Finance

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Fiscal and Monetary Measures to combat COVID-19

The COVID-19 pandemic has wreaked havoc across the world, not only with its sheer magnitude of suffering and loss, but also has successfully managed to bring otherwise resilient economies to a grinding halt. This has had widespread ramifications on the workforce in general, and has been amply magnified for the neglected strata of the society. The CMIE’s estimates on unemployment shot up from 8.4% in mid-March to a whopping 23.4% in the present day. Thus, ameliorative steps, both fiscal and monetary in nature, are the need of the hour.

At this critical juncture, it is essentially a gamble on predictions and forecast. But to sit idle is not an option at all. Fiscal policies are clearly more effective in dealing with a pandemic situation. On the fiscal front, the government has a smorgasbord of options available on its platter. Most advanced economies have adopted a relief package worth 10% of their GDP. In contrast, the GoI has drawn up a plan that expends ₹2 lakh crores for immediate relief only, estimated at 1% of the GDP. An urgent need is to increase the transferred sum to a more sustainable figure, around ₹7000-8000. This may have the effect of inflating the fiscal deficit, but a deficit should be the least of worries in times of crises. KPMG’s report on the impact of COVID-19 in India suggests consumption figures will be the worst hit. Hence, an effort may be made to reduce the personal income tax rates for the time being, so that people have money in their hands to spend on once the situation improves. This will also have a stimulating effect on the economy, by creating a demand surge. The Centre can also further slash the corporate tax, thus aligning it with the East Asian models, which will propel a tendency to invest on part of the corporates. Further, the government can also extend the deposit date for advance tax by a period of six months, which will help crucial sectors as MSMEs to deal with reduced operating margins.

Inflationary worries, particularly on foodgrains, can be curbed by utilising the surplus stockpile available with the FCI. Naturally, greater supply of basic food items through the PDS system, therefore, should also be a focal point. A massive prop in healthcare allocation is also necessary on an immediate front. The Centre’s own National Healthcare Policy envisages a spending of 2.5% of the GDP on health infrastructure, but the present allocation of around 1% of the GDP considerably languishes behind the objective. The Centre now has the added responsibilty of identifying critical sectors, such as auto, pharma and telecom with reliance on global supply chains, and work strategically to bring down foreign dependence by building alternative options. An extension on payment of AGR dues by the government may also be filed for the consideration of the Supreme Court, to assuage the telecom industry’s valid concerns for the time being.

On the monetary front, the RBI’s intervention to dramatically slash rates by 75 bps will have a positive effect on credit availability in the market. However, it is to be noted that monetary policy will have a very little impact on anchoring the economy. While a monetary policy is hugely influential in addressing demand shocks, it appears quite blunt while dealing with supply-side shocks. Thus, a rate cut can have at best a transient effect on market sentiments, but guarantee nothing in permanence. Not all is lost, however: a three month moratorium period extended by the RBI to all EMI debtors will have a beneficial impact on driving consumption higher. Similarly, a slash in CRR requirements and reverse repo rates will ensure that banks have more money to lend with them, and ensure that expansionary tendencies are not curtailed due to a lack of credit.

The COVID-19 crisis brings with it an opportunity to reflect and bring about structural changes in the economy. It solidifies the belief that dependence on China as the global manufacturing hub can no longer be relief upon. Resilience from external supply shocks can only be compensated if localisation of key sectors is worked upon. The lockdown has also brought about a massive adoption of digital technologies, which is a welcome development. Furtherance of Digital India-centric policy can help aid recuperating businesses and industries. It has also proven how important it remains for the corporate to be financially prudent and conserve cash – as a buffer measure- to effectively steer itself out of unpredictable times as these. India can present itself as a viable alternative for the hub of global manufacturing. Can our policies step upto it?

A Reversal of Fortunes

The fact that China has been a vociferous exporter and a tame importer of global goods may not come as much of a surprise. What hits hard, however, are the numbers behind the game. That ratio, disproportionately behemoth, was pegged at 127.16 (December 2018): which is to say, Chinese exports was a mind-boggling 127 times higher than its net import! All through these years, as an almost direct consequence, China has had an current account surplus. The time for merry-making may soon be running out; as China today faces the threat of racking up a current-account deficit for the first time in decades.

