When 86 per cent of currency notes in a country of 1.3 billion people are rendered illegal tender in a matter of hours, it is bound to create a short-term disruption in daily lives. Particularly so, since much of India’s economic activity still takes place in the informal sector with no cheque payments, resulting not just in widespread direct and indirect tax evasion but also an inability to assess the true state of the economy. For instance, while farmers’ income is not taxed, most of them now have a Kisan Credit Card, first launched in 1998, and no-frills bank accounts whose creation has been scaled up by the present government. But the agricultural economy is still controlled by middlemen and traders who only make cash payments to farmers while reaping a profit from the difference in prices from farm-gate to fork. The introduction of the Goods and Services Tax will make it tougher for such intermediaries to remain below the tax radar, though foodgrains will be zero-rated under the tax regime. Just as paying taxes on their profits is uncharted territory for such traders, the government too is navigating uncharted waters with the demonetisation drive, necessitating adjustments on the go.
Rural Indians, like their urban peers, may be in a tizzy for now over the currency swoop and face challenges in transactions, but there doesn’t seem to be a threat to the rabi crop as the Opposition has sought to suggest. By last Friday, the total area sown was significantly higher than at the same time last year, except for coarse cereals. The latest relaxation, allowing farmers to withdraw Rs.25,000 a week, should assuage any concerns on this front. However, the Reserve Bank of India and the Central government were clearly not prepared for the cash crunch in bank vaults and post offices, that has become evident a week after the demonetisation. So, even soiled Rs.100 notes have been brought back into circulation to tide over the scarcity. Given our abysmal public health infrastructure, a thought should also have been spared for people’s healthcare costs. Meanwhile, the Union Cabinet had cleared measures to push non-cash payments in February, but little has been implemented — using credit cards still involves high transaction charges, for example. Tweaking the exchange limit for old notes from Rs.4,000 to Rs.4,500 and then down to Rs.2,000 has created confusion, often leading to ugly scenes at banks. Afterthoughts may be inevitable in emergency situations, but the government also needs to address popular anxieties by constantly, and publicly, updating its road map.
