Rasananda Panda & Prashanta Ch. Panda in Ahmadabad, November 9, 2016

Prime Minister Narendra Modi on Tuesday announced ban of the existing five hundred and thousand rupees denomination notes which have gone invalid as legal tender from mid-night. The question is whether it is a move ahead of times.

The thought in itself is definitely a disruptive albeit politically. Perhaps very few might have even contemplated of such a move to withdraw these two denomination notes that are very common since last so many years – definitely the five hundred rupees note.

Prima facie it looks like a move towards unearthing black income and stop terror funding. Both are emotional issues for the country and especially in the aftermath of surgical strike that has become one of the most used and abused word in the corridors of power and media.

More importantly, the timing of announcement could not have been more proper given the fact that the mother of all elections is knocking at the party-in-power at the centre as Assembly polls will shortly be held in Uttar Pradesh and Punjab, where goonda raj and corruption are going to be major issues. And if initial poll reviews are to be believed the Bharatiya Janata Party (BJP) is very much in back foot in both the states.

The Union Government by banning these currencies will definitely make the opposition weak as regards to availability of cash with them for the election and the same is also true for the BJP also. However, given the dominant position for being in power will definitely be little advantageous to them.

The posturing is clear from the press statement by R Gandhi, the Reserve Bank of India Deputy Governor on the process that may follow depositing the old notes of the same denomination in the bank at a later date. This move appears to have a hidden political agenda.

Bringing the issue of poor needs more reasons both short terms and long terms than that are being tabled. Poor people are always treated as bystanders by successive government and this move is nothing new. Rather this move will have detrimental impact on them as they will be devoid of cash as better offs grab cash of smaller denomination for a short period.

A large section of these people are unbanked, may have dead or no frills account; so access to non cash facilities are less. Financial inclusion in the form of Prime Minister Jan Dhan Yojana may not come to rescue these poor people given the records of PSU Banks. Operation of these Jan Dhan Accounts is largely seen as a defunct account. As believed by the section of the intelligentsia it will not be out of context to imagine that this move as the day progresses may become political Waterloo for the party in power reminding the days of India Shining of 2003-04.

Economically the move has obvious significance in the shape of rise in the deposits in banks which will help in rise in investment, output, Gross Domestic Products [GDP] et al. The Indian economy has expanded by around 30 percent during last five years without such a move and we are the largest growing economy surpassing China and are taking credit for it. Therefore, this move as an economic policy is of least significance unless we want to show off our intellectual bankruptcy by linking to every aspect of the economy be it inflation, exchange rate, interest rate, fiscal deficit, foreign exchange reserves etc

The move by the PM appears more of a political move and time will be a testimonial to it and let us not forget the similar incidences such as devaluation of rupees in 1966, 1991 or withdrawal of higher denomination currency earlier. History repeats itself but let us hope this time it takes a different shape.

[The authors – Rasananda Panda and Prashanta Chandra Panda – currently Faculty of  Economics, Mudra Institute of Communications, Ahmedabad and Pandit Deendayal Petroleum University, Gandhinagar  respectively . ]