Context for the stream of posts about “Demonetization in India”, for my friends outside India. Apologise if I’ve been flooding your newsfeed without providing proper context. Wrote this in response to a friend’s query:
Tax evasion and hence unaccounted wealth is a big, and pervasive problem in India. Off-shore accounts, for instance in Switzerland is a go-to hideout for several rich corporates, politicians and celebrities. We have a trove of Indian names in the Panama Papers , for instance. So, the lower middle class, which is predominant in India wants something to be done about this form of corruption. So all ruling parties try some form of glossy but ineffective measures. Ineffective, mostly because it will also eat into their own assets.
After a lot of promises in the election campaign, the latest of these tricks by the current ruling national party, BJP, based on a misunderstood notion of tax evaded wealth (black money), that people who evade taxes just stash their money piles at home, in mattresses or underground in trunks. Almost in an Escobaresque manner. Which is true to a small extent but to call it the main reason is silly. Only about 6% of such wealth is maintained as cash piles, and rest is invested in real estate, solid gold or in off-shore accounts.
The current ruling party, whose strongest forte is propaganda and not necessarily policy making decided to make 500 and 1000 bills illegal tender overnight. And have given 50 days time for the citizens to exchange their money for new 500 and 2000 bills from banks. According to them, this will bring out all the piles of unaccounted money, stashed as piles! Hence, the problem of black money resolved.
This is a naive understanding of the problem, to say the least.
This in turn has created havoc for rest of the population. As 86% of cash in circulation in India was in these bills. And there’s no way to replace all of that overnight. And we are far from being a cashless society; not everyone even has a bank account . While the urban privileged people (including myself) are not hurt by this, as we have access to internet banking and online shopping; the rest of majority of India (easily 50% ) cannot do this.
And the crisis is getting worse by the day, as the newly introduced bills are not compatible with existing ATM’s and the ATM’s are expected to be fully functional by early December .
All of this for a myopic political stunt. People are furious. And the ruling party supporters call this a minor inconvenience in the long-run. And the ones who disagree are branded anti-nationals and unpatriotic.