Unpreparedness for Demonetisation

Even a week later, Government is combating with the woes of demonetisation. Normalisation is taking time more than expected. The major reason is that government did not take a single decision to reduce cash circulation in the market. This is more so considering Indian’s penchant for using cash anywhere and everywhere.

Cash is used not necessarily for the illegal purpose. Cash is used for the legal purposes as well. Large number of government departments are there who still rely on the taking cash from the recipients of various services. What stopped government from installing the IDC machines? General public could have been given option to use cash or their credit/debit card.

The major problem is that cash is used for the tax evasion. Government could have scrapped the service tax. While it might have eroded the tax income of the government, it would have eradicated the ills that taxes bring in their wake.

Another thing that government could have done was to impose one per cent deduction for every cash deposit or withdrawal. Monthly some limit could have fixed and any cash transaction would attract deduction. Instead of charging the customers who use credit/debit cards, banks could have used this income to offset expenditure incurred in running the IDC machines.

To hoodwink hoarders of black money, government could have introduced notes of Rs 2,000 and Rs 5,000 only to demonetise later. Hoarders could have been given chance to accumulate their wealth in the notes of higher denomination. In lieu, government could have scrapped note of Rs 1,000. Most of the poor people do not require notes of Rs 2,000 and Rs 5,000.

With whatever laudable intentions, there is a crisis on the streets in cash management. By taking right steps, government could have mitigated this crisis.