On 30 August the much awaited receipt figures of demonetized currency of Rs 500 and Rs 1000 denominations were released by the Reserve Bank of India (RBI) in its Annual Report. It said 15.28 lakh crores out of total 15.44 lakh crores, i.e., 99% of the demonetized currency notes of Rs. 1000 and Rs 500 were received back in the banking system up to June 2017. It meant Rs. 16,000 crores worth of currency was not received as against the government expectation of at least 3-4 lakh crores as voiced by its attorney general Mukul Rohatgi to the Supreme Court. The RBI report has qualified this figure saying that it did not include the currency deposited in Nepal and with cooperative banks in India. Which means that practically all currency has come back proving the government hopelessly wrong in its estimation and more importantly Narendra Modi who took such a Tughlesque decision and kept on defending it in the face of unfolding evidence, having some ulterior agenda than the reasons he stated to the people of this country.
Recall, what Modi in his first announcement on 9 November 2017, had said to the nation, “This step will strengthen the hands of the common man in the fight against corruption, black money and fake currency.” Black money, fake money and terrorist money was what he claimed would be destroyed at one stroke. Given the ground reality, none of this was tenable but he could deceive the gullible masses into believing him that he was a brave man to take on the moneyed people and the anti-national racketeers. Black money according to income tax estimates through their raids was just less than 5% of the total illegitimate wealth. The black money is held in assets, gold, real estate and foreign banks. It is held in currency either by petty bureaucrats or politicians who need it to run their political machine. The big ticket corruption happens in the business world through cross border trade (under/over invoicing) and tax evasions, may be digitally, contrary to Modi’s beliefs. Another source is politics, Modi’s own profession. So, demonetizing 86% currency for such a small change surely could not be the reason. Next, the fake money estimates by the Indian Statistical Institute was in tune of Rs 400 crores, not even a drop in the ocean of currencies demonetized and hence it also cannot constitute a logical reason. The terrorists are not terribly dependent upon Indian currency. One knows Modi and rather his entire class considers Maoists as terrorists but they are not. Nonetheless, they might have been certainly inconvenienced. But to surmise that neutralization of their stock would end their movement was too naïve to become India’s prime minister. Thus seen, none of these primary objectives behind demonetization Modi indicated was tenable.
While there were no benefits from demonetization in economic terms, the costs were certain. The printing costs of the new notes to replace the old ones is estimated to cost in the range of Rs 12,000 to 16,000 crores; add to it the logistic costs; cost of refurbishing and recalibrating 2 lakh ATMs spread all over the country and of course the cost of stoppage of economic activity due to unavailability of cash not to load human cost that were actually incurred in terms of hunger and death.
As this began getting exposed, Modi resorted to shifting his goal-posts. He twisted the entire thing to promote digitization or cashless (later moderated as less-cash) economy. Surprisingly the digital payment companies like Paytm were ready to cash in on this cashless rhetoric. In the absence of cash some people in urban areas quickly switched to digital payments. This manifest harassment of people was also not spared and flaunted as the success of demonetization. Given the cost of digital transaction (Modi surely knew that his IRCTC, a company under Railway Ministry continued to charge 1.8% extra if you used credit card!), once the currency is made available, people would revert to their convenient mode of cash transaction. Many people including me, have given the relative economy with the currency vis-à-vis the digital cash, but when did Modi listened to others’ voices? As the RBI confirms the level of digital transactions has indeed reached its pre-demonetization level. Thus even digitization of economy also could not help Modi save his demonetization from flopping.
In absence of any cogent answers to the criticism coming from all corners and mounting negative evidence, Modi-Jetley duo tried clutching at every straw to justify their intrinsically stupid decision. In December Jetley had jumped to use supposedly increased indirect and direct tax receipts in December to claim that demonetization did not hurt economy. Later, when the income tax returns data became available, they began attributing to the success of demonetization until people began showing them bigger growth in number of returns without any demonetization in previous years. Jetley conveniently forgot that his own Economic Survey had revealed weak investment climate and sharp decline in industrial credit off take, the lowest in the last 65 years, which has been showing up in the absence of new capital formation and the rise in job losses. But Goebbels’ disciples as they are will not be deterred by these truths! Even the result of the first quarter after demonetization showing dip in the GDP would not deter them. In his Independence Day speech from the ramparts of the Red fort, Modi with his characteristic confidence would make questionable claims inter alia about demonetization having stopped generation of black money.
The first quarter after demonetization registered a growth of 6.1 % as against 9.1% in 2016. It was much lower than even the 30 economists’ prediction of 6.65% in a Reuters poll. Now the next quarter, the first quarter of 2017-18, GDP figures show further fall to 5.7 % against 7.9% in the same quarter last year, the lowest in three years. There was no surprise. The sane voices warning of such economic damage were drowned in the deliberate cacophony of government to confuse people. The fact is that demonetization completely devastated the informal sector that contributes 45% to the GDP and employs over 80% of the workforce runs on cash. It is precarious in nature and does not have capacity to bear severe shocks like demonetization. Contrary to the government apologists, it would take long time to restore normalcy in this sector.
This is about economy which the common man hardly comprehends or relates with. But he understands the hardship demonetizations had heaped upon him for no fault of his. It will never be revealed by these figures. He was made to helplessly stand in queues before the ATMs to get his own hard-earned money. Millions like him had to go without food and some even lost their lives. He will never forget the chaos created due to the daily flipflop of the RBI during those cashless days. There were as many as 62 amendments in procedure during the first three weeks. He bore all these believing Modi that it was good for the nation. But the truth is coming out that it has done the lasting damage to it. On November 24, 2016, Manmohan Singh had rightly termed Modi’s demonetisation as “legalised plunder and organised loot” and predicted that the growth rate might come down to 6% from a whopping 7.3 % that had been the case in the third quarter ending September 2016. Many economists thereafter have predicted such damage to the economy. The Centre for Monitoring Indian Economy (CMIE) has predicted that India’s GDP growth rate for the current financial year is set to slow to 6%, “on account of demonetization”, and warned that there’s no hope of recovering from this slower pace for the next five years!
While Modi has squarely failed to deliver on any of his promises made to people during the election, this destruction of India’s growth story will be his enduring contribution that will be remembered by people for a long time to come.
Why did he do it? As seen before there was no economic rhyme or reason behind such an ill conceived and badly implemented demonetization. On a positive note, it may have certainly served to neutralize the opposition’s, particularly Mayawati’s, stock of cash while keeping BJP unaffected, on the eve of Uttar Pradesh elections, that BJP was so desperate to win. But more tangibly, it was meant to show off Modi’s proverbial 56” chest, making him a muscular leader who alone could take such bold decisions against rich.
Modi has cast spell over the masses with his oratory skills and hyperbolic speeches far too long. They believed in him, ignoring their own pains. They supported his demonetization thinking that he was punishing their tormentors, the rich. They gave him massive wins in post-demonetization assembly elections. When they come out of their trance and realize the damage Modi did to India, what will happen to the BJP’s apple cart that is set out to achieve the Hindu Rashtra?
[A version of this was published in Indiaculturalforum. Dr Anand Teltumbde is a writer, political analyst and civil rights activist with CPDR, Maharahstra.]