In strongly-worded editorial on demonetization, influential America daily, “The New York Times” (NYT), has said, there is “little evidence that the currency swap has succeeded in combating corruption or that it will forestall future bad behaviour once more cash becomes available.”
Titled “The Cost of India’s Man-Made Currency Crisis”, and cleared by NYT's powerful editorial board, it says, “The swap was atrociously planned and executed. Indians had to line up for hours outside banks to deposit and withdraw cash. New notes have been in short supply because the government did not print enough of them in advance.”
The editorial adds, “The cash crunch has been worst in small towns and rural areas. The amount of cash in circulation fell by nearly half, from 17.7 trillion rupees ($260 billion) on November 4 to 9.2 trillion ($135 billion) on December 23, according to the Reserve Bank of India (RBI).”
The editorial notes, “ Two months after the Indian government abruptly decided to swap the most widely used currency notes for new bills, the economy is suffering. The manufacturing sector is contracting; real estate and car sales are down; and farm workers, shopkeepers and other Indians report that a shortage of cash has made life increasingly difficult.”
The editorial comes at a time when Union finance minister Arun Jaitley claiming that India’s indirect tax receipts grew by 14.2% in December as compared to the same period last year, which suggests the government’s currency recall "didn’t hurt economic activity."
The editorial insists, Prime Minister Narendra Modi's move to swap Rs 500 and 1,000 notes, which made up about 86 percent of all currency in circulation, replacing them with new Rs 500 and 2,000 notes, has failed to identify people who were hoarding cash to avoid paying taxes or to engage in corruption.
In fact, in says, “No economy can lose that much currency in a few weeks without creating major hardship – certainly not one like that of India, where cash is used for about 98 percent of consumer transactions by volume.”
Pointing to how “Modi’s government” as an afterthought said “it was also eager for Indians to move to electronic transactions”, it notes, “While a growing number of people have debit cards and cellphones that can be used to transfer money, most merchants are not set up to accept such electronic payments.”
“The government had said that people bringing more than Rs 250,000 of the old notes to banks would have to show that they had paid taxes owed on the money. Because of those rules, officials had expected that a lot of black money would never make it back to banks”, the editorial recalls.
However, it regrets, “Indians have successfully deposited the vast majority of old notes. That suggests that either there wasn’t as much black money out there as the government claimed or that tax cheats found a way to deposit their hoards of cash without attracting the government’s attention, perhaps with the help of money launderers.”
Wondering if there would be strong political reaction, the editorial says, “Many Indians have said that they are willing to tolerate some pain in the fight against corruption. But their patience won’t last if the cash crunch continues and the swap does little to reduce corruption and tax evasion.”