New Delhi: Two years on, Modi government’s decision to ban Rs 500 and Rs 1000 notes continues to be a thorn in the BJP’s side. Even as the Union government declared the demonetisation move as a success on its second anniversary, opposition parties took turns to highlight the damage it has unleashed on the Indian economy.
Finance minister Arun Jaitley was of the view that the note ban was one of the key steps towards “formalising” the Indian economy. He said that not only did the move target the underground economy but it also helped in digitising financial transactions. Among the most important impacts of the decision, he said, was the way it enabled the government to expand India’s tax net multiple times and pass on its benefits to people from weaker sections.
“The government first targeted the black money outside India. Asset holders were asked to bring this money back on payment of penal tax. Those who failed to do so are being prosecuted under the Black Money Act,” he wrote on his blog.
The finance minister also said that demonetisation “compelled holders of cash to deposit the same in the banks” and prevented anonymous cash holders from evading tax.
Finance minister Arun Jaitley. Credit: PTI/Manvender Vashist
Responding to the criticism that almost the entire amount of supposed black money got deposited in banks through different channels, in the process legitimising the illegal cash, Jaitley said, “Confiscation of currency was not an objective of demonetisation.”
“Getting it into the formal economy and making the holders pay tax was the broader objective. The system required to be shaken in order to make India move from cash to digital transactions,” he added.
He also showed a significant jump in the figures of direct and indirect tax collections.
Opposition remarks
The opposition parties, however, felt that none of the achievements the finance minister showcased could be attributed to demonetisation. They thought that the note ban, which most economists have already panned, was done only to gain political mileage, which came at a huge human cost.
Former Prime Minister Manmohan Singh described demonetisation as an “ill-fated and ill-thought exercise” that unleashed “havoc” on the Indian economy and society.
“Notebandi impacted every single person, regardless of age, gender, religion, occupation or creed,” he said.
Also read: Two Years after Demonetisation, the Nightmare Continues for India’s Informal Economy
He added, “…the scars and wounds of demonetisation are only getting more visible with time. Beyond the steep drop in headline GDP growth numbers after demonetisation, the deeper ramifications of notebandi are still unraveling. Small and medium businesses that are the cornerstone of India’s economy are yet to recover from the demonetisation shock.”
He also said that the note ban alone had a disastrous impact on employment and financial markets, which continue to remain volatile because of the liquidity crisis that demonetisation created. This, in turn, “is taking its eventual toll on infrastructure lenders and non-bank financial services firms”.
Former prime minister Manmohan Singh. Credit: PTI/Shailendra Bhojak/File
At a time when the Indian currency is depreciating and global oil prices are rising, he said, it will be “prudent” for the government not to “resort to further unorthodox, short-term economic measures that can cause any more uncertainty in the economy and financial markets.”
“Today is a day to remember how economic misadventures can roil the nation for a long time and understand that economic policymaking should be handled with thought and care,” the former prime minister and economist said.
Also read: Two Years On, Modi Government Continues to Block Information on Demonetisation Deaths
Congress president Rahul Gandhi came down heavily on Modi, alleging that demonetisation was a pre-planned conspiracy to benefit the prime minister’s cronies.
In a press statement, Gandhi said, “Demonetisation was a tragedy. India has faced many tragedies in its past. Many a time have envious, external enemies tried to hurt us. But demonetisation is unique in the history of our tragedies because it was a self-inflicted, suicidal attack that destroyed millions of lives and ruined thousands of India’s small businesses. The worst hit by demonetisation were the poorest of the poor, forced to queue for days to exchange their meagre savings.”
He added that although the finance minister on the second anniversary of the note ban defended “an indefensible, criminal policy”, all that demonetisation accomplished was “a disaster”.
The Trinamool Congress chief and West Bengal’s chief minister Mamata Banerjee was one of the few regional leaders to have lashed out at the government when Modi had made the announcement two years ago. She took to social media to remind people that she was the first leader to “say no” to the note ban.
Calling November 8, 2016 a “dark day”, she said in her usual style, “The government cheated our nation with this big demonetisation scam. It ruined the economy and the lives of millions. People will punish those who did this.”
Aam Aadmi Party leader Arvind Kejriwal, known for his aggressive posturing on the issue, called demonetisation a “self-inflicted wound” on the Indian economy.
The Congress spokesperson Randeep Surjewala went one step further to call demonetisation the “biggest scam in independent India” as none of the stated objectives of the move were fulfilled. In a series of tweets, he said that it was time now for the prime minister to own up to the socio-economic disasters demonetisation has created.
The Congress party held multiple press conferences on the issue across the country, especially in the five election-bound states – Rajasthan, Madhya Pradesh, Chhattisgarh, Mizoram and Telangana.
‘All claims of achievements have fallen flat’
Former commerce minister in the UPA government Anand Sharma also joined the bandwagon, criticising the controversial note ban point by point.
He said all the four objectives that the Modi government had claimed demonetisation will achieve have fallen flat after two years. “He had said that notebandi will end the reign of black money, corruption and will be a blow on terrorism and counterfeit currency. However, the government’s own figures indicate how the move to ban 86% of India’s currency in circulation has miserably failed,” Sharma said.
He argued that the money that was in circulation was of the aam janta (common people), and not black marketeers. He said that a country in which 90% of the economy is dependent on the unorganised sector, cash-flow in markets in normal. “In most first-world countries too, cash in circulation is around 70-80%. But the PM thought that the Indian economy is run by black marketeers,” the Congress leader said.
Arguing that the government’s claim that demonetisation has reduced cash transactions is wrong, Sharma said, “The Reserve Bank of India (RBI) clearly says that two years ago, the cash in circulation was 72.7%, which has now increased to 80.2%.”
Similarly, he tried to bust other government claims. “The presence of counterfeit currency in Indian market has, in fact, drastically increased. According to the RBI, from 4.3% of the total cash in 2016, such duplicate notes shot up to 36.1% in 2017.”
He also refuted Modi’s claim that at least Rs 4 lakh crore out of the Rs 15.31 lakh crore that was banned was black money. “Only Rs 10,720 crore came back to the banks. We have already said that had the government taken back the demonetised Indian currency from Bhutan and Nepal, the figure would have been much lower.”
“Notebandi led to 2% decline in the GDP growth rate,” Sharma said, “It isn’t a small sum. Two percent meant India faced a loss of Rs 1.5 lakh crore. Forty-three percent of MSME units, which employed around 12 crore people, stopped functioning permanently. All big industrial clusters like Tirupur, Morbi, Ludhiana etc. suffered huge losses. A hundred and forty-three people died because of shortage of cash.”
Soon after making the decision, the government tried to control the damage but it was too late, Sharma said, adding that the RBI and the Union finance ministry issued 71 and 64 notifications respectively to relax the resultant economic constraints.
Asking the prime minister to take responsibility for the ill-conceived move, he said that the government’s claims that demonetisation helped the weaker section find a stake in the formal economy is misleading. “Only 22% the 1.34 lakh banks in India are in rural areas. The access to banks in around 6.5 lakh villages has not improved. In addition, the banks themselves have gone bankrupt as their non-performing assets have increased four times in the last four years.”