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Note ban:
Centre didn’t plan properly
Deccan Chronicle, November 15, 2016 |
Pradeep S. Mehta & Amol Kulkarni
It is essential for the government to think
through all the implementation-related challenges
of its policies.
In a surprise move, the government last week
derecognised the existing Rs 500 and Rs 1,000
notes, and while policymakers and senior Reserve
Bank officials were preparing for this for a long
time, it was kept secret from the public to take
away any advantage that hoarders of unaccounted
money, terrorist financiers, counterfeit
operators, money launderers and the like, might
have had. The government has vigorously defended
this move as a bold step to counter black money
and promote digital payments, and is certain of
its net positive impact on the economy in the long
term. At the same time, critics of the move have
denounced it, pointing out that black money is not
a stock problem, as most of it does not actually
remain stashed in cash, but is likely to be
invested through front companies, in benami real
estate, gold, and is thus unlikely to be recovered
to any significant extent through the ongoing
exercise.
This discussion on the long-term economic impact
has overtaken the narrative, with the challenges
being faced by honest taxpayers and law-abiding
consumers to obtain the new currency notes getting
pushed to the background and appearing to be
nobody’s business. Such concerns are being
summarily brushed aside as teething problems or a
minor inconvenience that consumers are expected to
bear in the larger interest of the health of the
economy. Such apathy to the difficulties faced by
the common man is not new and appears to be an
inherent feature of government policy decisions
that often look at the larger long-term picture,
but ignore the short and medium-term impact on
different sections of society. This points to a
larger systemic malaise of inadequate planning and
preparation to deal with implementation-linked
challenges of policy decisions.
As a result, despite the government’s claims of
banks, post offices and ATMs being flush with new
currency notes within days of this decision, the
reality is starkly different. Banks have been
repeatedly suspending all exchange operations
temporarily to manage crowds. Long serpentine
queues are visible outside bank branches as well
as ATMs, with the latter frequently getting dry of
cash in little to no time. Shortage of staff to
load ATMs is adding to the misery. Several ATMs
are facing technical glitches, being unable to
dispense notes of less than Rs 100 or the new Rs
500 and Rs 2,000 notes. Hospitals and medical
shops are not accepting the old currency notes and
the latter are often shutting down before their
usual time, resulting in lack of proper medical
care. Low-income consumers without any valid
identify proofs and bank accounts are the worst
hit, and are often left with no avenues of
currency exchange. Those who are fortunate enough
to have the new `2,000 notes are facing
difficulties in using them due to the lack of
adequate legal change in the market.
A lack of focus on transition and
implementation-related challenges is not unique to
the ongoing demonetisation exercise, but has been
a common feature of all major reform measures in
the past. Many residents of Delhi will remember
the long queues for compressed natural gas after
the mandatory shift of public vehicles from
polluting diesel to CNG, and with insufficient
outlets available to dispense the new fuel.
Another example is that of the Goods and Services
Tax. While a consensus appears on the long-term
positive impact of GST on the economy, the limited
focus on sensitisation of consumers and SMEs, and
on building capacity to address
implementation-related chal-lenges could do
unintended harm. Similarly, while all agree that
the Insolvency and Bankruptcy Code is expected to
facilitate exit and unlock capital, lack of
engagement with the public on issues like debt
mediation, addressing infrastructure and capacity
constraints at debt recovery tribunals could pose
difficulties in achieving its objectives.
On the same lines, while the government claims to
have taken several measures to facilitate the ease
of doing business and access to credit for small
and medium enter-prises, in spite of our
sugges-tions no structured mechani-sm to take
stakeholder feedback and measure perfor-mance of
entry and middle-level government officials could
result in sub-optimal outcomes. Going back to the
demoneti-sation scheme, the only places chosen for
currency exchange are RBI offices, bank branches
and post offices. While the first two do not have
enough touch points in rural India, it seems that
adequate cash is yet to reach the post offices.
Recognised non-bank players (some of whom have
obtained payment banks and small banks licences)
have offered to operate as currency exchange,
deposit and withdrawal points after necessary KYC
checks. It seems that the government has not yet
warmed up to this idea. As a result, the poor are
being forced to get the currency exchanged from
moneylenders and hoarders at a loss on account of
the commission that is being charged.
It is essential for the government to think
through all the implementation-related challenges
of its policies. It must periodically take
stakeholder feedback and conduct mid-course
correction to ensure benefits reach the intended
beneficiaries. For instance, the government could
have planned for dedicated touch points in this
case at places like schools and hospitals. There
should be no problem in co-opting non-bank
financial service providers in this initiative.
Further, it should be remembered that if consumers
are expected to bear the inconvenience during the
transition period, they expect the government to
come clean with the impact of this move on the
economy. The government must proactively declare
the extent of black money and counterfeit currency
seized as a result of this initiative and how it
plans to curb similar illegal activities in the
future.
The authors work for CUTS International
This article can also be viewed at:
http://www.deccanchronicle.com/
http://onlineepaper.asianage.com/
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