Demonetisation did more harm than good


Even after one year debate on Demonetisation or “Notebandi” whether it has done more harm than good to the Indian economy and the common man continues. The pro-“Notebandi” lobby seems to be on the back-foot when anti-“Notebandi” unleashes facts and figures to support their claims.

While Prime Minister Narendra Modi has been claiming demonetisation “a historic and multi-dimensional success” on its first anniversary, the Congress said the decision to scrap high-value banknotes was a “tragedy” and a “thoughtless act” that destroyed the livelihood of millions of people.

The Congress described the note ban decision as the “biggest scam” and “the largest government-abetted money laundering scheme” and asked all its leaders participate in protests and strongly highlight the demerits of the decision, which it said is a “colossal and completely avoidable failure”.

The BJP leaders, including many Union ministers, also enumerated the “benefits” of demonetisation on the first anniversary of the exercise, saying it had exposed black money, forged a more digitised economy and widened the tax base.

Finance minister Arun Jaitley said the number of taxpayers has gone up and terror funding in Jammu and Kashmir and Chhattisgarh has been squeezed in the last one year but admitted a single drive of demonetisation will not do away with all the bad economic practices.

Demonetisation is a tragedy: Rahul Gandhi

The Congress and other opposition parties responded with a black day themed on “the country is suffering”. The party vice-president Rahul Gandhi, terming Modi a “democratically elected autocrat”, said “twelve months on the only thing he has wiped out is confidence in our once booming economy”.

“Demonetisation has wiped out two per cent of India’s gross domestic product, destroyed the informal labour sector and has wiped out many small and medium businesses. It has ruined the lives of millions of hard-working Indians,” Gandhi said in an article in the Financial Times newspaper.

“The Centre for Monitoring Indian Economy has calculated that over 1.5 million people lost their jobs in the first four months of 2017 due to demonetisation,” he said and added his party stood with all those people who have suffered due to demonetisation and “whose lives and livelihoods were destroyed by the PM’s thoughtless act”.

All pain and no gain: Shashi Tharoor

Senior Congress leader and Thiruvananthapuram Lok Sabha member Shashi Tharoor said demonetisation has been all pain and no gain and slammed the BJP for going into a celebration mode.

“When we see them celebrating, I actually do not know whether to cry or to laugh. Our former Prime Minister Manmohan Singh had predicted that the GDP would be down by 2%, and now the figures released by the Centre state that the GDP has fallen by 2.1%,” Tharoor said.

Tharoor pointed out “the BJP was the biggest gainer on account of demonetisation as they were able to pump in money for the Uttar Pradesh assembly election campaign”, and added that the “real impact of the note ban will now be out in the open during the Gujarat elections”.

Chidambaram questions FM’s ‘ethical’

Former finance minister P Chidambaram questioned Arun Jaitley’s description of demonetisation as an “ethical drive and moral step” even though jobs were destroyed and several businesses had closed down.

“FM says demonetisation was ‘ethical’. Was it ethical to heap misery on millions of people, especially 15 crore daily wage earners? Was it ethical to destroy 15 lakh regular jobs during Jan-April 2017?” Chidambaram said in a series of tweets.

Damning survey report

When the BJP was celebrating “Notebandi” as its great economic move on the first anniversary of demonetisation, around 63 per cent respondents of a nationwide survey said they have witnessed people in “serious problems” due to the government’s sudden announcement on November 8 last year.

The survey report, conducted by “Anhad” and 32 other civil society organisations, contains the names of people who died in bank queues and due to other reasons attributable to scrapping of Rs 500 and Rs 1,000 denomination currency notes, and also briefly describes their ordeals.

A majority of the respondents (55 per cent) disagreed that the move will wipe out black money forever. Also, 48.2 per cent did not believe that demonetisation would have any impact on terror attacks while only 20 per cent believed the common man would benefit from the move.

In Delhi, as many as 71.8 per cent respondents said they saw people in “serious problems” such as even seriously sick patients left unattended because they could not pay in new currency in the wake of “Notebandi”.

