The Reserve Bank of India’s annual report has provided proof of what we already knew empirically. With the return of nearly 99 percent of the notes that turned into pieces of paper overnight, the government’s gleeful claims that Prime Minister Narendra Modi’s drastic announcement on November 8, 2016, would expose hoarders of black money have turned hollow. Demonetisation has now been exposed for what it really was – not a good idea marred by poor execution, but a poor idea exacerbated by poor execution.
“Poor” has been the operative word for the BJP since it took over the running of the country in 2014. It promised that all its schemes and scheming were for the good of the poor. Yet, it hasn’t delivered on any of those promises. Demonetisation, if at all, showed that the rich could celebrate extravagant weddings even as the poor died in queues at post offices and banks – evidenced, among other examples, by the lavish wedding of mining baron G Janardhana Reddy’s daughter, conducted within days of demonetisation, allegedly costing Rs. 500 crore and with the use of old currency notes.
Economists had said, often and with conviction, that black money was not lying around in cash, but in real estate and jewellery. But having failed to “bring back the black money” from Swiss banks, a seemingly desperate government decided it had to leave its stamp on something – even if it were only psychedelic notes that are being manufactured in increasingly blinding colours.
When the ruling party was confronted by the Opposition in the wake of the RBI report, its ministers came up with their defences – but these, too, smack of despair and lack conviction. For instance, Finance Minister Arun Jaitley argued that the fact that money had got back into the banking system did not necessarily mean it was legitimate.
That is a valid point, but Jaitley only shot himself in the foot, because it does mean that the government’s mechanisms to suss out black money failed.
Other defenders of demonetisation are clinging to the fact that approximately Rs. 16,000 crore never made it back into the system.
Unfortunately for them, this argument doesn’t cut much ice either. Just as the money that made it back into the system was not necessarily white, the money that did not make it back into the system was not necessarily black.
Several thousands of people missed the deadline for returning old notes for various reasons. Some were abroad, some were ill, some were bereaved, and some did not have bank accounts. Let us not forget that as soon as the initial rush to exchange notes cooled off, the RBI issued a circular asking banks not to accept deposits above Rs. 5000 more than once, even within the deadline of December 30, 2016.
And so, in addition to the horror stories of infants dying in overheated rooms in banks crowded with people trying to exchange notes, hospitals refusing to release corpses to grieving relatives unless money was paid in new notes, brides being killed over their families’ failure to pay dowry in new notes, pensioners dying of sunstroke while waiting in ATM lines, blue collar workers going unpaid for months or being laid off, is another – that of people losing lakhs of rupees from being unable to return their money within a draconian deadline.
The argument that the shock move has deterred people from hoarding their money is weak too, as is evidenced by the recovery of counterfeit new currency and legitimate new currency in bulk within a month of demonetisation.
For all their talk of enhanced security features, the authorities had to admit that ATMs were not equipped to detect these when State Bank of India ATMs issued fake currency notes in Delhi.
As the government tries to explain the drop in economic growth to 5.7 percent in the first quarter from 7.9 percent in the corresponding period last year, we’re left with an inconvenient truth – that the deaths of over a hundred citizens in the last weeks of 2016 were for nothing. Demonetisation has failed and the government we voted into power in 2014 is as inept, if not worse, than the one we voted out.India at 70: Of inclusivity and independence