Podcast | Deep Dive: Two years after demonetisation- Did the passion lastly dwindle? – Information by


Podcast | Deep Dive: Two years after demonetisation- Did the passion lastly dwindle?

On the second anniversary of demonetisation, allow us to return in time to dig up just a little little bit of trivia. In 1978, comic I. S. Johar made a satirical movie referred to as Nasbandi. The movie starred lookalikes of main stars and mocked the compelled sterilization drive throughout Emergency.

Not surprisingly, the movie was banned after its launch. One other movie on Emergency was Kissa Kursi Ka, a 1977 satire by Amrit Nahata, and its prints have been confiscated for apparent causes.

Minimize to final yr. In April 2017, a Bengali movie named “Shunyota” (Vacancy) was launched to discover the impression of the demonetisation drive on the residents. Earlier than the movie directed by Suvendu Ghosh hit the theatres, it confronted what was in line with the director, a “consolidated effort” to dam its launch. The movie was lastly launched after six cuts that included beeps muting sure damaging feedback made by the protagonists.

Now in line with a report, Vishesh Bhatt and his group are making a comedy about demonetisation. And why are we telling you this? Effectively, simply to carry dwelling the purpose that sure political occasions not solely impression the lives of residents in a far-reaching method, however in addition they form common tradition too indelibly.

This Moneycontrol Deep Dive will discover much more than simply trivia, it will likely be attention-grabbing to recall simply how a lot common help was drummed up for demonetisation within the days that adopted the late night order on November 8, 2016. This was when Prime Minister Narendra Modi had introduced that every one Rs 1000 and Rs 500 notes, comprising greater than 85 p.c of the full worth of the foreign money in circulation at the moment, would now not be recognised as authorized tender.

As if on cue, there have been radio campaigns following the tumult, shaming individuals who felt inconvenienced by the lengthy queues exterior ATMs and in banks. Reminding them of troopers on the borders and their dues to nationalism. Regardless that, 115 individuals reportedly died standing in queues to withdraw cash from their financial institution accounts.

There was Amitabh Bachchan evoking the facility of pink in reward of the brand new foreign money notes whereas additionally selling his personal movie of the identical hue. Ajay Devgan talked a few ‘sunar’ and a ‘lauhar’ and we is not going to even attempt to translate the Hindi idiom as a result of it’s untranslatable however properly, you get what he was making an attempt to say, do not you?

And sure, there have been these entrance web page adverts telling us to undertake digital cash, specifically, the comfort of a conduit referred to as PayTm.

Demonetisation was a transfer, we have been informed, that might cease the influx of faux foreign money from throughout the border, finish terrorism, dig out black cash stuffed in individuals’s mattresses and there was that reporter, in a now-viral video, speaking in all seriousness in regards to the fabled nano chip that might find black cash irrespective of how deep it was buried!

Two years later, the euphoric cheerleaders have grown silent.

Remembering the voices of warning

Regardless of the optimism being streamed from each accessible platform within the early months of this historic transfer, there have been sufficient naysayers to supply a dissenting view.

In an interview to NDTV in November 2016, Nobel Laureate and eminent economist Amartya Sen had mentioned, “The demonetisation of foreign money was a despotic act as the federal government broke the promise of compensation that comes with a promissory notice. Demonetisation goes in opposition to the belief. It undermines the belief of the whole economic system.”

He additionally informed The Indian Specific, “Solely an authoritarian authorities can calmly trigger such distress to the individuals – with tens of millions of harmless individuals being disadvantaged of their cash and being subjected to struggling, inconvenience and indignity in making an attempt to get their very own a refund.”

Economist Kaushik Basu wrote in The New York Instances, “Demonetisation was ostensibly applied to fight corruption, terrorism financing and inflation. But it surely was poorly designed, with scant consideration paid to the legal guidelines of the market, and it’s prone to fail. To this point its results have been disastrous for the middle- and lower-middle lessons, in addition to the poor. And the worst could also be but to come back.”

In December 2016, Chairman and Editor-in-Chief of Forbes Media, Steve Forbes wrote a chunk with the next scathing headline, “What India Has Finished To Its Cash Is Sickening And Immoral.”

