Demonetisation Deception

The revelation by the Reserve Bank of India about the amount of demonetised notes returned to banks in the wake of demonetisation of 500 and 1000 rupee notes by the government—the decision of demonetisation was taken by Narendra Modi, not the Reserve Bank of India (RBI), the statutory monetary authority of India—is clearly a bolt from the blue. According to the RBI report, 99 % of demonetised notes have returned to the banking system, leaving only Rs 16000 crore out of its purview. Even this amount is not all black, considering the Indian currency held by the citizens of Nepal, Bhutan and persons of Indian origin holding foreign passports but having business interests in India. According to one report, once the RBI takes back the banned notes from Nepal and Bhutan, and 'if it were to allow Indian-origin foreign nationals to deposit their old notes', the Rs 1600 crore that has not returned would be further trimmed down to Rs 12,329 crore, i.e. about 0.75% of the cash notes in circulation. And this is the final result of Modi's drive against black money. One example is sufficient to prove that the RBI report is a slap on the face of Narendra Modi. On the Independence Day, he claimed from the Red Fort that 3 trillion rupees of black money had been unearthed as a result of demonetisation. Now it is clear that he told a plain lie to the countrymen, because nobody except an insane fool would deposit his black money in banks in the form of hard cash. Black income and wealth in this country, as everybody with a nodding acquaintance with the state of the economy knows, is usually held in the form of gold, shares, bonds and deposits in foreign banks. Meanwhile, former RBI governor Raghuram Rajan stated the other day in no uncertain terms that he was never in favour of demonetisation and warned the government of the damage that demonetisation would cause to the economy.

The cost of this demonetisation has been immense, except in the eyes of those who are wilfully blind. This commentator had to go to a branch of the Paschimbanga Grameen Bank ten times in order to get ten thousand rupees, and also had to see the queues of people waiting to get some money and often going back empty handed. There are many who depend only on regional rural banks for depositing their cash and withdrawing it as required. Their condition was indescribable when hard cash was in short supply as a result of demonetisation. The conditions of town and city dwellers dependent on hard cash for transactions were not much better. If an all-India projection is made, milions of man days were lost, and incalculable damage was done to the informal sector of the economy, which provides hundreds of thousands of jobs to the poorer setions of the society. Quite a few deaths reportedly took place. When about 85% of the currency in circulation is withdrawn, this is the natural outcome. As soon as the decision of demonetisation was announced, many econnomists predicted the possible damage to the economy, but patently their words fell on deaf years. The result has been as expected. The eonomy has slowed down and is still to recover from the trauma. There is no estimate about the increase in the number of tax payers. Fake notes have already entered the market. And terrorism? The less said the better. The RBI data has also shown that digital payments methods have begun to tumble after the inflow of more cash. No country with a high percentage of digitisation, it should be remembered, had to resort to demonetisation in this fashion.The printing of new cash notes have led to a phenomenal increase in costs incurred by the RBI. There seems to be a substantial measure of truth in the speculation that Narendra Modi's objective was to starve the opposition of cash before the UP assembly polls because while he and his party, enjoying the patronage of the corporate lobby, used cheques, drafts etc in order to defray election expenses, the opposition, which was not so sound financially, had ordinarily to depend on cash notes.

The role of the opposition, particularly that of the official left, is also disappointing. They could have started a vigorous campaign on this issue in order to isolate the Modi government which has all along been trying to promote communal polarisation in order to hide its anti-people policies. A strong mass movement on people's problems would certainly have been the best antidote to this polarisation. But no such movement was visible in this case, except some statements and posters. When will the opposition including the far left variety realise this?

Frontier
Vol. 50, No.11, Sep 17 - 23, 2017