Everyone with little intelligence in economy have agreed that demonetisation was the biggest demon faced by Indians for centuries as it killed hundreds of innocent Indian citizens, crippled the economy, rose hunger and poverty, small scale industries got closed, no jobs etc; less you talk about it less the agony. Only the Prime Minister Narendra Modi, his BJP and its supporters still call it a mega success, because they are on denial mode. This decision was taken mainly to win Uttar Pradesh elections. Demonetisation has benefited the ruling party by trashing the economy of opposition. But if you look at the common man’s interest you will see where India is heading.
No doubt, BJP had a landslide victory in a key state soon after the move to ban 86 per cent of the nation’s cash, though consequent data show that the economic shock has slowed growth and investment in Asia’s No. 3 economy. Rafts of economic data since the note ban decision have signalled that $2 trillion economy was hurt by the cash crackdown, raising fears that the economic growth stalled. Growth in the quarter ended March 2017 slowed to 6.1 per cent from a year earlier. It expanded 7 per cent pace in the previous quarter. Add the fact that 98.96 per cent of the high-value notes returned to the banking system, and it would seem that illicit money did find its way back into the system. The argument of fake notes too seems to have held up a bit. In FY17, fake notes detected rose 20 per cent from the previous fiscal figure but what was telling is that fake pieces of Rs 1000 detected rose a massive 79 per cent. But even then, the total detection is less than 1 per cent of the total currency pieces in circulation. Already, fake pieces of the new Rs 2000 and Rs 500 notes have been detected. Which brings us to whether demonetisation cleaned up businesses or individual performance? It is very hard to convince because there is no guarantee that the new notes won’t be used to store illicit money, they are already 50 per cent of total currency in circulation.
If you look at RBI report that tells a different story. It says that illegal notes worth 15.28tn rupees ($242bn) had been deposited in banks up to June 30. This basically means that almost 99 per cent of the “demonetised” money was deposited into banks. Hence, almost all the black money held in the form of cash also made it back into the banks and wasn’t really destroyed, as had been hoped. The conventional explanation for this is that most people who had black money found other people, who did not have black money, to deposit their savings into the banking system for them, again this might have happened in few cases but largely this claim goes just as rant. As far as detecting forged currency is concerned, nothing much seems to have happened on this front either. Data from the RBI annual report tells us that the total number of fake Rs 500 (old series) and Rs 1,000 notes detected between April 2016 and March 2017 was 573,891. The total number of notes withdrawn stood at 24.02bn. This basically means that as a proportion, the counterfeit notes identified between April 2016 and March 2017 represent close to 0 per cent of the withdrawn notes.
One year ago the total number of counterfeit Rs 500 and Rs 1,000 notes detected stood at 404,794. And this happened without any demonetisation. Hence, demonetisation has failed in its major objectives. The government has, however, snubbed the idea that banned money that has come back into the banks has escaped inspection. A much-cited figure is the Income Tax department’s monitoring of 13 lakh accounts, with suspicious deposits during demonetisation totalling Rs 2.9 lakh crore. It is, however, unclear how much of that will be discovered as illicit funds, and by when. RBI data for the entire financial year (2016-17) shows a higher amount that is Rs 43 crore fake currencies detected. That still works out to only 0.0002 per cent of all demonetised currency. In Jammu and Kashmir, terror incidents rose 38 per cent after demonetisation, the deaths of civilians climbed 2500 per cent, and 2 per cent more security personnel were killed. In Naxal affected states, terror incidents and deaths of civilians fell by about 45 per cent after the note ban, but the number of security personnel killed rose by 82 per cent.
If you take a glance on page 195 of this year’s Reserve Bank of India’s (RBI) annual report, it has the answer to the question many Indians have been asking for close to 10 months. As per the RBI data, it’s safe to say that demonetisation has been a failure of epic proportions. On November 8 last year, the Modi government decided to demonetise Rs 500 ($7; £6) and Rs 1,000 notes, which were worth Rs 15.44tn in total. The idea was to target both fake currency and “black money”, or unaccounted wealth, as the Prime Minister told the nation. This was backed up by the government press release accompanying the decision.
Black money is essentially the money that has been earned but on which taxes haven’t been paid. Indians have deposited nearly all the currency bills voided by Prime Minister, knocking the central bank’s profit and dealing a blow to his drive to unearth unaccounted wealth. Banks have received Rs 15.28 trillion ($239 billion), or 99 per cent of the currency invalidated, if you believe the Reserve Bank of India’s annual report. The government had initially estimated about Rs 5 trillion wouldn’t be declared following the sudden move on November 9, indicating that this was cash stashed away illegally to avoid tax. The cash ban prompted the central bank to print new currency, reducing its profit and cutting annual surplus payout to the government by half. Supporters of the cash ban saw the action as a battle against the rich who salt away their wealth without paying taxes. But the decision has not hit them much. One who suffered is common men who were law abiding and average revenue gainers.
If you remember, one year ago PM Modi made an emotive ground on demonetisation. He shed tears, he went melodramatic stating “Give me 50 days, and then punish me if I am wrong” – this statement was headline of all newspapers and primetime debate on news channels. The entire saga was more than a daily-soap. Irony is that, people have very short memory. Today no one recalls all that PM tricked. Modi has kept on hopping from “acche din” to “new India” “digital India” and so on. He flopped many ways, but neither voters nor opponents ever questioned the accountability. Meanwhile PM Modi too has learnt never to involve with his opponents; never to conduct press conference or never answer the questions. He just sets the schema and an ill-fated opposition and toothless media try to keep it up.
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