Careless Policy-Making Has Become The Norm For Modi Government- Introduction And Withdrawal Of INR 2000 Currency Notes Plague Indian Economy!

Careless Policy-Making Has Become The Norm For Modi Government- Introduction And Withdrawal Of Currency Notes Plague Indian Economy!

Introduction of INR 2000 notes during demonetisation

The implementation of demonetisation of 2016 in India had far-reaching consequences for the economy, with one of the most significant drawbacks being the high expenditures incurred during and after the course of it. When demonetisation was implemented, the Reserve Bank of India (RBI) as well as the currency printing presses were unprepared to replace the massive amount of recalled currency notes, resulting in the currency printing machines running around the clock to achieve the remonetisation targets.

Over the following two years after demonetisation, the RBI spent a staggering amount of approximately INR 13,000 crore to remonetise the Indian money market. The issuance of new notes with denominations of INR 500 and INR 2,000, featuring marked differences from the recalled ones, significantly contributed to the printing costs because of the addition of several additional security features.

In accordance to the RBI data, INR 7,965 crore had been spent on generating new notes in both old and new denominations in 2016-17. The total amount that was spent on printing notes the following year, 2017-18, was INR 4,912 crore. In comparison, the RBI spent INR 3,421 crore on creating currency notes in the pre-demonetisation year 2015-16.

The excessive expenditure on note printing directly harmed the RBI’s earnings, which subsequently in turn impacted the dividend provided to the government. The RBI handed a surplus of INR 65,876 crore to the government in 2015-16. However, when demonetisation was enacted in 2016-17, this sum fell by more than half, and the RBI provided a dividend of INR 30,659 crore. While the dividend amount ascended in 2017-18, it did not approach the 2015-16 level, showing that demonetisation had a negative impact on the RBI’s revenue generation.

Therefore, it can be said that as a result of the large production efforts required to replace the recalled currency notes and the adoption of new designs with greater security measures, demonetisation in India suffered extravagant expenditures. This resulted in a considerable drop in the RBI’s profit, which eventually affected the dividend given to the government and acted as a spoiler for the RBI’s financial health. The aftermath of demonetisation generated concerns about the overall impact on the Indian economy, and the consequences are still being scrutinized and debated.

Withdrawal of INR 2000 currency notes

The Indian economy was significantly impacted by the government’s unexpected and dramatic move to demonetize the old INR 500 and INR 1,000 notes in November 2016. The RBI as well as currency printing presses were not ready to replace the number of recalled currency notes, despite the fact that the measure was intended to reduce black money and encourage digital transactions.

The government issued the INR 2,000 currency note as a response to the cash shortages brought on by demonetisation in an effort to ease the problem. The initial roll-out of the Rs 2,000 note as well as the widespread use that followed it now seem to have fallen short of expectations.

According to the most recent information released by the RBI, the total amount of INR 2,000 notes in circulation has substantially decreased over time, making up just 10.8% of all notes as of March 31, 2023 as opposed to 37.3% at its peak on March 31, 2018.

There are concerns regarding the government’s initial plan and the long-term viability of demonetisation as a policy move as a result of the decreased circulation of INR 2,000 notes. Growing doubts about the efficacy and justification for the introduction of the high-denomination notes may be seen in MP A. Ganeshamurthi’s enquiries concerning the lesser circulation of INR 2,000 notes, their limited availability in banks and ATMs, and whether the authorities has ceased printing these notes.

The statement from Mr Thakur, a government minister, confirms that the circulation of INR 2,000 notes has really decreased significantly over the last few years. In terms of volume and value, the number of INR 2,000 denomination banknotes in circulation has decreased significantly, with 863 million pieces withdrawn from circulation as of February 26, 2021.

In January 2019, The Print reported, citing reputable government sources, that India had ceased undertaking the printing of INR 2,000 notes as part of a planned campaign to gradually diminish their circulation. The decision to reduce production, it was said, did not mean to suggest that the denomination was going to become obsolete immediately, but instead indicated that it would be phased out over the course of time.

The action was motivated by allegations inside the Modi government that the high-denomination INR 2,000 currency note appeared to be frequently used for illegal purposes including as money laundering, tax fraud, as well as stockpiling. By limiting the production of these notes, the government hoped to prevent their potential misuse as well as enhance financial system transparency.

Questioning the logic and motive?

The decision to discontinue issuing INR 2,000 notes was most likely made in response to the fallout from demonetisation, which inaugurated this denomination in 2016. Demonetisation was intended to alleviate black money issues and boost digital transactions, but it was met with criticism due to its abrupt introduction, the subsequent high expenses of remonetisation, and the lack of any significant benefits.

The withdrawal of INR 2,000 notes from circulation suggests a realization of demonetisation’s faulty implementation as well as impact. This decision, however, exacerbates the situation, calling into question the logic for issuing INR 2,000 notes in the first place. With a substantial number of these notes made nearly unusable, the RBI’s massive investment on issuing new currency notes following demonetisation is also rendered ineffective.

