The Big Story: Eeny, meeny, miny, money
Fiat money is one of the modern world’s marvels. Unlike commodity money (think gold coins), it has no real intrinsic value, yet people – blindly trusting a sovereign guarantee – imbue it with worth simply by collectively believing so. Of course, such a delicate confidence trick can be easily disturbed. The sovereign guarantee that backs Indian paper money has been shaken since November 8, when Prime Minister Modi decided to demonetise Rs 500 and Rs 1,000 banknotes, yanking out 86% of the country’s cash from circulation.
This in itself was bad enough. However, it’s been made worse by the government’s seemingly arbitrary handling of the issue even after that. On Thursday, the Union government decided to abruptly stop the exchange of Rs 500 and Rs 1,000 notes at banks. This contradicts numerous promises set out by the administration on note exchange. On November 8, the Prime Minister assured the nation on television that note exchange would be allowed till December 30. The Reserve Bank of India also made the same point. In fact, the RBI even advised people not to hurry to banks to exchange their demonetised notes. “As there is ample time, people need not rush to exchange putting avoidable strain on the banking branch network,” said this FAQ.
The fact that the Union government arbitrarily went back on its promise is a troubling sign for the health of Indian currency and the economy. It further erodes confidence in the Union government to back up the currency. More seriously, this move has grave implications for India’s poorest, given that around half the Indian population does not have bank accounts.
This is not the first time the government has altered the rules of note exchange. In his November 8 address, Prime Minister Narendra Modi had promised an exchange limit of Rs 4,000, which would be increased from November 25. While the limit was increased to Rs 4,500 on November 13, it was bought down to Rs 2,000 four days later.
The Union government said that it had taken its latest decision because counter exchange had shown a declining trend. Given the reduction of the exchange limit on November 17, this reasoning could be taken with a pinch of salt. More likely, the near-arbitrary change of rules betrays a serious shortage of cash. So chaotic and unplanned has been the process of introducing new notes that at least in one case, the RBI has issued defective ones.
This wasn’t the only arbitrary decision taken on Thursday. Curiously, the Union government has allowed the purchase of pre-paid mobile phone minutes with old Rs 500 notes. Given that even food can’t be bought with these, the choice throws up some uncomfortable questions. By creating a system where the Union government can pick and choose which industries can escape the blows of demonetisation, it has created avenues for more impropriety not less. This whole exercise has not only introduced disorder in the system, it has also led to a massive increase in the statist powers of the Union government.
The Big Scroll
- Comrade Modi has not learnt much from 1991 – when Licence Raj ended (as did the Soviet Union)
- The entire set of rules and regulations the Union government has bought it in the fortnight since demonetisation was announced.
- With an eye on Delhi, West Bengal’s Chief Minister Mamata Banerjee is looking to brush up her Hindi language skills.
- With an eye on the elections, the Gujarat government is now ready to talk to Patidar leaders.
- Seven lakh newborn babies died in India in 2015 due to the abysmal healthcare system. India, along with Pakistan and Afghanistan has been pulled up by the Unicef for its infant mortality, even as other South Asian countries have been remarkable strides in healthcare.
- In the Hindustan Times, Rajdeep Sardesia asks: Modi’s charisma has absorbed the initial shocks of demonetisation. But for how long?
- The Andhra Pradesh chief Minister Chandrababu Naidu is a man in a hurry. But building a new capital is a complex task, points out Kavas Kapadia in the Indian Express.
- The Economist explains China’s particular vision of ethnicity and nationhood and its implications at home and abroad.
At Delhi’s railway and bus stations, Abhishek Dey finds that migrant workers are heading home, complaining that landlords and contractors do not have any cash to pay them.
“Like Sahu, thousands of other migrant labourers, who are paid wages by the day, have been severely hurt by the government’s overnight decision to withdraw high-value currency notes, which sucked out 86% of the cash circulating in the country. The lack of new currency to replace the withdrawn notes has meant that many employers are unable to pay their workers. This has compelled many workers to head back to their villages where they may not have to pay rent for their homes, but will nonetheless have several mouths to feed – and insufficient opportunities to earn a living.”