Analysts at global agency Morgan Stanley predicts China may face an imminent deficit in 2019, the first time since the last such deficit arose in 1993. This metamorphosis from a state of surplus, to that of a deficit, will bear an immediate cascading effect on both the Chinese economy, as well as State-run institutions. The Chinese model under Xi Jinping has become increasingly closed-door, with several accusations of skewed policy priorities for local competitors and expropriation of foreign-based technology. This shift might represent a rare willingness to jump over onto an era of economic liberalization, a perennially sore point between the interests of the United States and its Chinese counterpart.

Looking at the roots

Historical economic data makes it clear that China has saved way more than it invested. However, the working progeny of the yesteryear generation has almost an imbued tendency to splurge more. This is made clear by exponential increase in the consumption of smartphones, cars, and other luxuries. A report published by CEIC Data highlighted how Chinese tourists were the largest spenders abroad. In 2018 alone, China ran a $240 billion deficit in its tourism industry- its highest yet. This problem is only set to aggravate, as an ageing population draws down its savings, thereby further complicating matters.

A deficit in the year ahead will be negligibly small with respect to the Chinese GDP. Moreover, China has a sizeably good buffer of $3 trillion worth of foreign exchanges that could be used to head down immediate triggers of worries. This should give China time. What remains to be seen is what China does to revive its flailing mast. In April 2019, China is set to enter the Bloomberg Barclays bond index, which would help accelerate foreign funding into Chinese bonds to the tune of approximately a hundred billion dollars, all within two years. It has also eased quotas for foreigners who buy bonds, apart from luring pension and mutual funds who would now think about increasing their exposure to China.

Yet, on the reform front, moves remain limited. Restrictions for Chinese citizens were enforced in late 2017 on monetary withdrawal from Chinese banks overseas- and was capped at $15,000. While the official statement read that it was aimed at curtailing terrorism financing, money laundering and tax evasion, the fine print is not difficult to read this time around. China clearly has a sense of the upcoming perplexity. Such hardline State control may ultimately deter external investors from pumping their money into China, as it is uncertain if money once pushed in, can be taken out with ease. A system which treats locals on a higher ground than foreigners is not only conceptually flawed, but also smacks of corruption and instability.

Economists Douglas North, Daron Acemoglu and James Robinson have in a paper shown that the development of an open political system, aided by strong state institutions, help foster long run growth. While the West would inevitably want China to return to normalcy and develop institutions of global credibility, any such turn under Xi’s rule was out of question. In January, China reported that its economic growth cooled down to its lowest in twenty-eight years. This development is in line with the steep fall in exports, which fell an unexpected 4.4% in December 2018, along with a contraction in manufacturing activities.

Figure 2: A Graphical Representation of North, Robinson and Acemoglu’s work
of a linear relationship between openness of institutions and long run growth.

Acute Debt Problem

On top of that, exists China’s humongous debt problem. China’s pile of $34 trillion dollar worth of public and private debt is akin to a ticking “debt bomb” to several economists. Among the forefront of such vocal critics is Arvind Subramanian, who brought out two pivotal pieces in Project Syndicate last year. Subramanian argues that China’s tactic of cooling down financial crises through increased State investment in domestic infrastructure projects only help embroils, or rather disguise, the mess that the debt represents. A near-normal economy that runs with a whopping 270% debt-to-GDP ratio is unarguably beyond the laws of economics. To put a benchmark reference, the Greek economy collapsed when debts reached 188% of the GDP. Stein’s law holds that if something cannot go on forever, it must stop. Yet, Chinese debts are on the roll. It has repeatedly tried to finance its domestic debt through external investment that reaps bountiful profits for China. The Belt and Road (BRI) initiative, that spans 68 countries and involves 40% of the world’s GDP, is one such attempt. Countries, however, are only growing aware of the increasingly compounded terms of such Chinese projects: even workers for those projects are of Chinese origin. Several countries have already cancelled Chinese projects due to high fiscal stress. The newly elected Malaysian Prime Minister Mathir Mohammed cancelled $22 billion worth of Chinese projects, which were passed by his predecessor Najib Razak, as such projects would be an added burden for Malaysia’s promising economic future. China’s loaning system is inherently biased, and to the extent that Harvard University’s Ricardo Hausmann recently termed it usurious.

The Road Ahead

On an overall front, the current fiscal year should be the year for undertaking structural reforms to the Chinese economy, to help it become more resilient against internal volatility and the threat possessed by an ageing workforce. This must be backed by political willpower, as such changes will help ensure benefits in the long run. The US-China trade war is only the fruit of a myopic vision on both ends: while China seems to resist liberalization on the front that it would seem pliable to western ascendancy, America’s continued persistence on the importance of a stable yuan over far greater concerns of a global slowdown as a result of the under-performance of the Chinese economy is upsetting.

