It is said that everybody is entitled to their opinions, but not to their facts. And the facts are here, finally. The Reserve Bank of India published its Annual Report on August 30, 2017, the last date allowed under the law. The report confirms what many of us had said — demonetisation was the worst example of incompetent policy-making. About Rs 15,28,000 crore, by value, of demonetised notes (or 99% of the total value of Rs 15,44,000 crore) have been returned to the RBI. So, the main objective of forcing people with black money to suffer losses has failed miserably.
The Original Objectives
We were told that Rs 4-5 lakh crore of cash will not come back into the banking system. The RBI would extinguish those liabilities on its balance sheet and pass on the windfall as dividend to the government. And everybody, except those who had hoarded black money, will live happily ever after. That fairy tale is now over. I had cautioned that none of the original three objectives set out in the government’s letter of November 7, 2016, to the RBI and in the Prime Minister’s speech the next day, was likely to be achieved. Fake currency has surfaced, terrorist activity has not abated and black money continues to be generated and used. The objectives were unexceptionable, the chosen instrument was wrong and useless. As the facts did not follow the original story, the story was changed repeatedly, and the propaganda engine was turned to full throttle. Bereft of even a shred of truth, the government’s propaganda is now clearly in farcical territory. The situation is beyond Orwellian. Sample these gems from the latest press release:
1) “The Government had expected all the SBNs (specified bank notes) to come back to the banking system to become effectively usable currency.”
Were the old Rs 500 and Rs 1,000 notes not effectively usable currency?
2) “…the effective currency in circulation today is only 83% with full remonetisation having taken place.”
By printing less currency, an artificial shortage has been created. Many ATMs are not functional or dispense cash only for a few hours a day.
3) “The fact that bulk of SBNs have come back to the banking system shows that the banking system and the RBI were able to effectively respond to the challenge of collecting such a large number of SBNs in a limited time.”
It is amusing that collecting cash is touted as an achievement. Next, counting the notes in nine months will be claimed as an achievement.
4) “Since November 2016 and until the end of May 2017, a total of Rs 17,526 crore has been found as undisclosed income and Rs 1,003 crore has been seized. The investigation/scrutiny is going on.”
What was the undisclosed income and what will be the tax revenue can be determined only after assessment, adjudication and appeals. The government may lose many of these cases. The final number may be much smaller.
5) “The government has already identified more than 37,000 shell companies which were engaged in hiding black money and hawala transactions.”
The government can only allege these things. It is for the tax tribunals and courts to determine whether the allegations are true.
6) “The Income-Tax Directorates of Investigation have identified more than 400 benami transactions up to 23 May, 2017, and the market value of properties under attachment is more than Rs 600 crore.”
This is a pitifully small number, given the scale of disruption caused.
7) “As a result of demonetisation of SBNs, terrorist and Naxalite financing stopped almost entirely.”
It would be nice to see some evidence of this. Data from Jammu & Kashmir showed a rise in the numbers of incidents and casualties. The Home Minister said that 35 districts in seven states are affected by Naxalism.
8) “Digital payments have increased by 56%, from 71.27 crore transactions in October 2016 to 111.45 crore transaction till the end of May 2017.”
There is an increase in the number of digital transactions but the total value of such transactions is at about the same level as it was in November 2016.
9) “The impressive revenue collection under the GST is also partially attributable to the demonetisation drive.”
Pray tell us, how is indirect tax collection impacted by demonetisation?
10) “Some people had expected a very large shock to economic growth on account of demonetisation. Their expectations have been belied.”
Is a deceleration of 3.1% not a large enough shock? Under the UPA I, the GDP growth curve was between 8 and 9%. Under the UPA II and the first two years of the NDA, the curve lay between 7 and 8%. Since demonetisation, quarterly growth (and hence annual growth) has settled at between 6 and 7%.
The CSO numbers for Q1 of 2017-18 are worse: GDP 5.7%, GVA 5.6% and manufacturing GVA 1.2%. Is that not a catastrophic blow to the economy?
There are some who believe that power creates its own justification. The rest of us are interested in objectively understanding the impact of a policy and will support it only if it benefits the economy and the people.
From demonetisation to polarisation (in UP), to chicanery (in Goa and Manipur) to child deaths (in UP and Jharkhand) to mob violence (in Haryana), we are being asked to tolerate incompetence. The NDA is practising a rare and extreme form of politics that will ultimately wreck both social harmony and the economy.