At the outset, let me place on record that while the implementation has not been as smooth, the intent behind ‘note ban’ by the Indian government is truly commendable. The fake currency racket has been hit the hardest, impacting cross-border terrorism, militancy, and a series of nefarious activities. Much of the stashed away black money has had to come out into the open or in bank accounts, certainly serving the purpose of the government to cast a wider tax net. However, these are short term gains, and if not followed by quick measures within a span of 6 months, the advantage will be lost; because the propagators of the parallel economy must be working overtime to re-amass black money, as must anti-national elements on counterfeiting the new currency notes.
The truly long term gain has been the steep learning curve for the entire nation in digital transactions. As a nation known for its world-beating IT industry, the usage of IT as an enabler has remained dismally low. Almost overnight the exposure and adaptation to IT and digital platform has grown manifolds. In my opinion, for both these short and long term gains to sustain, the ceiling for withdrawal in cash should continue. Also, rather than go slow, the government should step on the gas as far as implementation of GST is concerned. It is also critical that private banks – especially the large ones – should look beyond the current gains and bolster the RuPay gateway, rather than stick to Visa, MaterCard, AmEx etc. These moves will ensure that clean business with good intent will flourish, leading to strengthening of the national core.
Let me point out that in strict terms, this mega-event cannot be termed as ‘Demonetisation’. What we’ve seen is a replacement of currency. Demonitisation typically would imply taking the concerned denomination i.e. 500 and 1000 Rupee notes, out of circulation altogether. In this case, the 500 Rupee note is back, the 1000 Rupee note is scheduled to be back shortly, while there has been an introduction of a higher denomination i.e 2000 Rupee note.
As for the impact on forex business, it has been significant. More often than not, Forex companies are the first touch-points for foreign nationals in India. Since the new currency notes were not available internationally, foreign tourists, NRIs etc. were dependent on coming into India and exchanging currency. This lead to a difficult situation, and many postponed/ cancelled their trips, resulting in a steep drop in incoming tourists/ visitor traffic to India. As a result, there was a huge shortfall in flow of all types of foreign currency into India. Since all major banks were completely immersed in ‘note ban’ management, normal import of foreign currencies interrupted. On one hand, this cascaded into a limited amount of foreign currency, which was available at a higher exchange rate. This adversely affected Indians travelling abroad. On the flip side, foreign travellers within India had a tough time exchanging foreign currency. Forex changers were unable to service these visitors owing to unavailability of new Indian currency. This cannot be construed as a pleasant situation for a traveller.
One big positive that one has observed out of this entire episode, is that the awareness of the formalities of forex trade, KYC and paperwork involved has grown immensely.