Whether cash crunch is a devious ploy or public reaction post-demonetisation, impact is same
In the aftermath of the evening of November 8, 2016, when Prime Minister Narendra Modi announced that most of the cash in our pockets was going to be worthless in a few hours, Indians reacted in different ways. Some promptly went to jewellers such as Nirav Modi to spend as much as they could on gold and diamonds; others panicked but started devising ingenious ways, trying to convert their hoards of cash into the new cash; and some in the salaried income-tax paying classes wondered what all the fuss was about, since the Government had taken away all their cash to begin with. But jokes aside, the fact is that many Indians struggled in the aftermath of demonetisation and while some malcontent elements exaggerated the hardship to deny that it existed was also wrong. Which is why the latest run on the banks is interesting because Indians did not really enjoy the cashless experience of late-2016 and do not want to be caught out again.
There is no doubt that demonetisation did help the banks and Government mop up a lot of money, it would be helpful to know exactly how much, but the fact is that the funds mopped up alongwith the details of depositors did help the tax authorities go after tax frauds. The Finance Ministry did have a point when it argued that many Indians dealt in cash to avoid paying taxes and the Finance Minister has just about stopped short of calling Indians tax cheats. But the fact is that a large majority of Indians still live on the margins, well under the tax bracket and they survive on cash. While they might not pay income taxes, this section of the population does pay significant indirect taxes, and with the tightening of the tax system through the e-way bill, it is likely that tax collections will only increase further. This is a good thing for the Government and the country in the long-term, but what would be better is whether the Government could have weaned even this huge section of the population off tax. But even after demonetisation and the success of some services like PayTM, a majority of people still prefer cold, hard cash.
This is because despite steps taken by the Government to enhance bank accounts through schemes such as the ‘Jan Dhan Yojana’, many of the subaltern classes are not confident enough in the banking system, not just because of the perpetual scams but also because banking staff, whether in public banks or private banks, treat small account holders poorly. Of course, perpetual scams such as the Nirav Modi heist of public funds has made it easy for some to spread misinformation to start a run on the banks. This Government’s lack of a trained flack handling media relations allows such misinformation to spread even further. Of course, there is not much to worry about for the rich, but for the poor, this will lead to even more hoarding of cash, making matters even worse. The Government took belated steps to reassure the public that things were not as bad as they were claimed to be, but it always seems that this Government is always firefighting. There might be a distrust of the media, but if the Narendra Modi Government has made one monumental error, which even Trump did not make, that is the lack of engagement with the press corps. As for the cash crisis, it too shall blow over.