Lasting tragedy (Demonetization) : Vanam Jwala Narasimha Rao

 Lasting tragedy (Demonetization)  

Vanam Jwala Narasimha Rao

Millennium Post (11-11-2022)

(While demonetization failed to realize its intended objectives, six years down the line, its negative fallouts have not completely faded yet-Editor)

Exactly six years ago, on November 8, 2016 at 8-15 PM, people were hardly in a position to understand as to what exactly happened, when the Prime Minister Narendra Modi, unaware of the consequences, unilaterally announced demonetization, resulting in stripping the Rs 500 and Rs 1000 currency units of its status as legal tender. Union cabinet was informed about the plan only little while ago on the same day in a meeting. The announcement was made in an unscheduled live national televised address. The surprise decision which was described by Government as an act to eliminate choking black money, terror financing and fake currency totally proved wrong according to leading economists.   

Unfortunately, as a result of this, the whole India was in a big Queue! Millions of households struggled to cope with the immediate situation which was like a Future Shock. All streets and market places were empty and everyone whether he or she, young or old, possessing black or white money of Rs 500 and Rs 1000 were left with no option except to stand in long queues in front of banks. Money whether white or black, and in circulation in whatever form, is the wealth of the nation and makes the nation dynamic. In an economy like India, where bulk of the last mile transactions were done in cash, a measure like this caused fear and panic, and also scarcity of legal currency as people hoarded it for safety-net purposes.

That was a big blow to every ordinary common person of all categories. With no money in circulation and with markets having a desert look, it was like a Bharat Band, and that too for fifty days. Between the time of announcement of demonetization and actual operations, everywhere an unexpected and unhealthy lull scenario prevailed. After late PM PV Narasimha Rao’s economic reforms enabling even the poorest of poor possessing high denomination currency, Modi’s demonetization was the best example of digression. 

It was disclosed then, that an estimated 17.5 lakh Crores of rupees, black or white, was in circulation and 86% of this amount was in higher denominations besides another Rs 3 to 4 lakh crores of counterfeit money. The remaining 14% was in small denominations. The demonetization literally pushed the 86% parts of the total money in circulation out of market. Much of the black money normally is held in land, property, stocks, gold or foreign currency. Even if the entire black money was deposited in the banks, it might have again flown back into the hands of the same people in a different path as the basic job of a bank is lending and the beneficiary is top industrialists.

An individual was allowed to deposit in banks without any questions and not requiring IT scrutiny just Rs 2.5 lakhs. But what was the actual value of Rs 2.5 lakhs was a big question. Of late, even a small agriculturist, a provisions vendor, a shepherd, an employee, a small hotel owner or to that matter almost all middle-class people keep with them more than this amount which is purely white in nature. Disabling cash of an individual over and above Rs 2.5 lakhs is a long-term disaster on nation’s economy. This also amounted to devaluation of assets and its impact started snowballing. Cleansing of black money that required scientific and accepted process did not happen in the Modi’s arrangement of demonetization.

India was shaping as one of the biggest economies in the world. Purchase power had gone up multi-fold. In the process of this development, whether accepted or not, those who possess black money are also partners in a way. This is where we should think how best they may also be brought in to picture for a better clean-up process. Ours is a cash-based economy and not cheque based or on-line based.

No doubt that, the black money holders are to be disarmed. Once upon a time the scenario was that, common men were angry on black money holders. Today it is different and in the ever-changing scenario everyone possesses the so-called black money-may be in a different form. In a way this is their hard-earned savings.

Against this background, there were severe hardships to people for activities like marriages, vegetable purchase, agricultural needs, construction labor wage needs etc. Real estate sector activity had come to a grinding halt. No agricultural land sales were reported and even if any they were distress sales. Normal life was disturbed. Entire economic dynamics changed. Small traders who buy in whole sale and sell in retail were badly affected. Industry too collapsed. State Governments too faced paralyzing affect. A currency ration was seen and felt. The situation was explosive.

Why not these issues were addressed before hand? Why did not the government prepare the common man for this? Where was the preparedness for an easy exchange of high denomination notes? The government failed to make available in adequate quantities of currency in the banks? There was no scientific estimate in advance as to how many normal people would be put to unavoidable trouble? A trial should have been given for yet another voluntary disclosure of black money, with beneficial amnesty scheme, wherein, both black money holder and government getting equal benefit. Lot of money would have come to invest in various infrastructure development programs of the government. That might have paved way for a vibrant India.  

Telangana Chief Minister K Chandrashekhar Rao making a statement in Assembly on 16^th December 2016, on demonetization, cautioned the central government and PM Modi in more than one way. KCR emphatically said that the Government of Telangana is of the view that the Union Government should initiate many more steps towards elimination of all forms of black money. He also suggested that besides currency notes, black money held in the form of diamonds, gold, shares and foreign currency and the black money generation through crony capitalism and flow of black money into the country through money laundering from British Virgin Islands, Mauritius, Singapore should be regulated effectively. 

Prior to this, soon after demonetization, when KCR met Prime Minister Narendra Modi on 19th November in Delhi, he explained to him the difficulties being faced by the people of the State and country and suggested lots of remedial measures to be taken to minimize the hardship to people. Nothing, however happened.  Down the line, what happened is an open document.

Modi expected demonetization to extinguish lots of black money. However, Reserve Bank of India data shows that 99% of the money that was invalidated came into the banking system. The three main economic objectives behind demonetization, namely, fighting black money, fake notes and creating a cashless economy by pushing digital transactions is only a partial success. According to RBI data, of the notes worth Rs 15.41 lakh crore that were invalidated, notes worth Rs 15.31 lakh crore returned. Neither black money nor black-income generation were impacted by demonetization. Counterfeiting continued.  

Against this background, Supreme Court Constitution Bench in October questioned whether the government and RBI realized their stated objectives of choking black money, terror financing and fake currency through demonetization. The court wondered whether the government had thought about the consequences before going ahead with the withdrawal of the high denomination currency notes. Court also directed the government and the RBI to file comprehensive affidavits. END