It would be wise to recall Rüdiger Dornbusch’s law, which cautions that “[t]he crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

Populism over Prudence

The Interim Budget prima facie looks like a blunt attempt to appease important sections and classes in India that could reap rich electoral dividends: with the limelight on the farmer, the salaried taxpayers, and the demographically strong unorganised sector. Departing from the convention that interim budgets must do no macroeconomic harm, it was an instrument to drive votes for the meeting of narrow political ends. This is thus, a textbook case of populism over prudence.

The Union Budget allocation for 2019-20 is about 10% higher than that of its predecessor, with an outlay of ₹27.8 lakh crores. While most sectors witnessed a rise in allocation of funds in absolute terms, their share as a percentage of the total funds demarcated has fallen. Interest payments on debt accounted for the lion’s share in the 2020 budget: 24% (₹575,795 crores). Defence sector spending came a close second (₹284,733 cr), and was followed by subsidies (food, fuel and fertiliser subsidies), which totalled an expenditure of ₹264,336 crores (10-11% each).

Above: Comparison of Funds Alloted to Different Ministries

The budget was expected to primarily focus on a resolution to the agrarian distress, but the government went out of its way to ensure that the middle class and the informal sector workers did not harbour any feeling of being left out. Hence, the budget was mostly an appeasement budget; one laced with doles and sops- and hardly any revenue-generating schemes. Under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, farmers who have holdings less than 2 acres will be entitled to an annual sum of ₹6,000 per family. The agricultural distress is a resultant of traditionally low rates of productivity, coupled with drastic price falls and low size of farm holdings. In an op-ed, C. Rangarajan writes how the average farm size declined from 2.3 hectares in 1970-71 to 1.08 hectares in 2015-16. This is a barrier to efficient use of modern agricultural methods, including mechanisation and other novel technologies like precision farming, which can push current production capacities to a new horizon. Thus, a price support mechanism must be put in place urgently. The government’s hastily announced PM-KISAN, while harbouring good intent, has several fault lines. A permanent solution can only be implemented once long-run considerations are taken into account. Telangana’s Rythu Bandhu scheme which offers ₹10,000 per acre, per year, is more inclusive and is a better choice overall. Odisha’s newly introduced KALIA scheme is also a step in the positive direction.

The Modi government has come up with sufficient relief for the middle class, targeting especially the salaried group, and workers lodged in the informal sector. The Income Tax exemption limit has been raised to ₹500,000 from ₹250,000. This is a direct blow to the already frailty tax collections in India. Income Tax departmental data for the year 2017-18 showed that 66% of the return filers fell under the ₹5-lakh bracket. Hence, the move will wipe out almost 66% of all previously eligible taxpayers from the tax net, and is sure to dent any immediate prospects of tax-fuelled growth. The standard deduction limit has been raised from ₹40,000 to ₹50,000. The Pradhan Mantri Sharam Yogi Maandhan Scheme has been developed as a mega-pension scheme for the unorganised sector, which will pay ₹3,000/- a month to registered beneficiaries. The recent CMIE Report has highlighted how 11 million jobs were lost in 2017-2018 alone, out of which 8.8 million were women.

Union Finance Minister Piyush Goyal announced that in a bid to fund the newly introduced schemes, the government would miss its fiscal deficit target not only for the upcoming year, but also for 2020. Governmental fiscal deficit for 2018-19 and 2019-20 would be 3.4%. In fact, funding the PM-KISAN scheme alone would entail a DBT burden of ₹75,000 crore to the exchequer. The NK Singh Committee on the FRBM Act, had proposed that the fiscal deficit was to be contained within 3.0% of GDP in FY18-20, 2.8% in FY21, 2.6% in FY22, and finally 2.5% in FY23. The government has thus, in the act of fiscal profligacy, sent fiscal prudence for a toss. Furthermore, while the government is overly enthusiastic about a sharp spike in GST collections, the fact remains that receipts from the GST is ₹1 trillion less than the budgetary estimates. Fiscal marksmanship analysis must be implemented rigorously and should try to close the gap between actual and predicted values.Arvind Subramanian mentions that while new schemes are constantly introduced, old schemes that are no longer relevant are hardly taken off the funding radars. This glaring error costs the government by causing fiscal leakage. For example, there is a ninety-six year old scheme, called the ‘Livestock Health and Disease Control’ (under the Department of Animal Husbandry), and it was alloted ₹251 crores in the Union Budget 2015-16. Moreover, pile up of new, expansive schemes pushes the government into higher debt levels. Celebrated Harvard economist Kenneth Rogeff, had predicted that countries with a debt/GDP ratio greater than 90% experience negative growth rates. This was evident through breakdown of Greece’s financial environment. Greece had a staggering debt/GDP ratio of 188% when the economy collapsed. India’s debt/GDP in 2017 touched 71.18% in 2017, and came marginally down to 69.55% in 2018. Thus, consistent and serious efforts must be made to bring down the debt levels.

