Markets saw a decrease in average footfall. A deserted market in November 2016 after demonetization. Most small business do not have card readers so the cashless economy the prime minister and his cheerleaders have been talking of cannot become a reality overnight. A fairly large number of Indians do not have access to credit or debit cards. In a population of 1.3 billion and counting, there are 24.5 million credit cards and 661.8 million debit cards.
This means the vast majority who do not have access to the internet will be unable to use online banking. According to the Pew Research Centre, in 2015, only 22 per cent of adults in India had access to the internet.Much of the money that was demonetized was not black cash.Only a small amount of the black economy would be affected by the demonetization….What I would like to point out is the fallacious thinking behind the scheme, including factors such as the following: I will not go into the sloppiness of execution as this has been widely discussed in great detail. ATMs had to be reconfigured to take in the new notes (as they were of different dimensions than the ones they were replacing) and this apparently was not thought of and took much longer than anticipated.
The capacity to print notes is limited, especially if smaller denomination notes are required. If over 85 per cent of a country’s currency is demonetized at one go, replacing it will take months if not years. Making the situation worse was the inept execution of the demonetization scheme. Not only do a vast majority of Indians, rich and poor, use cash and not credit cards for daily financial transactions but businesses need it for working capital to buy raw materials, pay wages and other requirements for production and sales. Moreover, 80 per cent of the Rs500 and Rs1,000 notes (which constituted 86 per cent of the cash in circulation) was not black money, but rather white money used by businesses and citizens. It does not stop these activities from continuing. Even if the government managed to suck out all the black cash in circulation, it would not have much effect on the black economy which involves various activities in which black incomes are generated. First, it must be understood that the black money the government was targeting is only about 1 per cent of the black wealth held in the country and only 3.5 per cent of the black income generated in 2016. The objectives of the government were laudable, but it seems as though the scheme was imposed on the country with little or no forethought. When the government announced the demonetization of all Rs 500 and Rs 1,000 notes in November 2016, it said it was doing so for two reasons - it wanted to eliminate counterfeit currency used by terrorists and smugglers, and it wanted to destroy the black economy by forcing the ‘de-hoarding’ of cash held by those generating black income.
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