The Demonetization Balance Sheet

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What is the final outcome of this mega thriller in terms of closing the taps of black money? What is ultimately unearthed by the Finance Ministry? Apart from BJP sweeping the Uttar Pradesh polls, has it confiscated the carpet of counterfeit currency associated with terrorist funding?

Demonetization by Prime Minister Narendra Modi was aggressively puffed as an all-out war on black money, bribery and concealed wealth. With manufactured tempers of nationalism and cleanup operation hitting the sky, economic reason got blurred in the melee. Any critique of demonetization would be attacked as anti-national and illustrated as a corrupt secularist. The ordinary citizens digested the pain as the argument of terrorists using counterfeit notes was sold to them.

What is the final outcome of this mega thriller in terms of closing the taps of black money? What is ultimately unearthed by the Finance Ministry? Apart from BJP sweeping the Uttar Pradesh polls, has it confiscated the carpet of counterfeit currency associated with terrorist funding?  

Shot in the dark

 For the first fifty days, the poor and the general citizen suffered hardships queuing to exchange currency. With irrational and illegal restrictions imposed on withdrawals from banks, the distress of the people multiplied. It was evident that this outright political one-man decision was taken without any preparations and assessment of the fall out. The silence of the Reserve Bank of India, the key repository of currency was chilling. The explanations offered by the Finance Ministry were faint indicating that the officials were themselves not convinced of the strike on currency which stripped 80% of currency from the legal tender status.

The government groped in the dark and changed the narrative at the drop of a hat. The initial thrust objective of unearthing black money was relinquished when it was realized that the government had no concrete results to bank upon. Black money had already found the resting place through investments in gold and real estate. It was later described as anti-terrorism and anti-Pakistan weapon to detoxify the counterfeit currency putting it beyond the scope of economic scrutiny and elevating a sparingly used economic tool to the pedestal of national security. The coat of cashless economy was added as the ultimate objective of demonetization to answer the criticism on shortages of currency and the flak the government was receiving from the people. Digital currency sloganeering was cleverly initiated to hide the failures of demonetization for which it was primarily meant.

Little positive, the vast negatives

If at all there are any identifiable positives of demonetization for the government and the economy, they could be in the claims of the Finance Minister that the personal income-tax collections have increased. New taxpayers have been created and added to the list of assesses. The real estate prices which were presumably high got deflated as a consequence of demonetization. However, no data is yet available on currency and also on the amnesty schemes for boosting tax collections. Despite knowing that 98% of India’s transactions are cash, the ill conceived digital currency programme to convert Indians into overnight netizens along with demonetization has hit the economy adversely.

The available statistics shows that growth has decelerated to 6.1% for the quarter January to March over 8% of the last year. The major beating is on the manufacturing sector with the FMCG taking the larger brunt on account of dipping sales due to cash crunch. Workers faced retrenchment and those who lost their jobs; do not have the hope of regaining them in the immediate short-run. The unnerved manufacturing sector and ancillary industry is still not back on the earlier track despite the Finance Minister offering incentive package through the budget. No authentic figures are available on the damage caused to the informal sector which accounts for major gainful employment in our country. Needless to say, this sector got squeezed on account of rip-off demonetization and its ugly consequences.

In addition to the above pounding of the economy from which it will take time to recover, the preliminary and initial cost of demonetization is estimated to be ₹1.28 lakh crore. This is measured for households in terms of the mandays and wages lost queuing to exchange currency and working alternatives for cash crunch. The banking industry has incurred cost in terms of higher security and recalibration of ATMs and accounting systems. Added to this is the cost of printing new currency and the losses to farmers, manufacturers, retailers, wholesalers and allied business enterprises due to forced economic slowdown. It is against this context that the benefits of the “all-by-myself” decision of Prime Minister Narendra Modi need to be juxtaposed.

PR outshines governance

The government has kept the people in the dark about this mysterious drama of demonetization. None knows the real motivation behind the move and the achievements. There is no guarantee that fresh generation of illicit funds has not taken place. Finally, such funds are required to feed the political parties, elections and administration. In the BJP regime, the Prime Ministerial marketing is galloping at geometric rate whereas key economic indicators such as manufacturing, employment, output etc move in arithmetic proportion. Public Relations & Media as image boosters outstrip and outshine governance. With cow protection, beef ban and routine cross-border strikes becoming the current agenda of the government and also taking the prime space in Indian media, the critical issue of economic growth, development and social equity moves to the bottom. The making of modern India succumbs to the right-wing conservative politics of BJP and communal ideology of RSS. Under this atmosphere, the truth of demonetization could remain elusive.