Also, 50 per cent of respondents knew someone whose job was terminated due to demonetisation, while 65 per cent said they saw marriages being postponed because of the note ban.

More than 65 per cent said they did not see any politician or a rich person standing in any bank or ATM queue, around the same percentage felt that the rich did not face any problem because of demonetisation.

The survey, that contained 96 questions, was done between December 2016 and January 2017 across 21 major states including Delhi, Haryana, Uttar Pradesh, Punjab, Madhya Pradesh, Maharashtra, Andhra Pradesh, Rajasthan, Tamil Nadu and West Bengal.

The report was released in New Delhi by social activists John Dayal, Gauhar Raza, PVS Kumar and Subodh Mohanty on the eve of the first anniversary of demonetisation.

Gauhar Raza:

Gauhar Raza, a retired scientist from the Council of Scientific and Industrial Research (CSIR) and one of the authors of the report said, “The data was collected in December 2016 and January 2017 when people’s perceptions were still highly influenced by the narrative which was being bombarded all around by the controlled media channels.”

The report lists 90 persons who died in bank queues and because of other reasons attributable to Notebandi.

An eight-year-old boy in Doonga village of Jammu’s Samba district died as his father was unable to provide medical treatment for lack of new currency. Quoting ‘Greater Kashmir’ newspaper, the report said the man had unsuccessfully tried to exchange cash – Rs 29,000 – for three consecutive days before he carried his child on foot to a hospital almost 50 km away.

Similarly, Babu Lal, 50, died of a heart attack in Aligarh after he failed to exchange notes in time for a wedding in the family. There are many more similar heart wrenching stories.

John Dayal:

Social activist John Dayal said, “All the daily wagers lost their work due to demonetisation and only companies like Paytm got benefitted.”

“Government should come out with a white paper how demonetisation achieved the core objectives like curbing black money, terrorism and corruption”, Dayal demanded.

PVS Kumar:

PVS Kumar, a retired scientist from CSIR and an author on the report, has said that the list is incomplete as “we still don’t know the exact number of the victims of demonetisation. In fact this is going to have a lasting impact.”

Most illogical economic policy: R Ramakumar

R Ramakumar, Dean, Centre for Study of Developing Economies, School of Development Studies, Tata Institute of Social Sciences, Mumbai, has penned a book titled “Note-Bandi: Demonetisation and India’s Elusive Chase for Black Money”. He has dedicated his upcoming book from Oxford University Press to the “memory of Indian citizens who lost their lives due to demonetisation”. The excerpts from the preface by R Ramakumar are as follows:

‘Demonetisation’– the withdrawal of legal tender status of notes of denomination Rs 500 and Rs 1,000 — will go down in history as one of the most reactionary and illogical economic policies ever attempted in independent India. It crippled an economy that ran on cash and was plagued by a slowdown; it destroyed the livelihoods of millions of farmers, workers, traders, women and the elderly; and it violated the dignity and liberty of law-abiding citizens.

Yet, in a post-truth world, demonetisation also left public opinion in India deeply polarised. The language of the state had a deceptive appeal. In a society marked by abject poverty and inequality, and where everyday lives of citizens are marred by myriad forms of corruption, it came as no surprise that Modi’s misadventure was received as a decisive measure.

Economists like me knew of the earlier demonetisation of 1978. But we also knew that it had failed to unearth any significant amount of black money.

“Was it ethical to force thousands of micro and small businesses to close down? Was it ethical to damage vibrant industrial hubs like Surat, Bhiwandi, Moradabad, Agra, Ludhiana and Tiruppur?” he asked. “Was it ethical to give an easy way for converting black money into white as now discovered by the government?”

Will you say sorry, Prakash Raj asks Modi

Meanwhile, on the first anniversary of demonetisation, noted multi-lingual actor Prakash Raj criticised the Modi-led central government, saying the “disruptive impact” of the exercise made “millions suffer helplessly and the unorganised sector workers went for spin”. Taking to Twitter, the 52-year-old questioned the intent of the Modi government as it announced demonetisation last year. This is not the first time that the National Award winning actor has criticised the government. Recently, he had raised the issues of moral policing, lynching “on the slightest doubt of cow slaughter”, and terrorising in the name of religion and trolling.