Global rating agency Moody’s has marked India’s interim budget as “credit-negative”, underscoring the fact that it has only give-aways and little to recover from. Business tycoon Anand Mahindra remarked that the budget was a “pump-priming” exercise for the government, as higher incomes would lead to greater consumption and drive growth. In my opinion, several schemes that have little rational base can be wiped off and their funds can be relocated to more efficient schemes. For example, farmer support which has been pegged at ₹6,000 can be increased if fertiliser subsidies are decreased, as excessive use of fertilisers and soil enhancers takes a toll on the long term farm productivity (we are over-discounting fertilisers in any case). Disregard for fiscal discipline, especially in times when the chilly winds of protectionism are blowing all over the global economy, is a dangerous trend. As Paul Krugman puts it aptly, it is prudent to maintain “profligacy in depression, and austerity in good times”. Well said!

Thoughts on the RBI’s Independence

The country’s apex bank, the Reserve Bank of India, is back in the news again, and with concerns that have been aired earlier as well: on the autonomy and independence of the central bank. However, what makes it different this time around is the severity of the friction that currently dominates the atmosphere between the RBI and the government. In a recent lecture, the deputy governor of the RBI, Viral Acharya lashed out at the government for encroaching on the independence of the RBI and warned of disastrous repercussions if the role of the RBI was allowed to be undermined on purpose.

The disparaging remark triggered an avalanche of questions from commentators of diverse backgrounds. How much of autonomy should be granted to the Reserve Bank? Can the apex bank have a free run? More importantly, how much should the government ideally intervene in the day-to-day functioning of the RBI? The Reserve Bank as we know it today, was first institutionalised by the RBI Act (1934) under the British Raj. Originally, the role of the RBI was “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency any credit system of the country to its advantage.” In a world today which is highly interlinked and of which India aims to be an integral player, sour relations between the prime banking institution and the government can prove to be a major hurdle to a growing economy.

Exploring the RBI’s Claims

In this power tussle, both parties involved demand a fair share of their rights. The RBI has put up certain preconditions that it believes are essential for the healthy run of the Indian economy.

  • For one, it wants to exercise greater control over the Public Sector Banks. A volley of accusations were fired at the RBI after the humongous 13,000 crore fraud at Punjab National Bank. Urjit Patel, the present governor of the RBI, promptly responded by making it crystal clear that the RBI had far lesser control over the Public Sector Banks than it enjoyed over the private lending institutions. A quick fact-finding session revealed that RBI’s legal powers to supervise and regulate PSBs are very limited. It does not hold the authority to remove the PSB directors or the management, who are appointed by the government of India, and neither can it force a merger or trigger the liquidation of an ailing public bank. Its position in regard to any public bank is limited to that of a mere watchdog. Thus, in effect, the governor rightly rolled the ball back into the hands of the government by calling for effective legal reform that would grant the RBI supervisory powers over the Public Sector Banks, permitting it to do the needful at the right moment of time.
  • Certain opinions resonate that the Public Sector Banks could be recapitalized entirely if only the RBI paid a larger dividend to the government. The Reserve Bank feels that the Government should not mandate the quantum of dividends to be paid to it. The RBI generates surplus profits in a number of ways. It does so by issuing deposits to commercial banks, which are its liabilities, and on which it pays no interest whatsoever. It also buys financial assets from the market, typically domestic and foreign governmental bonds, which pay handsome interests. So, a large part of the income is generated simply because the RBI has not the need to pay the interest on its liabilities. This surplus profit is more than all of the public sector banks put together. This belongs entirely to the citizens. Thus, after setting aside what is needed to be retained to retain the creditworthiness of the RBI, the Board pays out the remaining surplus to the government. In 2016, the amount was 65,876 crores, in 2017 it lowered to 30,659 crores, and in the current financial year it was pegged at 50,000 crores.On delving into former governor Rajan’s thoughts on the question of payable dividends, he is of the opinion that a special dividend would not help the government with its budgetary constraints. In reality, much of the surplus that the RBI generates comes from interest on government assets, or monetary gains it makes off other market participants. When this money is paid back to the government, the RBI in essence puts it back into the system- thus entailing no additional reserve creation.
  • Third, the RBI is unsatisfied with recent government proposals to set up an independent payments regulator outside the purview of the RBI. An inter-ministerial panel established to finalise the Payment and Settlement Systems Act, 2007, had recommended that the payments regulator should be an independent regulator with the chairperson appointed by the government in consultation with the RBI. In a dissent note submitted by the RBI, the RBI noted that there was no need for such an independent regulator. It cited the report by the Ratan Watal committee on digital payments, which recommended setting up of the Payments Regulatory Board (PRB) within the overall structure of the RBI.

