One Year After Demonetization

No one can deny that demonetization was the biggest economic policy decision ever taken by any of the central governments since Independence. On 8th November last year, the union government had announced its decision to demonetize two big currency notes of Rs 500 and Rs 1000. Through this decision, the government had taken out 86 percent of total currency out of the Indian market, leaving it crippled for days to come. Although the demonetized currencies were allowed to be deposited in banks and exchanged with already existing notes of smaller denominations and newly printed Rs 500 and Rs 2000 notes, the liquidity in marked was reduced by 86 percent as only a 4 hour notice was given for transition.

The decision of the government attracted the loudest possible applause by many. Though some economists had been criticizing the decision from the very first day, politicians of almost all hues were initially hesitant to criticize the move looking at the high degree of support for the same. but this silence was short-lived– Politicians began criticizing the move after the passage of the initial week or so, but the criticism was largely for the way the decision had been implemented: for the lack of preparation in terms of the paucity of new valid currency notes to replace the old demonetized ones. The very rational behind the decision was questioned much later. A lot of hue and cry has since been made about the issue in the Assembly elections held after three months of the decision.

The success of BJP in Uttar Pradesh and Uttarakhand put a lid on the mouths of opposition leaders and they were made to believe that people are with the Modi government on the issue in spite of their sufferings to the decision. Later on,when the figures showed up and it was revealed that almost all demonetized currency notes had returned to RBI, the opposition started sharpening its knives.

The opposition has dubbed 8th November as Black Day, while the government claims it to be an Anti-Black Money Day. One calls it the day of National Mourning and another says it is the day of National Celebration. Who is right?

While announcing the decision, PM Narendra Modi had put forth four objectives for the decision —

The first objective was the elimination of black money. It was presumed that people had hoarded a lot of black money in form of big currency notes and after their demonetization, they would find those notes worthless, and if they were to bring them to banks for exchange, they would be exposed and caught. Hence, they would prefer to throw those notes away or destroy them.  It is by now well known that  the government failed on this ground. Over 99 percent currency has reached RBI and the full counting is yet to be done. This means that ultimately all demonetized currencies will have been collected by  RBI.

More than Rs 21 thousand crore had been spent on the printing and distribution of new currency notes. Hence, the treasury and RBI are at loss.

Another objective was to reduce terror funding. It was claimed that demonetization would break the backbone of terrorists. Nothing like this happened. In fact, terrorists were found to have been most active after demonetization.

Yes, we now find them subsided in Kashmir valley, but that is because of the efforts of security forces.
Demonetization  aimed at getting rid of fake currencies. There is no credible figure of fake currencies destroyed after demonetization, but we know that fake currencies have appeared even in form of new notes. In fact, the fake new currency notes were being seized at a time when they were in short supply in the market.

The last objective, as announced by Modi,  was the eradication of corruption. The government was not clear on how demonetization would impact corruption. In fact, the decision gave rise to corruption in the form of money laundering. This defeated the purpose of the whole exercise altogether.

Demonetization failed so far as the announced objectives are concerned, but it has produced a lot of data which can be used to fight out black money in near future. Its failure has put a lot pressure on the government to move ahead with all of its force to fight the shadow economy and nail it.

-Contributed by Kriti

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