Demonetisation a ‘buffoonery measure’: Narayanasamy

Puducherry Chief Minister V Narayanasamy has said Demonetisation was a ‘buffoonery measure’ that held the country to ransom and not achieved its purpose. On the contrary the country is facing a serious setback in the economy. Youth seeking jobs are also left in the lurch, the chief minister said.

Likewise, GST was a ‘ridiculous step’ that brought down revenue of some states like Tamil Nadu, Karnataka, Maharashtra, Puducherry and West Bengal, he alleged. Puducherry is now suffering a 30 percent fall in revenue after introduction of GST, he added.

“Demonetisation and GST are the wrong steps the NDA government has taken without paying attention to serious hardships they caused to the poor, small and medium industries, small traders and the youth seeking jobs”, he said.


Modi’s two major claims fall flat

In his address to the nation, Prime Minister Narendra Modi made two major claims in defence of the demonetisation. First, it would stamp out counterfeit currency that was aiding terrorism; and the second, it would help the government unearth ‘black money’.

The claim that demonetisation would hit terror financing was overstretched because the total circulation of counterfeit currency did not exceed 0.002 per cent of the total notes in circulation.

Secondly, no significant mobilisation of black money may be expected, as about 94 per cent of the unaccounted wealth was stored in the form of non-cash assets.

What India needed was a structural transformation of its informal economy into a modern and productive sphere, which would systemically reduce the dependence on cash. A ‘war on cash’ would thus be ineffective and premature. Sycophants apart, these views were also shared by economists across the Left-Right spectrum.

According to the Reserve Bank of India’s (RBI) Annual Report for 2016-17, the total value of counterfeit notes of denomination Rs 500 and Rs 1,000 detected by the banks rose from Rs 27.4 crore in 2015-16 to Rs 40.8 crore in 2016-17: an increase by just Rs 13.4 crore. As a share of the value of Rs 500 and Rs 1,000 denomination currency notes in circulation in November 2016, the value of counterfeit notes detected in 2016-17 amounted to just 0.0027 per cent. The critics were right; the extent of circulation of counterfeit notes did not, in any way, justify a drastic action like demonetisation.

The RBI also released estimates of the value of old notes returned to the banks between November 10, 2016 and June 30, 2017. Out of the Rs 15.44 lakh crore worth notes of Rs 500 and Rs 1,000 denomination currency in circulation as on November 8, 2016, about Rs 15.28 lakh crore had returned to the banks. In other words, 98.96 percent of the demonetised notes were back in the banks and only 1.04 per cent remained outside. The return of about 99 per cent of the demonetised notes is the most important indicator of the failure of demonetisation.

In December 2016, the Attorney-General of India, Mukul Rohatgi, had informed the Supreme Court that the government did not expect more than Rs 12 lakh crore to be back in the banks. The remaining Rs 3 lakh crore was black money, which would not return to the banks and could be ‘extinguished’ and passed on by the RBI to the government as dividend.

Red-faced, the government tried to contain the damage by claiming that demonetisation was intended to bring back all cash into the formal banking system. But in the public eye, the jury was no more out. There was no black money left to be ‘extinguished’.

The quarterly estimates of gross value added (GVA) released by the Central Statistics Office (CSO) typically underestimated changes in the informal sector. Yet, despite methodological infirmities, on a year-to-year basis, the growth rate of GVA showed a decline from 7.6 per cent in the first quarter (Q1) of 2016-17 to 5.6 per cent in the Q1 of 2017-18. This decline was in continuation of a similar decline reported for the fourth quarter (Q4) of 2016-17. The CSO estimates have officially signalled that demonetisation was instrumental in intensifying recessionary tendencies in the Indian economy.

