Chasing the dreams 

In a bid to manufacture consent, demonetisation is sought to be the wonder pill for India's economic woes, especially those emanating from black economy, counterfeit currency and illegal cash transactions. The dream of Indian economy free from dirty money and a system run by electronic transactions is aggressively manufactured to anaesthetise people from the pains of cash crunch.

The counterfeit currency is certainly a matter of concern for India plagued by terrorism. But, overestimating it is fraught with distorted public policy priorities. According to a study done by Indian Statistical Institute for National Investigation Agency in 2015, fake currency in circulation in Indian economy accounts for Rs 400 crore, roughly 0.027% of the Rs 14.73 lakh crore worth of the currency demonetised.

The latest measure of demonetisation will have only a limited impact on checking the fake currency in circulation. But, more important thing is to choke the networks that produce such currency. Otherwise, it does not take much time for the fake currency to resurface in the economy as was the experience in the past. Therefore, demonetisation of such a massive scale with little or no preparation does not match the threat of counterfeit currency for the economy at large, though the latter cannot be ignored.

Besides deterring black money and fake currency, yet another important reason cited for the move is the objective of a transition to cashless economy. It's really fascinating to visualise a cashless society run by recorded electronic transactions only. But, the reality seems to be otherwise. The nature of monetary system cannot be independent of structure of economy. India is largely an informal economy. Still unbanked and inadequately banked constitute a major segment of India's population.

The internet penetration continues to be woefully low compared to that in advanced economies. When a country like United States is still far from a cashless economy, it's certainly a pleasant dream devoid of any semblance of reality to think of an economy in India driven by electronic money only. Estimates suggest that even in America, 63 per cent of all monetary transactions are still in cash, whereas 90 per cent of all transactions in India are estimated to be in cash only. Therefore, India has a long and thorny way to go before it completely embraces a world of digital payments.

Meanwhile, anticipating the situation subsequent to demonetisation, Rs 2,000 notes were introduced. But, assuming this higher value note as a liquidity substitute to the notes demonetised is simply an erroneous understanding devoid of any appreciation of India's monetary reality. This is precisely the reason why the people continue to struggle with cash stress despite availability of higher value notes.

Demonetisation is good. Cashless society is good. Checking fake currency is good. But, what is not good is the weaving of a dream world to market exaggerated benefits to serve the purpose of brand management and covering up the utter failure to plan effectively for the transition period.