THOUGHTS ON PRESENT CURRENCY CRISES MANAGEMENT

Demonetization of high value currency (Rs. 500 and ₹ 1000 notes) w.e.f. midnight of 8-9 November, 2016 is now a fortnight old decision, aftereffect of which is still worrisome and concerning.

While we all agree that this surgical treatment is a welcome step but like in any surgery, post operative care is crucial, so is with this one. The ground reality appears to be full of gaps and unpreparedness on the part of Government - be it political handling, administrative decision making or effective operational management by our banking system. On one hand, every day we are changing the rules but on the other hand there is acute liquidity crunch for livelihood itself. RBI claims that there is no currency shortage but banks are dry. There are no funds. If supply of currency is an issue, it could be very well managed. After all, two weeks have passed by.

The liquidity crunch would lead to overall economic slowdown, first in sales and then in manufacture which will directly hit production, consumption, exports and everything related to economy – savings, wages, unemployment, investment and so on. The economic growth itself will take a major hit in this quarter and atleast next two quarters. GST may also have an adverse impact initially.

Here are some ideas of how the old currency be allowed to be used by citizens (not by people with disproportionate / unaccounted currency) for next one month so that their essential payments are taken care of, rush at banks is avoided and there is less burden on the system. The objective of Government which is laudable will  also not diluted –

• Come out with a zero interest bond issue whereby citizens are allowed to invest upto ₹ 2.50 lakh in cash till 30 December, 2016.
• Allow cash deposit for payment of Service Tax for November / December, 2016
• Allow Advance Income Tax payment (due till 15 December, 2016) in cash which will yield huge collections and ensure higher tax returns for FY 2016-17.
• Allow cash deposits in PPF accounts till 30 December, 2016
• Allow school / college / education fees paid by parents for their wards in cash till 30 December, 2016  irrespective of public or private schools / colleges / universities  
• Allow payment of premium in cash for on-going LIC policies on self and NPS scheme till 30 December, 2016
• Allow cash payment upto a limit of ₹ 2.50 lakh for purchase of solar equipments
• Allow local taxes (e.g. house tax, property tax etc) to be paid in advance for FY 2017-18 till 30 December, 2016.
• Cash purchase of text books / equipments / research books / subscriptions upto ₹ 25000 may be allowed for engineering / medical / scientific research students etc till 30 December, 2016
• Bank loan & repayments or prepayments be allowed in cash till 30 December, 2016.

These measures may ease out liquidity to an extent and bring some immediate relief to the citizens without losing the objective.

If the banking outlets are not enough to dispense cash or exchange demonetized notes, Government may also use roadways buses throughout the country as mobile units for rural areas and villages with 1-2 security personnel for small sums (say, upto ₹ 2000 per person). This may also be done by using school buses on Saturday – Sunday. However for this, supply and distribution of currency will have to ensured which does not seem to be an issue with RBI clamming that there is no shortage of legal tender in the country. Government school teachers and premises can also come to rescue  if the situation so demands.

Government will have to handle and manage the ground reality on an emergency basis failing which situation may go out of control and all good done by demonetization would turn bad, besides having a huge cost in terms of chaos, hardship and unrest on streets. Economy too will suffer, which is otherwise also inevitable.

The key to revival and damage control as well as to enjoy real fruits of demonetization lies with the Government itself by bringing normally as fast as possible. Various agencies have already expressed their view on the economic growth with one brokerage even scaling it down to 3.5%.