Govt stung by estimates released by RBI & CSO

Stung by the estimates released by the RBI and the CSO, the Modi government tried to initiate a campaign to celebrate the ‘success’ of demonetisation in August-September 2017. This campaign made three major claims. First, demonetisation resulted in the ‘highest ever black money detection’. Black money worth Rs 16,000 crore (ie, the remaining 1.04 percent of Rs 15.44 lakh crore) did not return to the banking system.

Second, there was an ‘unprecedented increase in tax compliance’ after demonetisation. About 56 lakh taxpayers were newly added and the number of tax returns filed rose by 24.7 percent in 2017-18 over 2016-17.

Third, digital banking grew rapidly after November 2016. The number of digital transactions rose by 56 percent between October 2016 and May 2017. However, all the three claims were false. Papers in this volume provide a comprehensive coverage in this regard.

First, the claim of detection of Rs 16,000 crore was actually an admission of failure, because the very premise of demonetisation was the existence of at least Rs 3 lakh crore as black money. In fact, the costs of demonetisation hugely outrun its benefits. In sum, demonetisation was an extraordinarily loss-making proposition for the exchequer. Second, the claim of rise in tax compliance after demonetisation is simply unimpressive.

One, there is nothing remarkable about the rise in the number of tax returns filed in 2017-18 compared to earlier years. Compared to the corresponding previous year, the rise in the number of tax returns filed was 51 percent in 2013-14; 12.2 percent in 2014-15; 29.9 percent in 2015-16; and 24.3 percent in 2016-17.

Two, even among the newly added 56 lakh assessees, about 38.8 lakh assessees (or about 69.4 percent) reported an annual income of less than Rs 5 lakh. The average annual income of these new taxpayers was only Rs 2.7 lakh. In sum, the increase in tax revenue from the new assessees would be insignificant.

Three, the claims of the government on the extent of spread of digital banking defy basic statistical logic. Analysis shows the percentage rise in the number of digital transactions was primarily owing to low base effects. The total value of non-cash transactions rose by only 18.8 percent between November 2016 and August 2017. Despite efforts to popularise mobile banking, the value and volume of mobile-based transactions recorded negative growth rates between November 2016 and August 2017.

All available evidence till August 2017 points to the return of cash in everyday transactions. The government’s aim of forcing citizens to shun cash had failed.

Haphazardly implemented

The exercise seemed haphazardly implemented, causing avoidable hardships to those who actually had no black money of their own, while the actual hoarders of black money invented ways to launder cash. The huge spurt in new bank accounts explains it. It is a complex and difficult exercise to vet all the Aadhaar-linked accounts to trace the actual owners of substantial deposits.

A random screening has been undertaken. Also under scrutiny are 70,000-odd accounts where Rs 50 lakh each deposited was at variance with the history of these accounts. Another plus is the accretion of additional nine million to the tax net. Additionally, the axe has fallen on over two lakh shell companies, with their directors blacklisted. Admittedly, not all these shell companies might have been engaged in money-laundering needs to be protected.

Yet, there was a clear downside to the “Notebandi”. One, it resulted in a sharp fall in the GDP, taking it down from 6.1 percent in the previous year to 5.7 percent in 2016-17. Informal sector suffered more than the formal sector. Some of the jobs lost due to the disruption are yet to be regained, but ordinary people bore the brunt of demonetisation, though they are the most enthusiastic supporters.

Modi succeeded in selling it as an attack on corruption and black money, as borne out fully by the huge victory of the BJP in the post-“Notebandi” UP Assembly election.


SDPI observes Demonetization Accountability Day

Social Democratic Party of India (SDPI) on the anniversary of demonetization staged demonstrations before the Reserve Bank of India in all the state capitals and the party’s district and assembly constituencies and conducted protests on the Collectorate/Magistrate’s office premises. In the memorandum submitted the party asked the authority to direct the Modi-led Central Government answer to the queries on the faulty implementation of the demonetisation. The party observed Nov 8 as “Demonetization Accountability Day” with the slogan “One Year Is Over. PM Modi… Answer.”

National President of the party A Sayeed, in a press statement said the nation witnessed only economic disaster by the demonetization and the reasons showed for the move was proved absolutely groundless and absurd.

