Never before since independence had our financial system been brought down to this pass, nor cash crunch on such a gigantic scale witnessed, leading to acute distress for the poor, daily wage earners, small traders and businessman in India’s highly cash-dependent economy . The trust of people in the state-owned banking system has been shaken and gone with its credibility of RBI, which so far had global practice for maintaining financial stability.

As far as the economy is concerned, 2016 could be characterized as a year of two halves. It started with things looking up for India. Then global situation on balance was benign. The foreign policy energy displayed by Narendra Modi government was beginning to bear fruit and India was the bright spot in the world seeking growth. To its credit, the government was looking ahead and trying to reconfigure India’s economic architecture through new institutional mechanisms such as one to tackle monetary policy. However, over the second half, things unraveled both at home and abroad.

Inflation is under control at the moment but RBI’s new monetary policy committee has signaled its anxiety about the future. Exports, an engine, have been tepid for most part, threatening ‘Make in India’. And, the collapse of investment demand globally coupled with India’s banking problems means that private investment has never been this week in a long time. Industrial activity in the second half of the year was weaker than anticipated. These challenges were compounded by demonetisation exercise in November. Demonetisation has taken a toll on consumption which has been economy’s mainstay.

Holding it up as an act of courage and a surgical strike against black money, the Modi government ministers have totally ignored the sufferings of people at large and livelihood threats for poor millions. They under played the gravity of the situation. In an era of “maximum governance” reduced to majoritarian authoritarian will still need to know why and how demonetization have been so ill-planned to turn it calamitous for the nation? The courage claimed for the decision had not extended itself to own up plain failure a massive mismanagement with all round negative consequences when 86 percent of money in circulation had been withdrawn overnight.

Much of a system failure and the immense social distress therefrom must be laid at the door of the government’s policy planners and executors. In this case, the decision was that of Prime Minister, who may be proud about declaring war against black money operators but the head of an elected government did not feel duty bound to tell Parliament the rationale of such momentous step that may have taken in good faith.

Instead, Modi has been using platform to counter attack critics of the demonetisation and is impacting on the life of the people. Finance Minister Arun Jaitley has sounded more escapist, shifting his grounds from time to time. He spoke first of “short term pain and for long term gain” then a crunch “hurting but severity over stated”, an easing situation and long queues. He later talked of a switch to enforce digital mode of payments. A cashless economy seems to be the idea. It has reinforced with an ordinance for certain types including wages. Of great concern is Jaitley’s statement that remonetisation would not be equivalent to entire invalid notes returned.

Government’s contention that RBI had adequate currency stock to meet the customer needs for a month also was fallacious. If so, the banks did not have them, the way they send back customers with fewer chips (Jaitley has himself said once it could be six months for normalcy to return).

An overriding concern remains about the safety of people’s money in banking system in a diametrically changed situation. The people need to be assured that government stands by the implicit sovereignty guarantee of its banks delivering cash deposits by customers in full.

With all determination to win coming elections in UP, the Modi government is now focusing on budget 2017-18 to make people friendly , giving it a distinct pro-poor image. (IPA Service)