Fiat money represents an IOU, by the government to the holders of the bank notes. Demonetisation of 500 and 1,000 rupee notes means they cease to be legal tender and that the money you hold in hand or in the bank is no longer a promise guaranteed by the government. 86% of the value of Indian currency which was in circulation in the country ceased to be legal tender. There was 16.5 billion ‘500-rupee’ notes and 6.7 billion ‘1000-rupee’ notes in circulation.
A crisis has developed in India when the government announced its intention to abolish the 1,000 and 500 rupee currency notes – something called demonetisation – and replace them with a new 2,000 and 500 rupee. The goal was ostensibly the eliminating black money accumulated via corruption from circulation.
The decision of the government has brought the economy to a standstill. In a country that still has people without bank accounts, identity cards and with few banks branches in rural areas this drastic measure has left the poor stranded without alternatives. The worst affected of this is the predominantly cash-based informal sector which contributes to 45% of the GDP and nearly 80% of the employment in the country. The sufferers of the decision continue to be the poorest that have no bank account – the workers on the tea plantations, garment workers dependent on wage labor, the street vendors who are completely dependent on cash transactions, the farmers who need credit, the construction workers who need cash on a daily basis to meet their immediate needs, the street vendors who need to dispose of their stock the same day. Lack of acceptance of old cash denominations has resulted in suicide deaths. Hoards of people line up at banks and ATMs has led to chaos and aggression. In some places people are starting to break open shops for food as cash is not available to buy essential things. A lot of women who hid money from their drunkard husbands found themselves at the queues and frantically worried as now their misdoing (as per the patriarchal India) was out in the open and their savings at a risk.
One can blissfully forget that big money hoarders don’t stash their cash under their beds but in the safety of overseas banks. What about the black money converted into gold and real estate? The demonetisation of Rs 500 and Rs 1,000 banknotes is unlikely to help the government suck out black money from the economy as hoarders keep a tiny portion of their ill-gotten wealth in hard cash, going by income-tax data. The people of India know how unaccounted money constantly takes the form of precious foreign currencies, real-estate property, and gold. If the Government was serious enough to stop/minimize the circulation of black money, it should have followed different mechanisms. Who is Modi fooling?
Despite all this propaganda it is quite clear now that demonetisation has nothing really to do with black money that constitutes a sizeable 20 % of the Indian economy, of which only 6% is hoarded in cash, the rest being stashed away in gold, real estate and foreign accounts. If the government was serious about hurting the beneficiaries of black money they would have started by prosecuting those who keep such ill-gotten wealth in non-cash assets. Also, given the large-scale collusion of the Indian political class and bureaucracy in corruption the Modi regime should have first gone after its own ministers and government officials (particularly from the tax and revenue collection departments) to set a public example. Instead, the Government treaded a path that impoverished the 98 percent of India. Who will count the losses in the informal economy? Why should they bear such economic hardships when they have no role in corruption? Why will they consent to a decision in which their consent is not even sought? What kind of democracy are we practicing in India in which only a handful of top regime functionaries take major economic decisions without debates and public practising in India in which only a handful of top regime functionaries take major economic decisions without debates and public notifications? There is a complete inaction from the side of Prime Minister to recover this black money, which in reality is the protection of Indian capitalist class which has indulged in hoarding black money in foreign banks as well as black money in the form of real estate assets. Modi protects the sharks while killing small fry.
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