November 8, 2016. Prime Minister Narendra Modi announced that the old Rs 500 and Rs 1,000 notes will no longer be legal tender. Indians panicked but the PM assured that the problem of cash crunch will end in 50 days
The deadline that the PM had set is over. 50 days on, here is a SWOT analysis of the much-talked-about economic decision.
Strengths:
Black money: The decision was taken with an aim to curb black money in the economy. The move was a huge blow to those who had unaccounted cash stashed with them.
Counterfeits: A parallel economy has been running in India where counterfeit notes are being widely circulated. The decision was aimed at eliminating this fake currency racket running in the economy.
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Crackdown on terror: It is said that since the decision was taken, terror operations have halted and even stone pelting in Jammu and Kashmir has come down significantly. Even in other areas like the North-east, the decision is likely to have brought down activities by insurgent groups.
Cashless economy: By ensuring that all transactions are digitised, the Modi government is also pushing people to opt for a cashless economy. Such an economy aims to ensure that the corruption is minimised and the money in circulation can be traced.
Weakness:
Preparedness: But were we ready? There was an immediate unavailability of cash in hand. The size of the new notes needed the ATMs to be reconfigured. A maximum cap of Rs 2500 was levelled on withdrawals in a day. The lines were long and unending. People even lost their lives standing in those lines
Black wealth: While the decision was a whip on the unaccounted cash, the black money holders use several other methods to store wealth. These could be in the form of gold, real estate, among other ways.
Hamper Growth: The decision has hampered the growth as most of the transactions in India still take place through hard cash. People in urban areas have started using Paytms and other mobile wallets but those in rural areas are still dependent on cash.
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Banks: The banking system was also not ready for such a sudden decision. Since the deposits in the banks have suddenly been increased, they will have to disburse interest on them too.
Opportunities:
Corruption: Most of the unaccounted transactions are done through cash. With limited cash in hand, corruption and bribes have been reduced.
Real estate: Sectors such as real estate can now be streamlined. With less cash in hand, there will be a reduction of the property being bought and sold. But all of that will be accounted for.
Financial Inclusion: The decision is government’s way to push India towards efficient banking. Since Modi has come to power, he has been urging people to get their bank accounts made.
Threats:
Unending bank lines: The lines outside banks are still unending. There is a sense of panic and confusion, especially among those who live on daily wages. Since there is less cash in the economy, people are hoarding the money they have in hand
Sluggish Business: the business over the past 50 days has been sluggish. People have refrained from spending the cash that they have withdrawn from the banks or ATMs.
Weak infrastructure: The infrastructure in India is still extremely weak. When people resorted to cashless transactions, the point of sale machines could not be used due to network connectivity issues. Even the cost of internet in India is still substantially high.
Confusion: Several people died of heart attack when they got to know that there hard earned money could not be used anymore. Though the govt has been trying to quell confusions, frequent change in policies and notifications by the RBI has infused panic among people.
The PM promised that the pain will be short-lived. But how long will we have to bear the pain is something only time will tell.
