Demonetisation – Will the RBI gear up?

Dr B Yerram Raju 12 November 2016

Economy & Nation

Demonetisation has hit many people hard. Life will never be the same for those demanding money for nothing. No longer can the private medical colleges sell the management quota for crores of rupees, for few are left with such crores. Even private money lenders would dispense credit at lower rates than before. While this is music to the ears of many, rural areas, at the moment, are in tears.

Out of 1.50 lakh odd commercial bank branches, there are only 1.30 lakh access points with just 22% of them in the Post Office fold. Primary Agricultural Credit Cooperatives and District Cooperative Central Banks’ rural branches do not have currency holding capacities. A visit to the neighbouring villages on Thursday in Mahabubnagar and Nalgonda districts revealed the sob stories of the effect of demonetisation.

This being the season of marriages, several of those engaged in wedlock said that they took cash to buy the wedding clothes and decorations and they have to miss the Muhurtham if they were to draw only Rs4,000 per day and that too travelling a distance of at least 20-30km to reach the Bank branch as the post office were not stocked with cash in lower denominations to substitute the withdrawn currency notes of Rs500 and Rs1,000.

A tribal village in Adilabad served only by a Business Correspondent during the last 10 months, has an another story to tell today. The tribal families that are used to spending in Rs500 denominations and remitting into the bank have no outlet to convert their Rs500 notes into lower denominations.

Rural and tribal unbanked areas were not on the radar of either the Union Ministry of Finance or the Reserve Bank of India (RBI) when the demonetisation was planned. The frequently asked questions (FAQs) of the RBI did not even make a mention of the Business Correspondents and Business Facilitators on the route map of monetising the demonetised currencies.

RBI should mobilise safe and secure mobile cash dispensing vans to the rural unbanked areas for pre-specified and notified hours to exchange and remit cash up to the specified limits.

The BCs have limited holding capacity that is used for putting cash into the savings bank accounts of the villagers. The BCs since the early hours of 9 November 2016 have stopped receiving the barred currencies. They also are losing their earnings by the day. Even they can exchange cash only to the extent of limits specified for individuals.

Several Indians staying abroad hold up to Rs25,000 per person in these withdrawn currencies. All the foreign banks and exchange kiosks abroad, as understood from my daughters staying abroad, have closed the counters for exchange of Indian currency. They also said that the currency to the earlier legitimised limit no longer holds valid and they can burn their Rs500 and Rs1,000 in Indian currency notes. Our embassies and the RBI site does not provide appropriate answers.

Before it is late, the RBI would do well to immediately address the issue of replenishing the stock of old withdrawn currency wherever it existed with the new and lower denominations and also provide new outlets of exchange on war footing.

For the first time after independence, the efficiency of Currency Department of the RBI and the Security Transport system are put to test and it is hoped that the central bank would live up to the expectations. Initial baby steps hold many lessons.

(B Yerram Raju is an Economist and Risk Management Specialist and Adviser, MSME Facilitation Council, Industries Department, Government of Telangana. The views are personal)

Comments

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Gopalakrishnan T V

9 years ago

Demonetisation is an excellent move from the Government side and people have wholeheartedly welcomed it. But the way the implementation is taking place , it looks the preparations made have not been adequate and the practical difficulties the average people can face have not been properly assesed. The introduction of Rs 2000 could have been either avoided or delayed and instead supply of small denimination notes could have been augmented to meet the demands of lower and middle class people in the rural and semi urban centres in particular. New Five hundred rupee could have been thought of and introduced to avoid the chaotic conditions. The concerned authorities should have ensured to get the 100 Rs notes at all ATM counters and the normal banking activities involving two way transactions of deposits and withdrawals perhaps limiting the withdrawals of small denomination notes depending on the supply should have been ensured.. The authorities could have ordered all temples and religious establishments where lots of accummulation of small denomination notes and coins is a regular feature, to deposit all their collections in banks which would have improved supply of small denomination notes.The supply to ATMs has been outsourced and manty such ATMs have not been opened almost since the announcement of withdrawal of Rs 500 and Rs 1000 notes. This has added to the problems. The PSBs seem to have failed to act proactively unlike the Private sector banks and this has created a wrong impression among the public as to the efficacy of the authorities to mange the present crisis. The general reluctance to accept the plastic cards by the traders both in retail and whole sale segments and the well established habit of dealings only in cash to evade tax and trail of transactions continue expecting some favourable move from the Government either to withdraw the demonetisation move or relax it drastically. All said, the crisis is really manageable and the authorities have to improve the logistics of the distribution of small denomination notes . People have the patience but unfortunately who are opposed to the move are the stumbling blocks on the smooth implementation of the scheme. .

Kunal Singh

9 years ago

The RBI has failed to deliver cash to the rural and semi-urban areas. At the same time, the banks are sitting on piles of cash which are worthless but they still have to handle it and that involves a cost. No measures yet to get this pile of paper to the RBI. While the banks work on weekends for extended hours, the RBI enjoys its usual holidays.

Govinda Warrier

9 years ago

Some of the problems flagged here are genuine and need immediate attention from GOI and RBI for quick remedial action. But in massive operations like this, one cannot expect a problem-free route for implementation. I think, there is a sympathetic approach from both GOI and RBI to issues cropping up. At ground level, let us remember, we have totally neglected literacy and financial Inclusion for an unpardonably long period after Independence. Goverments and banks reached out mostly up to areas where four-wheelers could reach.