Bharatiya Janata Party President Amit Shah on Friday suggested that politicians criticising the government’s surprise demonetisation move were joining the ranks of “black marketers and drug dealers” who were upset by the withdrawal of Rs 500 and Rs 1000 notes. “The middle class, the poor and small traders will face no problems,” he insisted.
Scenes from around the country, however, didn’t seem to sync with this evaluation, even if many people have supported the government’s move, which it claims is an effort to crack down on black money. Lines outside ATMs and banks continue to be long and many are having difficulty paying for crucial services like treatment at hospitals.
And Shah’s party actually saw this coming. Two years ago, the Reserve Bank of India announced the withdrawal of currency notes that had been printed before 2005, after the finance ministry recommended it. The then-RBI Governor Raghuram Rajan had been careful to insist that it was not an attempt at demonetisation, and instead only an effort to withdraw older notes that had fewer security features.
But the BJP wasn’t convinced. Spokesperson Meenakshi Lekhi held a press conference saying the effort would do nothing to bring back black money – while having a terrible impact on the lives of ordinary people.
“A new policy has been introduced in which notes older than 2005 are being withdrawn. This is being brought to distract from the major issue of black money,” Lekhi said. “The 65% of this country’s population who don’t have bank accounts, who have kept their life’s earnings in small savings at home, those who are not educated, or live far away from areas with bank branches, their life earnings will be affected, but not black money.”
Lekhi insisted that the poor, the old, the illiterate and those who live in remote areas would fall prey to middlemen who would charge them hefty fees to convert the old notes into newer ones.
“Because those who have black money, who live in the cities, or have the means, they will exchange the notes for new ones. But the poor, the aam aurat and aadmi, or the woman who has saved her husband’s money and kept it in an aata ke dabba or hidden in the dal or chawal, their lives will be affected.”
She added that those who keep their savings in US dollars and other foreign currencies would not be hurt, but those who kept their cash in rupees would bear the brunt. Lekhi even wrote a piece, published in the Economic Times pointing these out.
It’s clear that the BJP has made some efforts since then to address the black money issue, including establishing a Special Investigation Team to look into the matter and conducting an Income Declaration Scheme to flush out illicit money, but even back then Lekhi questioned the idea of going after currency notes, since this would have a disproportionate impact on the poor.
“The RBI must publish a note on how many currency pieces will be affected, how many of these are in rural India, and estimate the impact of this measure on the poor. This is an unjustified attack on poor people. RBI must conduct a full and impartial inquiry into the impact this measure will have. “
Shah, whose fellow party leaders have been taking to the airwaves to insist that poor people would not have a hard time despite the demonetisation scheme, would do well to pay heed to Lekhi’s words.
The situation is not analogous: Narendra Modi’s move is also an effort to replace older notes with newer ones, but it has come without any prior notice and so might hurt black money holders harder.
But that also means banks have been completely unprepared for the replacement of up to 80% of all currency in the economy, meaning a massive liquidity squeeze over the next few months that hurts those who don’t have access to cashless transactions – like the rural and the poor – the hardest. Just as Lekhi predicted, two years ago.