It is said that “money is an idea that inspires confidence”. At the stroke of the midnight hour, on November 9, 2016, the confidence of more than a billion Indians was destroyed. Prime Minister Narendra Modi had declared that more than 85 per cent of the value of money held in the denominations ₹500 and ₹1,000 was worthless overnight.
Demonetisation 2016 is considered to be the boldest financial decision by any Indian Government since independence. Let us try to explore as to what extent it is the boldest move and how it would help the nation.
Many great personalities of the nation have strongly criticised the Demonetisation move. To quote a few of them, former Union Minister Arun Shourie stated that “demonetisation of high-value currencies being a radical measure, stating that jumping into well or committing suicide is also radical”. Nobel Laureate Amartya Sen has called the Narendra Modi government’s demonetisation move a “despotic action that has struck at the root of economy based on trust”. D Subbarao, former RBI Governor said, “If 1 per cent is not added to the tax-to-GDP ratio, then demonetisation would be like the search for the weapon of mass destruction in Iraq”. Former Prime Minister Manmohan Singh said, “It will weaken people’s confidence in the currency and banking system”. “It is a monumental mismanagement”. “It is organised loot and legalised plunder”.
Demonetisation was also wonderfully explained through parables. One parable said, ‘To hunt crocodiles, the water was drained from the pond. No crocodiles were found because they can live on land too. But all the small fish died’. Another parable said, ‘The entire house was burnt to catch the rat’.
Since India’s independence if any policy has attracted high criticism and any policy which is made highly fun of, it is Demonetisation 2016. Even the international media did not miss the opportunity to mock at and make fun of Demonetisation. Some of the jokes were, India’s 9/11 is much worse than America’s 9/11, Prime Minister said ‘Go Cashless’ – ATMs took it very seriously, Prime Minister promise of getting ₹15 lakh was true, now we ourselves will deposit ₹15 lakh in our own accounts, Prime Minister did not get black money but he got everybody on the road, Prime Minister has done a Surgical Strike on the Common Man, White money difficult to earn, black money difficult to save and pink money difficult to exchange, and much more.
Many countries like the erstwhile Soviet Union, North Korea, Zaire, Myanmar, Ghana, Nigeria, Zimbabwe, Pakistan and Australia have implemented Demonetisation but were not very successful. Then why did India go for it? Don’t we want to learn from the mistakes and moves made by countries?
It also looks like Demonetisation was implemented in haste, without much planning because of which the citizens had to witness the discomfort, which also led to the death of many people. The quality of paper used was very bad. The colour of the new notes was coming out. Few notes had printing defect as a part of the paper was left blank. People had to stand in long queues to deposit and withdraw money. Unavailability of change as the ₹2000 note was released before releasing ₹500 note. Seeking 50-day time from the public and asking them to face hardship for 50 days. The ATMs are not being compatible for the new ₹2000 notes. More than 85% of the total currency is from the denomination of ₹500 and ₹1000 which would take more than 6 months for printing. Initially, the objective was ‘Black Money’ which later was transformed into ‘Go Cashless’. A Turkish proverb that studies this situation is ‘The devil takes a hand in what is done in haste’.
In spite of the sudden announcement of demonetisation, the black money holders had no less than 13 methods to save their money. The methods were temple donations, back-dated FDs in co-operative banks and credit societies, using poor people as money mules, giving loans to poor people, finding Jan Dhan account holders, approaching the banknote mafia, paying advance salaries or wages, booking and cancelling air/train tickets, using professional money laundering firms, using farmers, using political parties, brazenly putting it in the bank, etc.
The broad aim was to attack black money, fake notes and terror financing. With respect to black money, the government has already said it had no estimate of black money before or after 8 November 2016. Cash has amounted to just 6% of undeclared assets which the Income Tax Department has found in its raids over the last few years. Does the RBI have an estimate for the amount of black money? If it doesn’t, what amount of currency declared through the government’s two amnesty schemes does it expect as an adequate indicator that demonetisation worked?
With respect to fake notes, RBI data suggested that seven in every million notes in circulation in 2015-’16 were fake. That’s 0.0007%. But a large number of fake notes go undetected. The RBI can expect better detection with new notes, but they are also supposed to be more secure and harder to counterfeit. Does the RBI then believe that, after demonetisation, the number of detected fake notes in circulation will be even lower than 0.0007%?
With respect to terror financing, is there an estimate of how much Indian currency goes into terror financing? What does the RBI expect this to come down to? If the central bank is unable to answer these questions, it suggests that we went into the move without any data and are coming out without numbers either. It is obvious decisions at this level or not binary or zero-sum, they have to be calculated risks. Again, where are the calculations? Without these numbers, how will we know if the move succeeded?
The million dollar questions which have risen after Demonetisation are, was Raghuram Rajan not in favour of Demonetisation, was this the reason for not giving him a new term in spite of his good performance? Why old currencies were accepted at Petrol Pumps? Was it because Reliance supplies oil and they should not incur any kind of loss? Why did the Prime Minister make announcement regarding Demonetisation? Why was the Finance Minister and RBI Governor not involved? Was the announcement made by Prime Minister to gain popularity? What was the cost involved in Demonetisation and is it justified? How much ‘black money’ and fake currency were unearthed since 8 November 2016?
How many illicit cash hoarders and terrorists were caught? Who would be responsible for the death of so many Indians, due to standing in big queues to deposit their hard earned money? Was the timing of demonetisation selected to divert the attention from Fake Encounter, Najeeb Missing and NDTV Ban? Was the timing of demonetisation selected so that the Muslims don’t focus on the Triple Talaq issue? Was it done to wave off the huge loans of big businessmen who failed to repay the money? When demonetisation was kept in secret then how did the news about demonetisation published in the Gujarat newspaper on 1st April 2016?
Was the speech given by Prime Minister in Goa after the Demonetisation a sign of nervousness? Does this have any relation to the UP elections? What gain has accrued to the exchequer and what have been the fiscal costs? By when would the supply of new currency notes normalise and the limits on cash withdrawal removed? If the Government is serious about Black Money, why it has not got back the Black Money from the Swiss Bank? If the Government is serious about Black Money, why is it not bringing all the funding of Political Parties under RTI?
How have the bank deposits during July, August, September and October increased? Did people close to Prime Minister know about it? If the Government is serious about Black Money, can it explain how they received ₹10,000 crores to fight the election, making it the second most costly election campaign in the world? If the Government is serious about Black Money, why the depots in Political Party bank account during 9th November 2016 to 30th December 2016, will not come under scrutiny? If the Government is serious about Black Money, can it explain what it has done to all the BJP ministers who were caught with huge amount of new currency notes?
If the Government is serious about Black Money, can it explain how Janardhan Reddy was able to execute a ₹500 crore wedding, when people across the country were struggling for money? How much companies like Paytm, Reliance Money, etc. have earned due to Demonetisation? Why was the entire episode of Demonetisation not well planned? Why were there so many rules and regulations by the RBI in those 50 days? Why was there a mismatch between what the Prime Minister said and what RBI said? Why are the citizens still facing issues even after 50 days? Is there any country where people have deposited their money but are not able to withdraw it? These questions remain unanswered.
Whatever might be the issues and problems with respect to Demonetisation, it has two big pros. One, the message has gone to the world that Indians are very corrupt and they are black money holders. Secondly, for teaching the nation a new word ‘Demonetisation’.