Demonetisation: Doing damage to India to boost Modi’s Image

Narendra Modi’s Tughlaqesqe decision of demonetiSing 86 per cent of currency in circulation in ₹500 and 1000 denominations was criticised for its foolishness by most economists except for those who had links either with the government or the Rashtriya Swayamsevak Sangh. Now that the RBI has declared that ₹15.28 lakh crore out of total ₹15.44 lakh, i.e., 99 per cent of these currency in circulation has come into the banking system by the end of June, and the balance like the deposits in Nepal and the receipts by the cooperative banks are yet not counted, the bluffs by the government gets squarely exposed.

In his first announcement on 9 November 2017, Modi had said in a televised address to the nation, “This step will strengthen the hands of the common man in the fight against corruption, black money and fake currency.” He later added curbing terrorist funding. It was monumental ignorance of the economy that hardly became the Prime Minister of India. Corruption, except for petty kind, did not depend on currency; the big ticket corruption goes without it, through over and under invoicing and tax evasions. The black money is held in assets, gold, real estate and foreign banks. Fake currency estimates was just negligible. Terrorist money may be disrupted momentarily but not eliminated. Anyway, there is no evidence that terrorist activity has declined after demonetisation. As against all this Modi had actually opened new channels of corruption for converting old currency in to the new ones.

Realising this all, Modi went on shifting goal posts. He began singing the song of digitalisation and less cash economy. Starved of cash, people had to naturally use alternative methods of payments for their survival. The boost in numbers of digital transaction began to be flaunted as success of demonetisation. Oblivious of the high cost of digital transactions, it was not realised that people would revert to their normal behaviour once cash becomes available. The RBI has recently admitted that the digital transactions have come down to the pre-demonetisation level. He began claiming widening of the tax net but the figures prove him wrong in that too. On every parameter that Modi-Jaitley combine touched upon while shifting their goal-posts, the results now show that they were just fooling people.

While there has not been any tangible benefit from demonetisation, its discontent has already begun to show on the economy. The first shocker came when the GDP figures for the first quarter after demonetisation registered a growth of 6.1 per cent as against 9.1 per cent in 2016. It was much lower than even the 30 economists’ prediction of 6.65 per cent in a Reuters poll. Now the next quarter, the first quarter of 2017-18 figures show further fall of growth to 5.7 per cent against 7.9 per cent in the same quarter last year, the lowest in three years. There was no surprise except that the sane predictions were drowned in the deliberate cacophony of government to confuse people. The fact is that demonetisation completely devastated the informal sector that contributes 45 per cent to the GDP and employs over 80 per cent of the workforce. Contrary to the government apologists, it would take long time to restore normalcy in this sector.

This is about the economy with which the common man hardly relates. The crisis demonetisation unleashed on him has been concrete and far severer than these figures might indicate. He would never forget his standing in queues before the ATMs to get his own hard-earned money. Millions like him had to go without food and some even lost their lives. He will never forget the chaos created due to the daily flipflop of the RBI during those cashless days. He bore all these believing Modi that it was good for the nation. But the truth is coming out that it has done lasting damage to the nation.

In retrospect, one can see that the only objective demonetisation served is to project Modi’s macho image that only he could take such bold decisions.