Reserve Bank of India on Wednesday announced that 99 percent of the outlawed currency notes were deposited in bank since the time Narendra Modi announced demonetisation on 8 November,2016 to June 30, 2017. In its annual report, the Central bank stated that Rs 15.28 lakh crore, or 99 per cent of the Rs 15.44-lakh-crore scrapped currency notes, had come back to the central bank and around Rs 16,000 crore is yet to be deposited back to banks. The report also said that about 8.9 crore units of the demonetised Rs 1,000 notes worth Rs 8,900 crore, had not come back into the system. The RBI’s report has led to a volley of questions by critics and opposition parties on whether the ‘Kadvi Dawa’ as PM Modi had put it was worth it.
Let’s have a look at aim of demonetisation that Modi government spoke of, which kept changing from time to time
1) Fighting Black money
The government had claimed that scrapping high-value notes will result in at least Rs 3 lakh crore not returning to the system as tax evaders won’t be able to account for it. However, with 99.3% of all old notes finding its way back into the system, we wonder where are the tax evaders and where is the black money. Additionally, it would be hard to say whether the new Rs 2000 notes would not be used for black money as they are already 50% of total currency in circulation due to rapid remonetisation.
2) Terror funding
Post demonetisation, the government kept claiming that note ban has severely hit the terror financing. In February, PM Modi had stated in Parliament that 700 Maoists have surrendered after the note ban. However, subsequent attacks on our jawans in Maoists infested areas in March and April that led to the loss of 37 lives punches a hole in that claim. Also, the claim that demonetisation will curb terror attacks in Kashmir does not stand as every second week we keep hearing that soldiers are still being martyred in Fidayeen attacks. The cash crunch may have impacted the terror activities for a while but in the long run, cash supply has high probability of being restored. As it was later reported that Rs 2,000 notes were recovered from terrorists in Kashmir.
3) Cashless economy
Demonetisation has definitely resulted in a surge in the digital transactions. But at what cost? Technologies like Paytm and UPI were already doing a great job by helping increase digitisation without large human cost. The government spent over Rs 7900 crore in printing new notes in 2016-17 as against Rs 3,420 crore during 2015-16. In fact, the pace of digitisation has slowed down as soon as cash has returned into the system.
4) Fake currency
The claim that the system is awash with fake notes was also exaggerated. The number of counterfeit currency caught rose by 20% still it accounted for 0.0007% of total notes in circulation. On the contrary, the counterfeiting of the newly introduced Rs 2000 notes also began.
5) Growth
The rhetoric that demonetisation will help in long term growth and digitisation of economy is also hard to comprehend. In January-March 2017, growth fell over 3 percentage points year-on-year. After spending nearly 8000 crore in printing new notes, the RBI spent Rs 17,400 crore mopping up idle cash from depositors in FY17 against earning over Rs 500 crore a year ago. We are yet to quantify the job losses in non-organised sector.
6) Rich vs Poor
The note ban was also seen as a decisive attack on inequality. With this single stroke, PM projected himself as a crusader against black money, terrorism funding and drug money. It was also presented as rich versus poor. As media reports attest, resentment against the rich was also the reason that prompted people to give demonetisation a thumbs up. But we are yet to see how many rich black money horaders are behind bars.
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