The Bharatiya Janata Party celebrated 8th November as Anti Black Money Day whereas Congress observed it as Black Day. Here is a look at demonetisation on it’s first anniversary.
A year ago on 8th November 2016, Prime Minister Narendra Modi announced historic demonetisation with great economic ramifications not only then but also in the years to come. November 8, even a year later, evokes strong sentiments for the people of India. On its anniversary, the Congress observed the day as Black Day whereas the Bharatiya Janta Party celebrated November 8 as Anti-Corruption Day.
The gains and pains of demonetisation have been pointed out by the people ranging from netas to economists to the common man. West Bengal Chief Minister Mamata Banerjee described demonetisation as Demo Disaster, a ‘big scam’ and marked November 8 as Black Day in the history of India. Congress Vice President Rahul Gandhi participated in Black Day protests on November 8 and tweeted, “Demonetisation is a tragedy. We stand with millions of honest Indians, whose lives & livelihoods were destroyed by PM’s thoughtless act.”
Whereas Finance Minister Arun Jaitley called it a ‘watershed movement’ in the history of India’s economy, the benefit of which will be realised by the people in the time to come. “The next generation will view post November, 2016 national economic development with a great sense of pride as it has provided them a fair and honest system to live in,” said the Finance Minister.
The Prime Minster Narendra Modi said, “To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is 8th November 2016. This means that these notes will not be acceptable for transactions from midnight onwards. The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper. The rights and the interests of honest, hard-working people will be fully protected. Let me assure you that notes of one hundred, fifty, twenty, ten, five, two and one rupee and all coins will remain legal tender and will not be affected.”
This sent shock waves through the entire country. Some gloated whereas many were in totally suspended animation. India, a nation with a culture of saving in cash for rainy days, was completely at loss. The measure clearly caused considerable inconvenience as people had to queue up for long hours to exchange their old notes of ` 500 and ` 1,000 to new ones which were introduced by the Reserve Bank of India. The banks and ATMs didn’t have money and this shortage cause immense loss to cash-based informal sectors as well as famers, vegetable sellers, shopkeepers, taxi, auto drivers and daily wage earners.
Since the day the government announced demonitisation, they have been saying that the primary measure was to root out corruption and black money from India. “Demonetisation is not the end but beginning of our deep and continuous struggle against black money and corruption,” PM Modi said while addressing the Bharatiya Janata Party (BJP) parliamentary party meeting on 22 November 2016.
According to experts, a crucial assumption in the demonetisation exercise was, that the black money is hoarded as cash. However, they point out that according to estimates, cash is a ‘very significant’ form of holding black money in only less than 7% of the cases.
They say that the prominent forms of holding black money are under-valued commercial and residential real estate; under-valued stocks in business; benami financial investment; gold, silver, diamonds and other precious metals; and undisclosed holdings of foreign assets.
More recently, they pointed out, open economy policies, free-trade arrangements and financial liberalisation policies have expanded the scope for holding black money in newer forms. This explains why in leaks such as Panama Papers and Paradise Papers, we have names of Indian businessmen and other high net worth individuals who have hoarded money.
When RBI announced that 96 per cent of the old currency came back to the Central Bank, the economist started asking the rationale of the demonetisation. “99% notes legally exchanged! Was demonetisation a scheme designed to convert black money into white?” tweeted P Chidambaram.
In its annual report released on 30 August, the bank reported that ` 15.28 lakh crore worth of the ` 15.44 lakh crore demonetised currency notes has come back into the system. This led to one leading commentator say ‘if that is true then apparently nobody in India is dishonest, because, according to the Reserve Bank of India’s long-delayed accounting, more than 99 percent of the cash in circulation has been returned. He also said that instead of the world’s best-planned attack on black money, India’s government had launched the world’s biggest legal money laundering scheme’, perhaps echoing what Dr. Manmohan Singh had said.
While Arun Jaitley announced the benefits of demonetisation, he listed out the following positive outcome:
The demonetisation which pulled out 86 per cent of the currency in circulation at the time had a severe effect on the economy of India. According to figures, a year after the demonetisation, the growth has plunged to a three-year low of 5.7 per cent.
In the words of Yashwant Sinha, “The demonetisation has proved to be an unmitigated economic disaster which played havoc with businesses and sunk many of them and countless millions have lost their jobs with hardly any new opportunities coming the way of the new entrants.”
Dr. Manmohan Singh who is the architect of liberalisation in India described it as an organised loot and legalised plunder. “We don’t disagree with the objective of fighting graft, but it (demonetization) was a monumental management failure the way it was done. It’s a case of organised loot and legalised plunder,” Singh said in Rajya Sabha in a debate on demonetization. He also predicted a two per cent dip in the growth.
Predictably, the economy slowed down drastically from 9 per cent in early 2016 to 5.7 per cent in April-June 2017. The small businesses had to close their business due to the shortage in cash. Unemployment increased with the collapse in manufacturing and private investment. Indra Nooyi in February this year said, “Demonetisation had a significant impact on our India business in Q4. It hit individual retailers significantly. And, there are still some lingering effects.”
According to the latest economic scenario, despite some uncertainty and gloom the market looks positive. The consumption after a boost from the festive demand has picked up. The companies are recovering from slow and negative growth. The recent policy initiatives such as the recapitalisation of banks and the revisit of GST policies by the government, there are good sentiments showing up. The World Bank has also ranked India higher in the ease of doing of business. With such efforts and further liberalisation of policies, the recovery and the growth should be sooner than expected.
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