Days after Prime Minister Narendra Modi announced demonetization of currency notes of Rs. 500 and Rs. 1, 000 denomination, I remember reading ‘Swaminomics’, Swaminathan S Ankleasria Aiyar’s weekly column in The Sunday Times of India, where the veteran journalist had estimated that about Rs. 3 lakh crore out of the nearly Rs. 16 lakh circulating in the form of the two banned currencies would never come back to the banking system. In other words, the size of the black money would be smaller by that much at the end of the exercise. Since I know very little about these things – and understand even less – I chose to believe Aiyar, just about the only journalist writing on economic affairs I read with any interest.
Well, we now know, courtesy the Reserve Bank of India (RBI), that the money that never returned to the system was a paltry Rs. 10, 720 crores, 1/27th of the amount projected at the time. And we spent about Rs. 8, 000 crores to get the new currency notes printed as part of the demonetization exercise! It is thus abundantly clear that the main objective of DeMo, abolition of black money, was NOT achieved. That the other objective of weeding out fake currency failed was proved soon when fake notes of Rs. 2000 denomination appeared in the market within days of new currency being launched. As for the other stated objective – that of curbing terror funding – we all know that a year and half after the decision, terrorism is alive and kicking.
In a desperate bid to make a virtue out of a necessity, Finance minister Arun Jaitley has now come up with the rather specious argument that it did achieve its ‘larger purpose’ of making a largely tax non-compliant financial system to a compliant one! If this was indeed the ‘larger purpose’, why were we not told about it by the PM while making the announcement on TV on November 8, 2016 evening, Mr. Jaitley?
In fact, this effort to shift the goal posts had started days almost as soon as the DeMo decision was thrust on an unsuspecting country. When it became clear that a large part of the Rs. 500 and Rs. 1, 000 notes might come back to the banks, the Modi government said the exercise was actually aimed at turning an overwhelmingly cash economy to a cashless – or a ‘less cash’ – regime. As the days went by and the miseries of the people became clear, the government came up with one new explanation after another. But it left no one in doubt – not even an economic ignoramus like this author – that it was a hasty, ill-advised and poorly though out decision taken without weighing its possible consequences.
Nearly two years after DeMo, no one – except the Modi government, that is – knows about any tangible benefits that accrued to the economy. But everyone knows about the untold miseries people were subjected to, the long hours they were made to stand in queues to exchange their currency notes, the devastation it caused to workers, small traders and the people at large, the thousands of jobs that were lost and – last but not the least – the over 100 deaths that it caused. GDP growth, a healthy 7% plus before DeMo, suffered for two consecutive quarters, pushing the economy into a tailspin from which it is still recovering.
Nearly two years after, no one knows for sure what was the government’s real motivation in going for the immensely disruptive decision. Was it the UP elections that followed soon after and the desire to catch the Opposition on the wrong foot, as many people believe? Was it the desire to convert black money in the BJP’s possession into white before announcement of the decision while denying the Opposition the opportunity to do the same by springing the surprise, hush-hush decision as others believe? Or was it just a plain unthinking decision gone horribly wrong? Whatever else it was, it is clear that DeMo did not achieve its stated purpose(s).
I will still continue to read ‘Swaminomics’. But never again shall I commit the mistake of believing everything that Aiyar writes because I am less ignorant about economic affairs now than I was at the time of DeMo!
(DISCLAIMER: This is an opinion piece. The views expressed are author’s own and have nothing to do with OTV’s charter or views. OTV does not assume any responsibility or liability for the same).