And extra just lately, in April 2018, former RBI governor Raghuram Rajan mentioned in no unsure phrases that he had made it fairly clear to the federal government that demonetisation was “not a good suggestion” and that its implementation was “not well-planned” since 87.5 p.c of the foreign money was being demonetised. That he parted methods from the federal government’s assume tank is frequent foreign money now,

However coming again to the Forbes piece, Steve had written, “In November, India’s authorities perpetrated an unprecedented act that isn’t solely damaging its economic system and threatening destitution to numerous tens of millions of its already poor residents but additionally breathtaking in its immorality. With none warning, India abruptly scrapped 85 p.c of its foreign money. That is proper: Many of the nation’s money ceased to be authorized tender. Shocked residents got only some weeks’ notices to take their money and switch it in at a financial institution for brand spanking new payments.”

He went to systematically supply factors to help his argument together with the truth that the federal government did not print a enough quantity of the brand new payments which have been additionally a distinct dimension than the outdated ones, creating an enormous downside with ATMs.

However an important level he made was that demonetisation completely disregarded the truth that India’s economic system is primarily based on money and an inordinate variety of individuals stay in dire poverty. This oversight meant that small companies dealing primarily with money transactions gasped for breath, affecting the poor probably the most.

He additionally didn’t shy from making some uncomplimentary comparisons, “Not since India’s short-lived forced-sterilization program within the 1970s–this bout of Nazi-like eugenics was instituted to cope with the nation’s “overpopulation”–has the federal government engaged in one thing so immoral. It claims the transfer will battle corruption and tax evasion by allegedly flushing out unlawful money, crippling prison enterprises and terrorists and force-marching India right into a digitized credit score system.”

He opined that India was probably the most excessive and harmful instance of the anti-cash fad at present sweeping governments and the economics occupation. However there is no misunderstanding, mentioned he, what that is actually about: attacking your privateness and inflicting extra authorities management over your life.

However his most damning remark was this, ” India’s terrible act underscores one other piece of immorality. Cash represents what individuals produce in the actual world. Governments do not create sources, individuals do. What India has accomplished is commit an enormous theft of individuals’s property with out even the pretence of due process–a stunning transfer for a democratically elected authorities.”

Not surprisingly, the federal government is downplaying the truth that this transfer will give India a onetime windfall of maybe tens of billions of {dollars}. By stealing property, additional impoverishing the least lucky amongst its inhabitants and undermining social belief, thereby poisoning politics and hurting future funding, India has immorally and unnecessarily harmed its individuals whereas setting a dreadful instance for the remainder of the world.”

And we is not going to repeat comparable sentiments expressed by a former Prime Minister as a result of his phrases of warning might then have been simply dismissed as politically motivated. We’ll although study if two years later, his fears have been prescient or not.

The current continues to be tense

Minimize to 2018, and the aftershocks of demonetisation are nonetheless being measured. And as Hindustan Instances reported, former prime minister, and in addition famous economist Dr Manmohan Singh, has as soon as once more issued a warning that the impression of the notice ban was simply starting to manifest in a depreciating foreign money and the disorienting swirls of macroeconomic headwinds would proceed.

Singh mentioned within the HT report, that past the steep drop in GDP development numbers after demonetisation, the deeper ramifications have been nonetheless unravelling for small and medium companies which can be the cornerstone of India’s economic system. The sluggish employment charges, unstable monetary markets, liquidity disaster and the eventual toll on infrastructure lenders and non-bank monetary companies companies are a number of the factors cited by him as he lastly says, “Immediately is a day to recollect how financial misadventures can roil the nation for a very long time and perceive that financial policymaking must be dealt with with thought and care.”

Minister of Finance and Company Affairs Arun Jaitley although differs vociferously and has mentioned that demonetisation was wanted to shake the system. Fascinating alternative of phrases that however then as his critics would say, there’s a nice line between a stagnant system being stirred into wakefulness and being shaken. Or damaged, we could add.

The demand for a white paper on the transfer has been made not simply by the opposition events however media observers however as of now, the federal government reveals no indicators of acknowledging that the transfer didn’t yield all that it had promised.

There have additionally been uncomplimentary comparisons to a sure Sultan Muhammad bin Tughlaq and his financial misadventures within the 14th century, however we’re digressing.

In August this yr, RBI said in a report that over 99 p.c of the Rs 500 and Rs 1000 notes that have been withdrawn from circulation in November 2016 have been returned. In actual fact, many stories have said subsequently that there’s additional cash in circulation as we speak than there was in 2016. And that truth speaks for itself, actually.