Why is the Government miffed?

The government, however, has other reasons to wage a high-pitched war against the RBI. It seems to have developed a prima-facie dislike for the RBI, which is understandable: the RBI has railed against most of the government plans which disregarded economic sense. It complained that the RBI had kept it in the dark as far as the reforms in the approach to NPA handling was concerned. The Centre views the Prompt Corrective Action (PCA) framework by the RBI, which restricts weak banks from lending, as a key factor behind the ongoing liquidity crisis. The Reserve Bank’s circular on February 12, 2018 highlighted the importance of assets recognition as a step to mop up public banks from the bad loan mess. It scrapped all previously existing mechanisms and declared that even if the default was for a day, the defaulter must be dragged to an insolvency court and the asset must be declared as an NPA- thus ending the practice of forbearance. All these measures were taken in the public interest and in the hope for long-run gains. While the government is looking at growth, the RBI aims for stability. As was already discussed, the government also wanted the RBI to pay it higher dividends to gap its fiscal deficit, but RBI had expectedly negated the request. The government was also considerably miffed when the Reserve Bank declined the request to relax norms for lending to micro and small enterprises. This was subsequently a topic of discussion when Rajan in a note to the Parliamentary Estimates Committee pointed out that schemes like MUDRA and Kisan Credit Cards, despite being popular, could serve as potential sources of credit risks.

A supreme example of the consequence of subverting the RBI’s advice was the demonetisation debacle. On November 8th, 2016, the government announced out of the blue the scrapping of high-value currency notes in use; effectively wiping out currency worth 15.41 lakh crore from circulation. The government ignored several appeals from the-then governor of the RBI, Raghuram Rajan, to not tread on this experimental path for an economy so large in scale. This gave rise to a massive cash crunch which subsequently knocked out many small to medium scale industries which were primarily dependent on cash as a form of business. More so, this was a slap in the face for the government, too- which had claimed that the demonetisation exercise was carried out with an intent to dissolve the black money in existence, worth around 3 lakh crores. The RBI, after undertaking the tedious process to oversee the counting of uncountable number of returned notes, reported that 99.3% of the demonetised notes had found its way into the bank’s vaults, despite stringent restrictions in play. Furthermore, the government’s back-up claim of demonetisation having boosted the digital economy could not be verified in the absence of any reliable sources of data. While the benefits of demonetisation may require some pondering, its adverse impacts are clear: it hurt the economy growth rate by a staggering 1.5%.

The Way Forward

Unlike armchair politicians and commentators, the RBI cannot afford the luxury of economic inconsistency. It is often the scapegoat for under-performance, and is blamed rather unjustly for every other economic fluctuation that arises. In this environment, where the central bank has to occasionally stand firm against the highest echelons of central and state governments, its decisions to not waver from the targets of economic stability and prudence must be commended. At the same time, while the ability of the RBI to say ‘no’ in the face of adversities must be protected, it also cannot be free of all constraints and should work under a framework set by the government. In this context, certain suggestions come to my mind.

First, the responsibilities of the RBI must be clearly defined. When the responsibilities of the RBI are fuzzy, its actions can be subject to continuous questioning. Instead, if the competent authorities outline a framework within which the RBI can operate, it can steer its course consistent with those responsibilities and can be held accountable for outcomes in those fields. Inflation targets set by the government serve as a good example. Second, the freedom of the RBI to take key operational decisions from time to time is important. The RBI is tasked with the job of maintaining macroeconomic stability, and this requires the RBI to often turn down attractive proposals for the short run. With passing days, government entities are increasingly seeking oversight over various sectors of the RBI’s work. Such oversight by non-technical personnel only leads to delay in the decision making process and is not desirable. Third, and perhaps the most important of them all, the RBI must continue to fill its vacancies through clearances approved by the RBI Board and not put in place government officials who may have very little knowledge of the technicalities involved. Formulation of the Monetary Policy of India is a brilliant example of the benefits that accrue if an independent entity is allowed to deliberate on the most crucial economic policy in India.  RBI, through an effective monetary policy has been able to meet the indicator targets that it had set for itself- and it is running the show by itself, through independent analysis.

