Rhetoric, bluff and bluster have their limits. At some point of time, the law of diminishing returns will apply, and the truth will be revealed. A year after demonetisation, every justification trotted out for that decision has been rebutted and ridiculed. Let me begin with the justification that was disarmingly simple and had gained considerable traction: ending the counterfeiting of currency.
No more fake notes?
One year later we are told that out of the Rs 15,28,000 crore (by value, of demonetised currency notes) that was returned to the RBI, there was only Rs 41 crore, by value, of fake currency! That represented 0.0027% of the value of the demonetised notes. Before you express shock at the paltry amount, read this too: ‘The counterfeit versions have improved from easily identifiable in the beginning to highest quality in recent times’, according to officials who track fake Indian currency notes (FICN).
Between August and October 2017, the Directorate of Revenue Intelligence (DRI) seized high-quality FICN of face value of Rs 35 lakh in the two new denominations ( Rs 2,000 and the new Rs 500) in three separate cases in Mumbai, Pune and Bengaluru. On November 8, FICN of Rs 4 lakh in Rs 2,000 notes was seized in Mumbai.
The Indian Express quoted a senior DRI official who said, “Currency seized just after demonetisation was of low-quality, visible to the naked eye, but the quality of the notes recently seized has improved and a common man now cannot immediately distinguish whether it is fake or genuine.” To those familiar with the challenge of FICN, this is not a surprise at all. If one human being can harness technology to print currency notes, after some time, another human being can also harness technology to imitate the genuine currency notes. Hence, demonetisation was not the answer to FICN. If it were, every country would take that route but, in the last 50 years, no major economy has done so. That simple lesson was lost on the Indian government in November 2016.
Corruption, black money thrive
The same could be said about the other two objectives declared by the Prime Minister on November 8, 2016: ending corruption and eliminating black money. Despite demonetisation, corruption thrives. Bribe givers and bribe takers are being caught regularly, often red-handed. Public servants are being arrested and prosecuted for corruption. There is no evidence that petty corruption, that is so widespread that it is taken as the ‘normal’ in citizen-government interface, has been eliminated, or even inhibited, by demonetisation. As far as black money is concerned, income that is taxable is generated every day, a portion of that income escapes tax and is used for various purposes — such as giving bribes, funding elections, paying capitation fees, betting, hiring casual labour etc. Unaccounted money continues to be used in sectors such as wholesale trade, construction and jewellery. Needless to say, unaccounted money is the money that drives illegal activities like prostitution, drug trafficking, gold smuggling and arms manufacture.
Demonetisation was not the weapon to combat FICN or corruption or black money. Yet, the government wielded that weapon. It was a thoughtless and rash decision that turned out to be a colossal mistake and imposed a huge cost in terms of denting economic growth and heaping misery on millions of ordinary people.
The ethical issue
Adding insult to injury, the Finance Minister has claimed that demonetisation was “ethical and moral”. I am ready to join the debate and ask a few questions:
1. Was it ethical to heap misery on millions of people, especially 15 crore daily wage earners? That number represents one-third of the working population and includes farm labour, craftsmen, street-vendors and casual workers. They lost wages (or income) for several weeks, were forced to borrow, and many of them are in deep debt.
2. Was it ethical to destroy 15,40,000 regular jobs during January-April 2017? The latest data released by the CMIE says that another 4,20,000 jobs were lost during May-August 2017. Many of those who lost their jobs remain unemployed (unless the jobless have miraculously turned into job-creators as claimed by Mr Piyush Goyal).
3. Was it ethical to force thousands of micro and small businesses to close down? This is no longer a speculative theory. It is a fact. On the anniversary of demonetisation, true stories of closed businesses filled the pages of newspapers. Example: There were 1,500 units near the Tirupur Old Bus Stand working as ancillary units for larger merchants and traders; fewer than 500 are still doing regular business, others are either shut or waiting for an order for several months. There are similar true stories from Agra, Jalandhar, Surat, Bhiwandi and many other vibrant industrial hub towns.
4. Was it ethical to provide an easy way for converting black money into white as now discovered by the government? The government has admitted that demonetisation and the note-exchange window actually facilitated conversion of black money into white money. The government has promised to track the offenders and punish them, something that is easier said than done. How many cases can the Income Tax Department investigate and decide in a year? When will the Income Tax Appellate Tribunal dispose of the 94,000 cases that were pending before it at the end of August 2017? Hence the charge will stick: money launderers got an easy route to wash their black money and many of them may never be caught.
I recall Kural 551, which describes a king who does harm to his people. No elected government in a democracy has the right to inflict unbearable hardship and misery upon the people. In one of his works, Hippocrates said, “Do no harm”.
Website: pchidambaram.in @Pchidambaram_IN