Far-reaching impression

Two years down the road, the hows, whys and wherefores of demonetisation proceed to be mentioned. Many information sources have cited former RBI Governor Raghuram Rajan’s assertion that demonetisation and the Items and Providers Tax (GST) are the 2 main headwinds that held again India’s financial development final yr. He additionally mentioned, that the present seven p.c development charge is just not sufficient to fulfill the nation’s wants.

Considerably, present RBI Governor Urjit Patel had little to say within the wake of demonetisation and is just now starting to point out an unwillingness to adjust to authorities’s makes an attempt to ease lending restrictions.

However coming again to demonetisation, The Indian Specific recalled in November 2018, how the transfer led to days of acute liquidity scarcity, lengthy queues exterior banks, a reeling economic system, with demand falling, companies dealing with a disaster, and GDP development declining near 1.5 p.c. Many small models have been hit laborious, with many reporting enormous losses even after 9 months, says the report.

The tempo of remonetisation was sluggish because of the ATM machines that needed to be recalibrated as they weren’t manufactured for the sizes of the brand new Rs 2000 and Rs 500 notes.

“The central authorities and the RBI issued 74 notifications throughout its execution interval of 50 days that included a number of rollbacks. After demonetisation was introduced, the federal government had allowed the trade of Rs 500 and Rs 1,000 notes in any respect banks and RBI branches until December 30, 2016. It had initially allowed withdrawal of solely Rs 2,000 per day per card (through ATMs) and over-the-counter trade of Rs 4,000 per day per account, however elevated this to Rs 2,500 and Rs 4,500 respectively on November 13.”

“It later restricted the over-the-counter trade of foreign money to Rs 2,000 on November 18, earlier than stopping the power all collectively on November 24, 2016.”

The RBI had initially mandated a duplicate of PAN card whereas depositing over Rs 5,000 in outdated denomination notes however withdrew this situation on December 21, 2016.

Senior Congress chief and former finance minister P Chidambaram added to the gloom with the next assertion and we’re sharing it solely as a result of it rattles off just a few related numbers.

“Over 100 lives have been misplaced. 15 crore each day wage earners misplaced their livelihood for a number of weeks. 1000’s of SME models have been shut down. Lakhs of jobs have been destroyed. Indian economic system misplaced 1.5 p.c of GDP by way of development. That alone was a lack of Rs 2.25 lakh crore a yr.”

Apparently, former finance minister Yashwant Sinha and erstwhile BJP stalwart has additionally referred to as demonetisation an “unmitigated financial catastrophe“.

The start was auspicious although as Yashwant Sinha wrote in a now well-known piece in Specific in September 2017.

He had identified then that Arun Jaitley was, to start with, a fortunate finance minister, luckier than any within the post-liberalisation period. Depressed world crude oil costs positioned at his disposal lakhs of crores of rupees.

This unprecedented bonanza was ready for use imaginatively. However the oil bonanza, he mentioned, has been wasted and the legacy issues haven’t solely been allowed to persist however have additionally grow to be worse.

“So, what’s the image of the Indian economic system as we speak? Personal funding has shrunk as by no means earlier than in 20 years, industrial manufacturing has all however collapsed, agriculture is in misery, building business, a giant employer of the workforce, is within the doldrums, the remainder of the service sector can be within the sluggish lane, exports have dwindled, sector after sector of the economic system is in misery.”

“Demonetisation has proved to be an unmitigated financial catastrophe, a badly conceived and poorly applied GST has performed havoc with companies and sunk a lot of them and numerous tens of millions have misplaced their jobs with hardly any new alternatives coming the best way of the brand new entrants to the labour market. For quarter after quarter, the expansion charge of the economic system has been declining till it reached the low of 5.7 p.c within the first quarter of the present fiscal, the bottom in three years. The spokespersons of the federal government say that demonetisation is just not answerable for this deceleration. They’re proper. The deceleration had began a lot earlier. Demonetisation solely added gasoline to fireside.”

And at last he made probably the most hard-hitting of swipes, “Economies are destroyed extra simply than they’re constructed. No person has a magic wand to revive the economic system in a single day. Steps taken now will take their very own time to provide outcomes. So, a revival by the point of the following Lok Sabha election seems extremely unlikely. A tough touchdown seems inevitable. Bluff and bluster is okay for the hustings, it evaporates within the face of actuality. The prime minister claims that he has seen poverty from shut quarters. His finance minister is working over-time to guarantee that all Indians additionally see it from equally shut quarters.”

