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http://www.abc.net.au/news/2016-12-...all:-is-it-working-who-is-responsible/8111072
India's currency recall: Concerns mount as cash shortage continues
By South Asia correspondent James Bennett
Sun at 2:54pm
On November 8 2016, the now President-elect of the USA and the Prime Minister of India each created history.
On the same day Donald Trump defied the pundits to win office, Narendra Modi announced he would withdraw most of the currency from his country's economy the next day, in a bid to fight tax evasion and corruption.
While many pondered what Mr Trump's election would mean, the effect of Mr Modi's announcement was obvious and sudden.
Cash-dependent for 90 per cent of transactions, Indians immediately thronged banks.
Because the Government still has not printed enough replacement currency, one month later, those queues remain.
India's people and economy are suffering.
Now, not only are people asking whether the recall will work, but if the disruption its causing risks doing more harm than good to the world's fastest-growing major economy.
Critics of what the Government has termed "demonetisation" have focussed on two basic arguments: bad idea, or bad execution.
How was it meant to work?
By recalling the country's two largest banknotes and (eventually) replacing them, the plan was to void ill-gotten gains from untaxed income or corruption being hoarded in hard currency.
People had to take the old notes to the bank, where they could be credited to their accounts or exchanged for (limited) replacements.
This was to have several effects — give authorities the opportunity to scrutinise large deposits; encourage people out of the cash economy and into digital; and also deter wrongdoing, for fear the process could be repeated.
Bank officials predicted roughly 15-20 per cent of the $337 billion worth of currency rendered void would not be returned, assuming those with unexplained wealth would not risk it.
That would also mean a windfall for the India's central bank and Government — cancelling billions in liabilities.
What has happened?
With three weeks remaining before the December 30 deposit deadline, Indians are estimated to have so far deposited 70 to 80 per cent of the old bills already.
Bank accounts created under an earlier scheme for poor Indians have suddenly seen a surge in deposits. Temple workers have been caught in media stings offering to use their tax-free status to launder money, for a commission.
Photo: The old 500 and 1,000 rupee banknotes have been withdrawn from circulation. (Reuters: Danish Siddiqui)
If the money returned ultimately exceeds expectations, it could suggest either that people with illicit cash have found ways to launder their money, or that the Government overstated the problem.
"The Government's thinking was 'there are these crooks, and we'll take money from them and give it to the poor'," said Emeritus Economics Professor from Delhi's Jawaharlal Nehru University Arun Kumar.
Professor Kumar said he believed the "Robin Hood" appeal of the plan was "already suffering".
"Farmers, truck drivers — they're saying 'we've had to bear the brunt of this scheme even though we're no part of the black economy'," he said.
That is largely because most are paid in cash and there is still not enough to go around.
A desire for secrecy ahead of the announcement and limited printing capacity means it will still take the Government months to replace the 24 billion banknotes it withdrew.
In a recent string of tweets, Mr Modi has defended his initiative.
"I always said that the Government's measure will bring a degree of inconvenience but this short-term pain will pave way for long-term gains," the Prime Minister wrote.
"I salute the people of India wholeheartedly for participating in this yagna (sacrifice) against corruption, terrorism and black money."
Photo: The move to abolish the notes has caused chaos for businesses. (Reuters: Jayanta Dey)
Who is accountable?
Since November 8, there has been a key difference between the leader to-be of the free world, and the man in charge of its largest democracy.
Although his use of Twitter continues to alarm, Mr Trump has answered questions from journalists.
Mr Modi has not, relying on his usual combination of tweets and stump speeches, eschewing interviews or press conferences.
Indians are accustomed to hearing only scripted statements from their leader, but his refusal to so much as address parliament on such a seismic economic shift has surprised even seasoned observers.
Opposition parties are so furious that they have repeatedly shouted both houses of parliament to a standstill.
Respected Indian historian and author Ramachandra Guha wrote last week that Mr Modi was "undermining parliament", as well as other institutions like the Reserve Bank of India.
Indeed, questions remain about whether the RBI could have printed enough replacement currency to avert the cash crunch.
The 'strength of silence'
But do not expect India's Prime Minister to front a press conference anytime soon.
Refusing to acknowledge opponents or controversy is a tactic Mr Modi used even before winning top office.
"Narendra Modi knows the strength of silence," the Prime Minister told author Lance Price, for his book The Modi Effect.
"When he chooses to be silent, it gives him enormous strength," Mr Price told the ABC.
"Because then when does just tweet a few words, or make a statement at a rally, all the media have no choice but to cover that and to report him on his own terms, which is how he likes to do it."
Mr Price, previously an adviser to former British prime minister Tony Blair, described his refusal to engage with the press as "fundamentally undemocratic".
But there is little doubt Mr Modi is gambling both his reputation and popularity.
Most measured economists predict it will take at least two years to determine whether India's economy ultimately benefits or suffers.
That roughly coincides with India's next general election.
