Evidence from across the country shows a weak banking system trying to cope with this demonetization emergency and failing. The limits on deposits and exchanges are ridiculous. Unless those are lifted massively, this liquidity crunch is going to drag down the economy.
A lot of the current pain could have been avoided if more thought was given to the execution part. The weak points in the cash distribution system should have been identified and plans tailored accordingly. The government could have waited to build up enough stores of the new notes across distribution hubs in the country before announcing the plan. The secrecy element could have been maintained to a large extent till that had been achieved, and then the plan could have been announced.
The bank chiefs and the RBI top deck failed to stand up to the political masters and put their foot down. They failed to tell the government about the systemic weaknesses and logistical issues. They failed to stand up and do what they are paid to do. They behaved like Hitler’s generals and the people are paying for it.
The demonetization of high denomination notes was first carried out in India during the 1970's on the advice of the Wanchoo Committee Report. In 1978, Rs.1000, Rs. 5000, and Rs. 10000 notes were withdrawn from circulation in an attempt to curb illegal activities. The fact that after 1978's measure we are still discussing black money in 2016 is commentary enough on the efficacy of the measure.
Most people in possession of black money rarely keep their ill-gotten earnings in the form of currency for long. Thinking that black money is stashed away under mattresses or suitcases is naive.
Demonetization of currency is not entirely the sole solution or effective because one can’t really know how much black money is in circulation, and more importantly "whether black money can really be defined in precise terms in all its shades."
Black money stashed as high-value currency is much less than black money as untaxed income, part of which might be splurged in conspicuous consumption or used for investment in real estate, commodities, stocks, 'benami' lending or plain graft to secure political or administrative goodwill.
Senior Journalist & Analyst