The party asked Modi to answer: (i) How Much Black Money Retrieved? (ii) How Much of Fake Notes Confiscated? (iii) What is the impact on Terrorism? (iv) What are the changes in the country other than Disaster? (v) What Compensation Given to the Victims? (vi) Why did you forget your Words?


“Jaw-dropping” is how a banker encapsulated his reaction to the demonetisation move of the Modi Government in Bhopal. And “nightmare” is the word he chooses to explain what followed in the days and weeks after ‘notebandi’. Local bankers can hardly forget the aftermath of demonetisation – serpentine queues before banks, irate customers, shortage of currency notes and empty ATMs. They say that they had to work extremely hard and face public anger for almost two months after the decision.


MSME still to overcome note ban effect

Even though a year has passed, the impact of demonetisation is still evident on the ambitious schemes of Madhya Pradesh government, like Mukhyamantri Yuva Udyami Yojana, Mukhyamantri Swarojgar Yojana and Mukhyamantri Arthik Kalyan Yojana. These schemes, implemented in the state to boost employment, have fallen flat in the first quarter of the current financial year.

In the last fiscal, the achievement index of these schemes was 100 percent. However, post note ban the first quarter of current fiscal year has shown that these schemes could achieve only 3.62 percent target. MSME sector has posted sluggish growth in the first quarter as the banks, though flush with funds post note ban, are slow in financing the projects.

The hard hitting facts came to fore during state level bankers’ committee meeting held in the month of June to discuss the status of the achievements of the government programmes.

The bankers, however, maintained that banks were extending full support to the state government and have achieved more than 100 percent target in last few years. The three schemes had scored more than 100 percent in the financial year 2016-17, however they have reported sluggish performance post demonetisation, it was noted during the meeting.

Varanasi weavers still on their knees

Meanwhile, a news story in by Siddhant Mohan says in Varanasi, Modi’s parliamentary constituency, weavers were still on their knees as children were out of school and people out of work.

The story narrates the ground reality: “As one enters the dense colonies of Varanasi where weavers or ‘Bunkars’ live and work, the familiar sound of handlooms and power looms seems absent; at least a lot less than what it was before November 8, 2016.”

Varanasi is the centre of weaving industry and known across the world for the finest Benarasi sarees. But the beauty of the saree compares in stark contrast to the condition of the weavers. A number of them have shifted to other jobs.

For example, Wakeel Akhtar, a 50-year-old weaver who had grown his business of weaving enough to progress to power looms from handlooms. But for the past one year, only one of his eight power looms is running. The rest are gathering dust. Thanks to the demonetisation and the GST.

Country’s first cashless village goes back to cash

Meanwhile, Dhasai, a quaint village in Murbad taluka located about 100 km to the northeast of Mumbai, embraced cashless economy on December 1 last, roughly a month after demonetisation. Spread over an area of around 2,700 acres, the village is home for around 5,000 – a mix of traders and farmers. It serves as the central market, healthcare centre and banking hub for at least 27 villages nearby.

At a time when people across the country were still queuing up outside banks, villagers in Dhasai swiped freshly acquired ATM cards at shops, most of which had installed swipe machines. Those with smart phones had switched to mobile banking and the BHIM app launched by Prime Minister Narendra Modi. Queues outside ATMs had disappeared overnight and even “vada pavs” could be bought by paying through BHIM.

But a year after, now, only 15-20 percent of daily transactions remained cashless in the village. According to Swapnil Patkar, president of the traders’ association of Dhasai, “when a third of the population does not own ATM cards, despite having bank accounts, how can we go cashless?”

India is not ready for cashless transaction. Cashless will work only when people have sufficient education and experience. Also cashless transaction fee is very high for Indian system currently.

According to Aadis, cashless method will now work everywhere. BJP-RSS people are making money from PAYTM machine for cashless which belongs to them and they are taking huge profits from poor dealers. That is why they need Digital India in order to fill their pocket, he said.

*These are the personal views of the author



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