“Failure”, “chaotic”, “immoral”, “unsettling”, “revolutionary”, “brilliant”. Opinions about the effects of Prime Minister Narendra Modi’s November 8 midnight bomb wrapped in nationalistic garb differ, depending on whom you are talking to.
But the radical decision of the Bharatiya Janata Party (BJP) government in its third year of power to recall 86 per cent of currency in circulation has resulted in unprecedented disruption — both in the economic as well as political narrative of India.
The Prime Minister declared that Rs 500 and 1,000 notes would become “worthless little slips of paper” from that night. People were given until December 30 to swap their spiked bills for new bank notes. Modi said the move would cause inconvenience but promised that the short-term pain would be over in a “few days”, leaving the country to reap long-term gains.
He later changed the deadline and sought people’s cooperation to “help me for 50 days and I will give you the India you desired”. By an executive stroke, the Prime Minister had forced march India into a digitised world or a cashless system.
The decision was ostensibly taken to catch black money hoarders off-guard and crack down on hidden wealth accumulated over the years by rich Indians by evading taxes. It was also aimed at attacking rampant corruption, terror-funding and counterfeit currency notes. Modi supporters called it a “surgical strike” against black money but others wondered whether it was not a “carpet-bombing” that affected the poor the most.
The narrative kept changing over time, though by the end of the 50-day deadline on Friday, it was difficult to say whether the move was worth all the trouble it caused the common man. Perhaps a more lucid picture would emerge over the next few months.
Over 120 deaths have been linked to the move — mostly of people waiting in queues to withdraw cash. But the massive currency crunch, with people struggling for money to meet even their daily expenses, slowed down the economic growth of a country where an estimated 78 per cent of transactions are done in cash.
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Over the weeks, queues outside banks and ATMs shrank but the problems did not. Workers in India’s unorganised sector, where 90 per cent receives salaries in cash, small-time shopkeepers and businesses continue to struggle to cope. Consumption expenditure also took a huge hit with the massive reduction in money supply.
Experts warn that the uncertainty and anxiety triggered by the note-ban decision is unlikely to change at the crack of the New Year dawn or even weeks later, while the expected positive gains, if any, will take more time to put in their appearance.
The move, though hailed domestically, was heavily criticised abroad. More so, the way it was executed without proper planning as was evident with the government’s decision-a-day approach to deal with the after-effects of the move.
Steve Forbes, Editor-in-Chief of Forbes magazine, in an editorial on December 22 called it a “sickening and immoral” decision that caused an economic turmoil compounded by the government’s inability to print a sufficient amount of new bills to replace spiked currency.
“Not since India’s short-lived forced-sterilisation program in the 1970s — this bout of Nazi-like eugenics was instituted to deal with the country’s ‘overpopulation’ — has the government engaged in something so immoral,” Forbes wrote.
Figures from the Reserve Bank of India, which has been unusually economical with releasing data on demonetisation, indicate that the move may have failed in its basic goal of removing black money from the system.
On December 13, the central banks said Rs 12.44 lakh crore in old Rs 500 and Rs 1,000 notes were received back. Since then, it has not updated the figure or value of spiked notes deposited in banks.
But other reports suggested that overall some Rs 14 lakh crore of the scrapped Rs 15.44 lakh crore money may have returned by December 30 evening, leaving a narrow gap of a little less than Rs 1.5 lakh crore.
That belies the hope of the government that a “windfall gain” or Rs 3 lakh crore to Rs 5 lakh crore would accrue to by not showing up in the banking system, thus extinguishing the RBI’s liability on this count.
Some money is expected to come through the recently launched Pradhan Mantri Garib Kalyan Deposit Scheme — the window is open until March 31, 2017 — but that too is a doubtful since old notes would not be accepted by banks after December 30. All the black money held would necessarily be in the old currency.
On the other hand, the exact amount of fresh or valid banknotes the central bank has put into circulation after November 8 has also not been updated lately or adequately.
On December 18, Revenue Secretary Shaktikanta Das said Rs 5.50 lakh crore of fresh currency was infused in the markets. This is only 35.6 per cent the spiked currency. But he did not give the break-up of Rs 2,000 and Rs 500 notes, something similar to what RBI had done when giving information on new currency.
By the last day of the year, the government has promised to supply Rs 6-6.5 lakh crore in currency value in the market, meaning cash woes may continue for some more time amid fears that the country’s GDP may also take a hit.
Over the weeks, the nationalistic packaging of the move has given way to a rhetoric of making India a cashless economy. The government, of late, said the decision will pave the way to turn India into a cashless economy, making people use trackable and taxable transactions.
The move definitely widened India’s digital economic grid as millions, including wayside vendors, were forced to transact through the virtual world.
But is it possible to turn the economy into a digital one so fast? Perhaps not. And definitely not immediately. India is an incredibly huge cash-centric economy where, according to former Prime Minister Manmohan Singh, more than 600 million people in small towns or villages have no access to banks.
But the move has admirers who see gains in the long term. Many said it would initiate a structural change in the Indian economy, increasing transparency. A less-cash economy helps nip black money at the generation level, a few commentators said.
Despite the cheerleaders, the government may have got bitten twice over — GDP growth slowed down and small-time workers and farmers suffered losses due to the cash crunch.
Modi, in an interview to the India Today weekly, called the demonetisation move a “difficult” but apolitical decision that carried political risks not only for him but for the BJP as well.
The real political test comes early next year when polls to five assemblies, including in a crucial state, Uttar Pradesh, are expected. The results would determine how the gamble Modi took in November would turn out.