By Shyamkanu Mahanta
RBI says that Rs.15.28 lakh crore out of Rs.15.44 lakh crore money that went out of circulation has come back to the system, leaving only Rs.16,000 crore. A huge exercise of demonetization where people faced severe hardship, more than 100 persons died during the process and more than Rs.21,000 crore was spent on note printing and other expenses, is now been said to be futile. I will try to discuss the various aspects here in an impartial manner, beyond what the media will tell you.
Is Demonetisation a failed exercise?
- The three objectives laid out by PM Modi during November demonetisation –fight on black money, fake currency, terror funding. Black money is way of the mark. The remaining Rs.16,000 cr not returned to the system might be from money getting stuck in Nepal and Bhutan who uses lots of Indian currency or from Persons of Indian Origin (PIOs) not being able to deposit the money.
A situation might come that money deposited may be more that which was in circulation. It also reinforces that cash is not the prime source of black money, gold, real estates, offshore accounts might be the main culprit.
- GDP has gone down by 2%. This April- June GDP growth was 5.7% which was 7.9% same time last year. Construction sector which creates substantial employment is stuck at 1.2% coming down from 10.7% last year.
- Small Scale Sector, the biggest employment creator in the country was majorly affected. Disruptions in the demonetization process have dragged the entire industrial sector down.
- As a whole, the country is facing serious unemployment crisis.
- Regarding terror funding issue, the terror attacks haven’t gone down in Kashmir. Naxal violence is still on.
- In terms of increase in taxpayer base, it has increased by 25% but it is difficult to attribute the entire increase to demonetization as for the last four years, the tax payers base in increasing regularly.
However, demonetization has contributed towards BJP winning UP, as common people credited the PM for the tough measure as they felt rich people are suffering in the process. Politically, it has enhanced Modi’s stature as a strong leader who can take tough decisions for the sake of the country.
The Positives of Demonetization
- a) High value currency have reduced from 15 lakhs crore pre demonetization process to 12 lakhs crore post demonetization.
- b) 7.26 lakh crore counterfeit currency is expected to have gone out from the banking system.
- c) Once the money comes back to the banking system, it is much easier to identify the owner of the money and resultant taxation becomes much easier.
- d) Digital transaction has increased substantially.
The recent GST implementation could be a major factor for reduction of GDP. I believe in the coming ten years, GDP growth will cross 10 percent once corrections are made in the Banking system and after streamlining of GST implementation process. Govt has to be very aggressive with Banking reforms and most importantly increase internet penetration to encourage more digital transaction. Present 40% penetration is not good enough for digital India. Govt needs to act tough on Benami properties, offshore accounts and most importantly improve the entire tax administration structure.
Attorney General Mukul Rohatagi informed Supreme Court at the time of demonetization “ We expect people to deposit Rs.10-11 lakh crore in banks, rest Rs.4-5 crore was being used in J&K and North East to fuel trouble in India, that will be neutralized”. This hasn’t happened. Goal post was changed again and again by the Government. It is alleged that Banking systems has also connived with the hoarders to legitimize the currencies.
Demonetisation as a concept as of now is a failure. But 10 years down the line, it might be a different story.
The writer is an entrepreneur and an analyst