Demonetisation has widened income inequality

When Prime Minister Narendra Modi announced demonetisation, initially we were all made to believe that it would lead to unearthing of huge quantum of black money; it would deliver a major blow to terrorists, to naxals, to fake currency. Later on, new objectives like moving towards digitisation of economy were brought in, but politically what had really caught the imagination of the masses was a belief that the rich would suffer, and they would prosper. General sense among the people was that if this actually leads to us achieving these goals, we are all ready to make sacrifices – including losing lives and livelihoods – after all greater good triumphs over short-term pain.

People kept their part of the bargain. We sacrificed lives (at least 150), livelihoods (at least 1.5 million just in the next quarter) and economic growth (by at least 2 per cent just as our former PM Dr Manmohan Singh had forecast). But has the Government kept its part of the bargain?

One year later, we all know for sure that all the stated objectives have fallen flat. Almost the entire currency in circulation is back in the system, the government did not make any windfall it had expected, Kashmir continues to be on the boil and fake currency remains a problem. But most importantly, one objective that has completely left us betrayed is the poor versus rich narrative.

Demonetisation may have started out to be an exercise to wipe out black money, but it has ended up widening income inequality and taking it to record levels. Demonetisation ended up widening the income gap at a rate that has broken all records post-Independence as the wealth of the richest hundred Indians went up by a 26 per cent in the year that went by. The income growth for the Indian farmer fell to just 1 per cent went into the negative zone for non-agrarian workers.

Is it just a grotesque irony or a coincidence that the year post-demonetisation saw the wealth of all our billionaires increase together by a whopping average 26 per cent. This is a record increase in any one year post Independence. Mukesh Ambani, the richest Indian by far, saw his wealth rise by an astounding 67 per cent, or nearly ₹ 1 lakh crore, as he entered the exclusive club of Asia's top five richest. Gautam Adani too saw his wealth rise as he entered the top 10 of India’s richest. His income went up to roughly Rs 71,000 crore from ₹40,000 crore.

Oxfam published a report earlier this year, indicating that the top 1 per cent of the population now owns about 58 per cent of the nation’s wealth. And the top 57 billionaires have the wealth equivalent to that collectively owned by the lowest 70 per cent of the country. This shows the highest level of rich-poor disparity since Independence.

On the other hand, real wages of casual workers in agricultural and non-agricultural areas that were increasing at 7 per cent per annum during the UPA years, are now increasing at sub-optimal meagre rate of 1 per cent per annum (3 year average since 2014) while the wages for non-agricultural workers are on a decline.

Agrarian distress that was brewing in the countryside due to inadequate increases in MSPs as against the promise of implementing recommendations of the Swaminathan Commission report worsened with the thought-less implementation of demonetisation. This is evident from the sheer number of farmer movements we have seen in the last six months. There is relative peace now as some state governments like Punjab, Maharashtra, Rajasthan and UP have bought peace, having announced some kind of loan waiver schemes but the states hardly have the kind of fiscal space that is needed to mitigate the acute levels of distress.

While we clearly know that demonetisation favored the super rich in unimaginable ways while hurting the poor the most, it is important to understand how the government performed on the other three stated reasons for demonetisation.

Wiping out black money was the central reason for demonetisation and SBI estimated that ₹ 2.5 lakh crore worth of black money would not come back into the banking system. There were political speeches on how this unreturned bounty would be used for the poor and the farmers. But taking this decision on account of tackling black money menace is itself questionable with the simple fact that our PM knew very well that only 6% of the total black money is held in cash. So even if all black money held in cash were not to ever find its way back into the system we would have tackled only 6% of the black money problem. But even then we as public waited for the outcome holding our breath with each RBI press briefing. Now we know that about 99 per cent of the money is back in the banks, only ₹16,000 crore was left out[3], or roughly Rs 128 per citizen. All cash black, white, grey etc. is now clean money in India, making us the first ‘Zero Black Money’ nation without discovery of a single rupee of black money. Basically all thieves have been able to deposit their money in the system using loopholes and government has nowhere to hide. Now government is taking refuge in talking of investigating “suspicious” deposits.

The government’s hopes of a respectable exit were demolished when the Garib Kalyan Yojna too proved to be a dud. About 21,000 people declared ₹ 4,900 crore as undisclosed incomes and though the government received ₹ 2,451 crore in taxes, it was not even enough to cover the direct costs of running an operation of this size.

The government claimed that demonetisation was necessary to weed out fake currency from the system, never mind the fact that estimates by NIA indicated only ₹ 400 crore worth of fake currency was floating around in the system, which would only around 0.02 per cent of the total cash in circulation. Note counts indicate that the value of fake notes discovered in this process was only ₹11 crore which would be 0.00053 per cent of the total currency in circulation.

We then come to the question of terrorism. The government hoped that demonetisation would make a serious impact, it clearly hasn’t. In Kashmir, media reports indicate that 2018 “has been the most violent in the last seven years with 290 killings so far, 65 of them security personnel and 49 civilians,” not exactly a case of terrorists freezing in their tracks because they don’t have money.

In conclusion, with the scheme’s stated objectives betraying us, I, as a citizen of this great nation, demand two answers from this government on the anniversary of this ill-fated decision:

• The Government should explain why the rich became so much richer (enriching themselves at record breaking pace since 1947) in the year that followed notebandi while we, the ordinary citizen, suffered hoping for a bounty of discovered black money for us?
• The Government should bring out a white pater clearly stating the amount of black money that was discovered on account of this exercise that has cost our national economy dear in every sense. Included in this white paper should be a sentence or two as to when can an Indian citizen expect to receive his or her share of this discovered black money – either the promised Rs 15 Lakh or what ever new amount the government wishes to now announce.