86% of its monetary base with the stroke of an hour.
This seems to be true as limited bank transactions will slow down the economic activities of the people. Govt. is promoting electronic transactions but it will too debase the economic liberty of the people. In some villages and towns people have been reportedly start using Barter system as medium of exchange. In a country like India where 50% of people even do not have bank account and prefer big holdings in gold and real estate shows that they do not have faith in the country’s banking system. Moreover only 6% of unaccounted money is in Indian currency.
The immediate effect of this note swapping can be seen in recently announced elections in five states where demonetization has already stunned political parties. In large states like Punjab and U.P. where cash donations are a large part of ‘election management’, big corporate houses used to donate huge money to political parties by force or by choice in the expectations of favours won’t be able to contribute much money and thus we can expect political parties won’t extend any favours to them ultimately curbing crony capitalism, as it is convenient to carry and store huge un accounted money in high denomination.
Banning old notes certainly gives nightmares to black money hoarders as they won’t be able to convert it into new legal tenders very easily and without leaving any footprints. Thus the total cash flow for political parties is going to be reduced .The effected liquidity will force political parties to cut down there expenses and the malpractices like distribution of cash, drugs, liquors to lure voters is supposed to be minimized.
Big tool to counter hyper inflation, demonetization has dismantled fake Indian currency notes (FICN) to the maximum which will affect the unorganised marketing by political parties like printing posters, pamphlets, flags thus curbing temporary employment and seasonal employment of small workers.
One of the biggest criticism of this move was the inconvenience that it caused to the common people due to disrupted cash flow but this chaos was temporary, however some incidents of deaths of elderly citizens and suicides by rural farmers can be noteworthy in political debates.
In Punjab where Cash worth Rs 300 crore exchanged hands during previous elections of 2012, the ruling party has expressed concerns over the possible impact of the move as it may have on their prospects in assembly elections.
Political observers point out that this historic move was the well timed decision as Governor and deputy Governors of RBI were reportedly aware of it and advised PM to announce it somewhere after festival season and before the state elections.
Modi has definitely announced some waivers and exemptions in loans to poor but how much this relief will attract voters to polling booths and in which way, will be seen in coming days.