A BJP think-tank examine says that demonetisation unmasked city naxals however we’d like time to first totally perceive the purport of this assertion and watch for some type of an information to fathom simply what’s being conveyed right here. However as The Guardian reported in August 2018, the unique intent of demonetisation was one thing else.

The piece recalled, how as India’s huge casual economic system reeled, the PM implored the nation to offer the coverage time to work, arguing it might flush out untaxed wealth being hoarded by rich Indians, assist to digitise the economic system — probably the most cash-based on this planet — and starve terrorists and prison gangs of money.

From non-compliance to compliance?

In line with the world-wide political custom of shifting objective posts, Finance Minister Arun Jaitley has now mentioned that demonetisation had achieved its bigger goal of transferring India from a tax non-compliant society to a compliant society, ensuing within the formalisation of the economic system and a blow to the black cash. Specific quotes him, “The expansion of earnings tax collections within the two years pre-demonetisation was 6.6 per cent and 9 per cent. Publish-demonetisation, the collections elevated 15 per cent and 18 per cent within the subsequent two years and the identical pattern is seen within the third yr.”

Jaitley has additional said that the variety of earnings tax returns filed had shot as much as 6.86 crore in 2017-18, from 3.Eight crore in 2013-14. Within the final two years, the IT returns had elevated 19 per cent and 25 per cent, he mentioned and added that IT collections had elevated from the Rs 6.38 lakh crore in 2013-14 to Rs 10.02 lakh crore in 2017-18.

The critics although proceed to remind us that not one of the authentic targets have been reached and as one other Specific editorial put it, demonetisation didn’t deal a physique blow to black cash; it, actually, damage farmers, each day wagers and casual enterprises. Gurcharan Das, an economist and writer, was quoted in The Guardian too and he mentioned that the constructive facet to the train was that cash stashed at dwelling had been injected into the formal banking system.

“Now all that cash might be tracked and it goes into the formal economic system and individuals who have deposited it again have financial institution accounts and grow to be future taxpayers. It has helped India transfer sooner in the direction of a digital economic system. It is going to lead to India really skipping the department section of banking. However this was not the best way to do it. The associated fee to the individuals was excessive, and we misplaced a few yr of financial development by my estimates. And to unravel the roles downside in India it is advisable develop at about Eight p.c for about 20 years.”

Some excellent news, lastly or extra unhealthy information? has nevertheless reported that India’s development has bounced again to achieve 8.2 per cent final quarter, the quickest tempo of any main economic system. The World Financial institution in April said as properly in a welcome assertion that the Indian economic system appeared to have recovered from the non permanent disruptions attributable to demonetisation and the introduction of the GST. However regardless of projections of a 7.Three p.c development in 2018 and seven.5 per cent in 2019, it has proven concern over the truth that the nation is just not creating sufficient jobs. Because the Bloomberg piece reported this month, knowledge supplied by a personal analysis agency, the Centre for Monitoring Indian Economic system Pvt., reveals that 1.5 million jobs have been misplaced instantly after the ban on large-denominated cash notes in November 2016.

This could fear the federal government as a result of one in all marketing campaign guarantees was so as to add 10 million jobs annually.

Defective premise?

Vivek Kaul, the writer of ‘India’s Massive Authorities – The Intrusive State and How It’s Hurting Us’, wrote in The Quint this month that the very concept on the core of demonetisation, that additional cash means extra corruption was fairly defective to begin with.

He says, “Let’s take the case of Nigeria, which had a foreign money to GDP ratio of 1.85 p.c in 2016. It’s by far a extra corrupt nation than India is, although it has considerably much less money than India does, given its financial dimension.”

“Or take the case of Brazil which had a foreign money to GDP ratio of three.31 p.c in 2016. It’s a rustic kind of as corrupt as India is. Or take the instances of Singapore, the Eurozone, Taiwan, Switzerland and Japan, with a foreign money to GDP ratio of 10.36 p.c, 10.49 p.c, 10.54 p.c, 11.11 p.c and 19.Four p.c, respectively.Every of those areas or nations had a foreign money to GDP ratio increased that of India in 2016. However none of those areas or nations is as corrupt as India is. This notion {that a} increased foreign money in circulation results in extra corruption and black cash, is certainly a deceptive one.”

