#Demonetisation: Indian economy watershed or waterboarded?
The state government took the decision at a Cabinet meeting chaired by chief minister Pinarayi Vijayan. Photograph: (Reuters)
“Organised loot and a legalised plunder” is how Dr Manmohan Singh describes ‘demonetisation’. In Ahmedabad, on Tuesday, our former prime minister said: “November 8 was a black day for our economy and, indeed, our democracy,” referring to this day last year when the government announced its move to demonetise Rs 500 and Rs 1,000 notes.
“To promote a less cash economy, coercive steps like demonetisation are ineffective. Nowhere in the world has any nation taken such a drastic step that swept off 86% of the currency in circulations,” he said.
Our Finance Minister Arun Jaitley says demonetisation was a ‘watershed moment’ in Indian history. Hitting out at detractors, and perhaps especially miffed at his illustrious predecessor’s comments, Jaitley said: “An anti-black money drive is a moral step, loot is what happened in 2G, in Commonwealth Games 2010 and in coal block allocation.”
While it may be politically expedient to brush off Dr Manmohan Singh and highlight the graft cases when he was the prime minister from 2004 to 2014, it must be conceded that Dr Singh does know a thing or two about the Indian economy. He does have a Tripos from Cambridge and a DPhil from Oxford in Economics. Besides, he has been a Governor of the Reserve Bank of India, headed the Planning Commission in its heydays in the 1980s and, as finance minister between 1991 and 1996, was the harbinger of economic liberalisation in India.
In a series of tweets and graphic templates, Prime Minister Modi has defended the move saying, it has resulted in the ‘highest ever unearthing of black money and dealt a decisive blow to Naxalism and terrorism.’
The verdict is still out on the impact of this move on the Indian economy, and as with other ‘watershed’ moments in recent Indian history, it has left public opinion deeply divided.
In a society ridden with inequality and poverty, where the ‘aam aadmi’ is faced with corruption to get even basic amenities, economics doesn’t wash. The promise of nabbing those with black money does, and little wonder then, that the move was received positively - as a decisive measure that will rid India of corruption.
The Opposition parties will observe the one-year mark of demonetisation on Wednesday as a “Black Day”. The Bharatiya Janata Party will commemorate the anniversary as “Anti-Black Money Day”.
The government has so far been able to pitch demonetisation as a move that was pro-poor and anti-rich, but as the economy shows signs of distress will Robin Hood and his merry band of men be able to assuage the ‘aam aadmi’?
As the Finance Minister pointed out today, there has been a shrinking of the informal sector, a wider tax base and greater digitisation in the economy. The government has been on point with its message and there are definite merits to these arguments.
Though viewed as a bold and landmark move by the masses, a former Finance Minister of India from the Prime Minister’s own BJP, Yashwant Sinha has criticised the move. As businessmen and traders start accounting for the full brunt of the impact of demonitisation, many believe it may not be the best way to tackle corruption.
In August this year, the Reserve Bank of India reported Indians returned almost all of the estimated Rs 15.4 lakh crore ($242 billion) in high-currency bills removed from circulation. It implies that a very small amount of unaccounted for money was held in cash.
While there has been a lot of hullabaloo over different government agencies sharing different sets of numbers, the total value of non-cash transactions rose by around 19 per cent between November 2016 and August 2017. The value and volume of mobile-based transactions recorded negative growth rates between November 2016 and August 2017.
All available evidence suggests that cash has returned to daily transactions and demonetisation may not have had the desired effect, at least in the short-term.