Democracies thrive on the independence of regulators, but today India finds itself ruing its absence. This contrariety is at the heart of the fault line between the two parallel institutions. Truly, institutional independence lies at the heart of any liberal democracy. If we cannot protect the RBI’s independence, and other institutions of similar importance that hold the national rudders, we cannot sustain national growth for long. One can only hope for sense to prevail, and an end to the the rather unsavoury tensions that exist at present.

Big Bucks Banned

While the stern move is definitely welcome, the dictatorial style of the government is not… There is, at the end of the day, no definite assurance that counterfeit currency would not be produced any further.

The Modi government is good at bowling googlies when one would least expect them: in an unprecedented move, the Prime Minister has announced that the Indian currency notes of denomination worth five hundred and a thousand rupees would cease to be legal tenders from midnight today.

The bold move has been taken in order to curb corruption and reduce the number of transactions involving black money. According to official statistics, 250 out of every 10 lakh notes are identified as counterfeit currency. However, despite the government officials taking yet another opportunity to brag about their radical step, the common man looks to be left in an uncomfortable spot.

The banks remain closed tomorrow, and that has added to the general worry. The order to declare the denominations invalid from midnight of 9th November has come across as the biggest shock. That simplifies the equation to something that is sure to disturb our thoughts: for a minimum of two days, all your five hundred and thousand rupees notes stand worthless: until they are exchanged, that is. The exceptions, where the aforementioned notes would still be valid till the eleventh of November, are airports, railway stations, crematoriums, chemists, bus stands, airline counters, and a few more of such public facilities. Think of all the high-value transactions that falls outside of the domain of the exemption purview that the government has drawn: all such dealings need to be now made in hundred rupee notes within these days. The other concern is the astronomical lines that would plague the bank counters the day they reopen. To make matters worse, ATMs would not function on the ninth and tenth of this month.

The move is sound on paper. However, on a second thought, this would be causing unrivaled tribulation to the public at large, in an unwarranted manner. Things could have been much smoother and the public response more affirmative had the time for the notes being disqualified been extended even by a day. Ironically, the announcement was made at 8 PM to phase out the notes from 12:00 AM. That is overriding the public with your whims. I agree all of this would lead to long-term benefits, but there are more efficient ways to accrue them instead of harassing the public in such a manner. Some have rightly pointed out about the minnows whom we have left out of the equation altogether: the petty vendors, the ones who sell at the bazaars, how would they manage to get so many hundred rupee notes until all those glittery grand notes are exchanged? How would the common man manage? How would the teenager who orders a good sum worth of goods online under Cash on Delivery (COD) pay that amount over hundred rupee notes? That is a point to ponder on. The bank remains closed on the following day. What happens to the people who are desperate to exchange their money at this point? They are left in the lurch. While the stern move is definitely welcome, the dictatorial style of the government is not.

In a nutshell, the pertinent questions that still remain are:

  1. The Government should accept absolute responsibility for the trouble faced by a billion people throughout the nation, and must make last mile arrangements to ensure that no one is denied the right to exchange such currency despite geographical limitations, or otherwise,
  2. I still do not understand the use of the denomination worth Rupees Two Thousand. The RBI could have introduced a new format for the thousand rupee note in a similar way, akin to its counterpart being sacked,
  3. There is, at the end of the day, no definite assurance that counterfeit currency would not be produced further. While it may take some time to duplicate the new patterns, deceiving people is very easy: and cheats are good at this business. What happens then?
  4. Those who stash away their money in Swiss accounts are not imbecile to keep their wealth in liquid cash. They keep their wealth distributed over movable and immovable assets. What impact would the move have over these people?

If this works out, it would indeed be nothing short of a historic move worthy of being recorded in the record books. If not, a failure of monumental scale for the NDA government that is already receiving brickbats from the Opposition for such an insensitive and hasty move.

EDIT: As of now, I can independently confirm that the rumors relating to the notes having GPS tracking abilities are baseless and fake. No such measure would be incorporated into the new notes.

UPDATE: Fake currency notes have been detected within days of the release of the new notes.