Arun Kumar, a Malcolm Adisesiah Chair Professor, Institute of Social Sciences and writer of Demonetization and the Black Economic system, Penguin (India), 2017, wrote within the Wire just lately, one thing comparable when he mentioned that the narrative that demonetisation would destroy the wealth of the corrupt was extensively accepted. And solely due to the misperception that ‘black means money’. And that, If money was squeezed out, the black economic system would disappear at one stroke – and justice could be meted out to the corrupt.

“The Prime Minister mentioned that for long-term acquire one needed to bear the short-term ache. He likened it to ‘ahuti’ in a ‘yagya’. If the ache doesn’t finish in 50 days, Modi mentioned, the general public might give him any punishment and he would settle for it.”

Two years later, says Arun, the federal government has refused to confess to the long-term harm to the economic system, particularly to marginalised Indians within the unorganised sectors. As an alternative, knowledge from the organised sector is used to say that the economic system has recovered to a 7-Eight p.c charge of development. That is handled as proof that the ache was non permanent.

The federal government, says he, didn’t survey the unorganised sectors to seek out out what was occurring there.

“The underlying assumption is that the shock to the economic system didn’t require a change within the outdated methodology for calculating development. In that methodology, the organised sector is kind of the proxy for the unorganised sector. However the shock to the economic system modified the ratio between the organised and the unorganised sectors. So, the ratio used previous to November 7, 2016, was no extra legitimate after November 8, 2016.Knowledge from personal surveys confirmed that the unorganised sector was hit laborious. Surveys have been performed by Punjab Haryana Delhi Chamber of Commerce and Business (PHDCCI), All India Producers Group (AIMO), State Financial institution of India (SBI) and lots of others together with NGOs. ”

Agriculture, he reminds us, confronted a disaster attributable to notes scarcity as a result of produce couldn’t be bought, the sowing of crops was delayed and the demand for the perishables like greens collapsed. Costs fell sharply, thereby impacting incomes of farmers. Banking additionally went right into a disaster since regular banking operations stopped for months. With business, commerce and agriculture dealing with a disaster, the issue of NPAs solely elevated.

Output, employment and funding declined, sending the economic system right into a tailspin from which it has not but recovered.

He additionally strikes a worrisome notice in anticipation of what could occur within the close to future as he writes, “Establishments just like the RBI have been broken. The roots of the present issues with RBI are additionally contained within the impression of demonetisation. It was believed that Rs Three to Four lakh crore wouldn’t return and would grow to be accessible to the federal government to offer to the poor. Since this didn’t occur, now a dividend is sought from RBI out of its reserves.”

He additionally recollects that nobody noticed any wealthy individuals standing within the queues and so they, he says, used varied units like Jan Dhan accounts, cash mules and money in hand to transform cash.

Many additionally suspected that demonetisation was a political transfer to remove the black cash hoard held by the opposition earlier than the Uttar Pradesh meeting elections.

He additional writes, “Since all the cash has come again into the banks, in one other spin, the federal government has argued {that a} paper path is now accessible to trace these producing black incomes. To help this argument, knowledge is cited on the rise in direct tax assortment and the variety of taxpayers. Given the enlargement of the organised sectors on the expense of the unorganised and the rising disparities, that is to be anticipated. Additional, the variety of direct taxpayers has elevated as a result of implementation of the Seventh Pay Fee award.”

Bloomberg has additionally identified that one other goal of demonetisation, that of formalizing an economic system the place greater than 90 per cent of funds have been made in money, has additionally not been realised. Digital transactions, the report states, went up sharply in November 2016 since most individuals had no choice however to make use of digital wallets, bank cards or debit playing cards. It has misplaced steam since then.

And all of the Bollywood fashion plans to nab counterfeit notes?

We quote Bloomberg once more, “No prime quality counterfeit new foreign money notes have been seized by any company submit demonetisation, and people seized within the latest previous are scanned or photocopied notes. “

So what was the reasoning behind demonetisation and who benefitted from it aside from revenue rakers like PayTM? As Vivek Kaul sums it up, “The very best evaluation of occasions like demonetisation occurs within the years to come back. By that point there’s extra knowledge accessible. There may be additionally a transparent distance from the occasion at hand to do a extra dispassionate evaluation on whether or not what was purported to be achieved has been achieved or not.”

Podcast | Deep Dive: Two years after demonetisation- Did the passion lastly dwindle? – Information by


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