Last Updated : Nov 08, 2018 08:23 AM IST | Source:

Two years on, jury still out on whether demonetisation was boon or bane

Any assessment of demonetisation has to be weighed on two aspects: whether it was economically or politically successful. The opinion continues to remain split on both.

Maryam Farooqui @farooqui_maryam

On November 8, 2016, in a sudden move, the government banned Rs 500 and Rs 1,000 currency notes.

During the address making the announcement, Prime Minister Narendra Modi said the move was aimed at tackling black money and counterfeit currency.

But the shock move that in one stroke rendered 86 percent of the country’s cash in circulation worthless is even today seen as having divided opinions sharply as to whether it was able to achieve what was intended of it.

Any assessment of demonetisation has to be weighed on two aspects: whether it was economically or politically successful. The opinion continues to remain split on both.

Economic impact

The immediate economic impact of demonetisation was almost certain to be negative. PM Modi stressed on the fact that any short-term negatives were the hardships that were undertaken while cash in the system was brought back in.

Recently, Congress leader P Chidambaram said that the Indian economy had lost 1.5 percent of GDP in terms of growth. “That alone was a loss of Rs 2.25 lakh crore a year,” he tweeted.

The former Finance Minister, a vocal critic of demonetisation, said this after the Reserve Bank of India (RBI) recently data on demonetisation, saying 99.3 percent of notes were back in the system.

“Over 100 lives were lost. 15 crore daily wage earners lost their livelihood for several weeks. Thousands of SME units were shut down. Lakhs of jobs were destroyed," Chidambaram said.

Further, an analysis of RBI’s report also highlighted the central bank’s expenditure to print new notes.

The report said that nearly Rs 13,000 crore was spent in the span of two years to remonetise the economy. This also impacted RBI’s profit. This in turn led to lower dividend paid by the central bank to the government. In 2015-2016, RBI paid the government Rs 65,876 crore. The amount came down to half, Rs 30,659 crore, in 2016-2017.

The Opposition Congress demanded an apology from Prime Minister Narendra Modi after RBI’s report. Other leaders from the party also did not leave a chance to question the government.

The ruling BJP on its part says that the long-term benefits of demonetisation have clearly started becoming visible.

Economists believe the cash ban led to increase in financialisation of savings, more income-tax compliance, and propelled India towards becoming a more cashless economy.

The number of people filing income tax also increased: going up from 2.24 crore during the same period of 2017-18 to 3.43 crore as on July 31 this year.

According to one report, counterfeit notes too came down 31.4 percent after the cash ban. There were as many as 7.62 lakh pieces of fake notes in 2016-17. The quantity went down to 5.23 lakh in 2017-18.

Further, the BJP says that demonetisation helped the government ferret out shell companies. According to spokesperson Sambit Patra, as many as five lakh companies were shut down, thanks to demonetisation.

Political impact

Demonetisation also has to be seen through the political prism. Indeed, having been announced months before the Uttar Pradesh assembly elections, it was also seen by analysts as having a clear political goal as well: to cement PM Modi’s image as an anti-corruption crusader.

For some, it was even a move to drain out opposition parties’ cash chest ahead of the key elections in UP.

Whatever be the motive, the elections saw the BJP sweep the state in a landslide victory.

Since then, however, the BJP has tuned down references to demonetisation as one of its key steps. Its mention was even missing during the PM’s recent Independence Day speech.

The Congress, meanwhile, has looked to increase its attacks on the government, and has even labelled the move as a “Modi-made disaster” and a “Tughlaqi farman”.

"We would like to ask the prime minister about who is responsible for all this. The prime minister should take moral responsibility for this. Had it been any other country, the prime minister would have resigned. Prime Minister Modi should also have resigned from his post on moral grounds, but expecting that from him would be too much,” Congress spokesperson Randeep Surjewala recently said.

Surveys of public opinion, however, seems to be veering towards the opposition view.

In a survey conducted by LocalCircles, more than 50 percent Indians think that black money still exists in the country. According to LocalCircles, 60 percent of the 15,000 participants in the survey said that black money has not reduced and will increase ahead of 2019 general elections.

For now, there are no easy answers to whether or not demonetisation was a success. Perhaps the 2019 general elections will settle the debate.

(With inputs from PTI)
First Published on Nov 8, 2018 07:21 am
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