As a result, it may be concluded that the government’s decision to demonetise was a hasty one, and the ensuing withdrawal of INR 2,000 notes from circulation demonstrates the failure of the initial policy. The falling circulation of these notes, as well as the lack of instructions to manufacture more, show that the action did not achieve its intended goals, which has serious repercussions for the Indian economy. It also raises questions about the overall effect of demonetisation as well as the smart use of resources in pursuit of economic reforms.

Why doesn’t the Modi government meticulously consider the repercussions before making policy decisions? The INR 2000 denomination notes were first released by them, and now they themselves are presently taking them out of circulation by quoting random reasons.

The Reserve Bank of India (RBI) has announced the cessation of issuing INR 2,000 notes with the intention of gradually reducing their circulation, in what seems to be a haunting shadow of the traumatic 2016 demonetisation announcement. A closer examination exposes the potential negative effects for the Indian economy, despite the fact that this action may initially seem to give consumers more time options as well as reasons for depositing or trading the money.

A significant concern arises for individuals and enterprises that rely on cash-based reserves, particularly in a largely unorganized economy wherein such practices are still common. With a large stockpile of INR 2,000 notes, these entities would now have around 130 days to make many daily visits to banks to exchange their notes. This is expected to cause logistical difficulties as well as disruptions to operations, with firms straining to deal with the weight of exchanging significant volumes of currency.

Real estate and construction, which continue to be extremely cash-dependent, may experience major difficulties as a result of this revelation. Given the current “jobless-poor investment” growth track, this decision is ill-advised and contrary to effective economic strategy or reasoning.

A conceivable necessity for monitoring massive trades is suggested by the limit of INR 20,000 for exchanging these notes. Critics claim that this may potentially be used by centralized organizations with political objectives to attack certain companies, people, or even the political opposition. Furthermore, questions regarding political motivations are raised by the timing of the RBI statement. It happened immediately following the disappointing Karnataka election results for the governing BJP. To further prevent rapid spillover effects as well as investor panic, the news was intentionally made after the stock market hours had ended.

The government’s electoral objectives are called into doubt by maintaining the deadline for swapping or depositing INR 2,000 notes on September 30, just before multiple state assembly elections. Similar reservations were voiced during the announcement of demonetisation, implying that actual economic policy issues would be subordinated to political objectives.

Beyond the political ramifications, the government’s “state capacity” as well as its capacity to successfully carry out such centralized choices are seriously questioned. The administrative load created by this revelation may be difficult for the public-sector bank system to handle, which could result in operational inefficiencies as well as dissatisfied customers.

Furthermore, it is impossible to disregard the enormous expenses incurred by the RBI during the post-demonetization remonetisation phase. The Indian economy has been unnecessarily burdened by the careless introduction as well as withdrawal of a number of currency notes.

In a nutshell, there are serious questions regarding the Modi government’s decision-making process raised by the RBI’s recent announcement to cease the issuance of INR 2,000 notes. The Indian economy has previously been and continues to be badly impacted by rash decisions made without careful analysis of the repercussions. For stable and long-term economic growth, smart and well-planned policy actions are essential.

Political Gains at the Expense of Sound Economic Policy

The information that has been presented during this conversation clarifies the effects of a few actions made by the Modi government, namely demonetisation and the current halt to the production of INR 2,000 notes. It is clear that these decisions were frequently made without enough consideration of their consequences, which caused considerable expenses as well as disruptions for the Indian economy.

Despite being intended to combat black money and boost digital transactions, the 2016 announcement to demonetise currency was carried out haphazardly, leading to significant remonetisation expenses and negative consequences on the RBI’s revenues. Now, the decision to stop issuing INR 2,000 notes, made without taking into account the probable logistical difficulties and detrimental effects on enterprises that depend on cash, further emphasizes the necessity for careful policy-making.

The timing of these announcements raises questions about the appropriate handling of decisions that have such a significant influence on the Indian economy because it is clear that the Modi government is pursuing political objectives at the expense of sound economic policy. The introduction and discontinuation of currency notes with what seems to be little justification increase the financial burden along with unnecessary spending on the Indian economy.

It is crucial for the government to comprehend how decisions about public policy affect people, businesses, and the economy as a whole. It is crucial for a responsible and responsive government to make thoughtful policy decisions in order to promote stable as well as long-term economic growth.

The welfare of its citizens as well as the stability of its financial institutions must be prioritized in policy decisions for the Indian economy. Given the numerous requirements and difficulties faced by different sectors, this calls for an inclusive and consultative approach.

In conclusion, the Modi administration has to learn from its mistakes and take a more responsible approach to formulating policies. Making thoughtful judgments that are supported by in-depth analysis and professional advice is crucial for the long-term growth of the Indian economy. The secret to guaranteeing a prosperous and secure economic future for India and its population is a commitment to transparent, responsible, as well as well-managed policies.