Destruction by Demonetisation: The stark reality of Modi’s failed policy

When demonetisation has completed a year on November 8, the BJP is choosing to celebrate it as anti-black money day. The day the Prime Minister chose to wipe out 86 per cent currency in circulation that drove the entire country into chaos with no tangible results in sight it is indeed unfortunate that instead of acknowledging the failing of the ill-thought out policy and taking corrective measures they are choosing to call it a day of celebration.

The stark reality of PM's failed policy is for all to see. From a confident FM mentioning that more than ₹3 lakh crore worth of currency is estimated not to return to banks to 99 per cent of the banned cash legally returning to the banks in the eight months since demonetisation. The one per cent that has not returned to the RBI adds up to around ₹16,000 crore. So clearly all the cash that was returned by individuals, implying that there was a very small amount of unaccounted money held in cash by those seeking to conceal it. Like Congress Vice President Rahul Gandhi mentioned not all cash is black money& not all black money is cash!

After having failed to achieve the goals earlier mentioned by the Prime Minister in his November address we saw how goal posts have been constantly and consistently shifting to justify the note ban. The first was on how the country will accelerate faster towards digital economy. The Finance Ministry claimed that the transactions have increased by 56 per cent from 71.27 crore transactions in October 2016 to 111.45 crore transaction till the end of May, 2017. But the Ministry of Electronics and Information Technology – admitted in the Lok Sabha on 2 Aug that “digital transactions increased during November-December 2016 and have plateaued thereafter”. So it is clear that people shifted to digital payments when they had no cash, got accustomed to it to some extent, and reverted to their old habits. In a study conducted by Harvard Business Review where they ranked 42 countries by speed, quality, and ease of use when transacting online. India ranked 41st the only country it beat was Pakistan.

In his column in The Times of India MJ Akbar credits demonetisation in ensuring fall in zero balance of Jan Dhan Yojana accounts. But yet again conveniently forgets to mention that the proportion of zero balance Jan Dhan Yojana accounts had already fallen to 24.1per cent by 26 Sep 2016, many weeks prior to the demonetisation announcement. In fact the period post demonetisation saw a reduction of such zero balance accounts from 24.1 per cent to 21.4 per cent is the slowest since 2014.

Amit Shah in his campaign speeches had gone on to claim that demonetisation helped informal economy move towards formal economy. With no data to back that claim and to give them benefit of doubt for the intent yet again it would be important to note that one off intervention like demonetisation will not increase the size of India’s formal economy it will take a sustained effort through policy initiatives to gather momentum towards achieving the goal.

The finance minister gloated about an increase in taxpayers post demonetisation however this also does not hold good if we analyse the past financial years as the tax base has increased year after year in the last 15 years. There is no denying a spurt in the tax base this year. But the average taxable income reported in those returns is ₹2.7 lakh, which is barely above the threshold of taxation.

It is definitely worth asking what is the government really celebrating -- the millions of jobs that were lost or the lives that were lost waiting in queues to swap currency? The GDP growth rate fell by two percentage points, jobs wiped out, an economic chaos that ensued, no end to terrorist activities -- internal or external--and counterfeit currency still in circulation the PM has a lot to answer for to the nation. Celebration of a bad economic move is definitely not the answer.