Topics: currency, community-and-society, world-politics, banking, india
India's currency recall: Concerns mount as cash shortage continues
By South Asia correspondent James Bennett
Sun at 2:54pm
On November 8 2016, the now President-elect of the USA and the Prime Minister of India each created history.
On the same day Donald Trump defied the pundits to win office, Narendra Modi announced he would withdraw most of the currency from his country's economy the next day, in a bid to fight tax evasion and corruption.
While many pondered what Mr Trump's election would mean, the effect of Mr Modi's announcement was obvious and sudden.
Cash-dependent for 90 per cent of transactions, Indians immediately thronged banks.
Because the Government still has not printed enough replacement currency, one month later, those queues remain.
India's people and economy are suffering.
Now, not only are people asking whether the recall will work, but if the disruption its causing risks doing more harm than good to the world's fastest-growing major economy.
Critics of what the Government has termed "demonetisation" have focussed on two basic arguments: bad idea, or bad execution.
How was it meant to work?
By recalling the country's two largest banknotes and (eventually) replacing them, the plan was to void ill-gotten gains from untaxed income or corruption being hoarded in hard currency.
People had to take the old notes to the bank, where they could be credited to their accounts or exchanged for (limited) replacements.
This was to have several effects — give authorities the opportunity to scrutinise large deposits; encourage people out of the cash economy and into digital; and also deter wrongdoing, for fear the process could be repeated.
Bank officials predicted roughly 15-20 per cent of the $337 billion worth of currency rendered void would not be returned, assuming those with unexplained wealth would not risk it.
That would also mean a windfall for the India's central bank and Government — cancelling billions in liabilities.
What has happened?
With three weeks remaining before the December 30 deposit deadline, Indians are estimated to have so far deposited 70 to 80 per cent of the old bills already.
Bank accounts created under an earlier scheme for poor Indians have suddenly seen a surge in deposits. Temple workers have been caught in media stings offering to use their tax-free status to launder money, for a commission.
Photo: The old 500 and 1,000 rupee banknotes have been withdrawn from circulation. (Reuters: Danish Siddiqui)If the money returned ultimately exceeds expectations, it could suggest either that people with illicit cash have found ways to launder their money, or that the Government overstated the problem.
"The Government's thinking was 'there are these crooks, and we'll take money from them and give it to the poor'," said Emeritus Economics Professor from Delhi's Jawaharlal Nehru University Arun Kumar.
Professor Kumar said he believed the "Robin Hood" appeal of the plan was "already suffering".
"Farmers, truck drivers — they're saying 'we've had to bear the brunt of this scheme even though we're no part of the black economy'," he said.
That is largely because most are paid in cash and there is still not enough to go around.
A desire for secrecy ahead of the announcement and limited printing capacity means it will still take the Government months to replace the 24 billion banknotes it withdrew.
In a recent string of tweets, Mr Modi has defended his initiative.
"I always said that the Government's measure will bring a degree of inconvenience but this short-term pain will pave way for long-term gains," the Prime Minister wrote.
"I salute the people of India wholeheartedly for participating in this yagna (sacrifice) against corruption, terrorism and black money."
Photo: The move to abolish the notes has caused chaos for businesses. (Reuters: Jayanta Dey)Who is accountable?
Since November 8, there has been a key difference between the leader to-be of the free world, and the man in charge of its largest democracy.
Although his use of Twitter continues to alarm, Mr Trump has answered questions from journalists.
Mr Modi has not, relying on his usual combination of tweets and stump speeches, eschewing interviews or press conferences.
Indians are accustomed to hearing only scripted statements from their leader, but his refusal to so much as address parliament on such a seismic economic shift has surprised even seasoned observers.
Opposition parties are so furious that they have repeatedly shouted both houses of parliament to a standstill.
Respected Indian historian and author Ramachandra Guha wrote last week that Mr Modi was "undermining parliament", as well as other institutions like the Reserve Bank of India.
Indeed, questions remain about whether the RBI could have printed enough replacement currency to avert the cash crunch.
The 'strength of silence'
But do not expect India's Prime Minister to front a press conference anytime soon.
Refusing to acknowledge opponents or controversy is a tactic Mr Modi used even before winning top office.
"Narendra Modi knows the strength of silence," the Prime Minister told author Lance Price, for his book The Modi Effect.
"When he chooses to be silent, it gives him enormous strength," Mr Price told the ABC.
"Because then when does just tweet a few words, or make a statement at a rally, all the media have no choice but to cover that and to report him on his own terms, which is how he likes to do it."
Mr Price, previously an adviser to former British prime minister Tony Blair, described his refusal to engage with the press as "fundamentally undemocratic".
But there is little doubt Mr Modi is gambling both his reputation and popularity.
Most measured economists predict it will take at least two years to determine whether India's economy ultimately benefits or suffers.
That roughly coincides with India's next general election.
Topics: currency, community-and-society, world-politics, banking, india
