Not just the recently released RBI data, but statements of former central bank chief Raghuram Rajan, illustrate how not even one of the stated objectives was met, and how little it was based on sound economics.
To start with, the RBI data revealed that 99% of the demonetised notes have returned to the system, showing that the corrupt had devised means to convert black money to white using legal means, defeating the first stated purpose of the disruptive move. Or, it means that the amount of black money held in hard cash was very low, contrary to the government’s expectations.
Further, the RBI also saw a spike in the total expenditure incurred on printing bank notes in the period of July 2016-June 2017. The figure quoted was Rs 79.65 billion as opposed to Rs 34.2 billion during 2015-16.
NITI Ayog member Bibek Debroy had previously claimed that the total value of counterfeit or fake Indian currency was in the range of Rs 2,000 crore. It was thought that demonetisation would help curb this. However, the total value of fake notes discovered over the last year was Rs 41 crore.
India has neither seen an abatement of terror-related activities and internal security threats from the Naxals, as claimed by the government. With the main objectives not met, let’s take a look at what the country went through in the aftermath of the disastrous move.
Owing to an acute cash shortage, 8 million workers were not paid their wages. Not to mention, the over 100 lives lost in the chaos that ensued to get notes exchanged, or in serpentine ATM queues. The transportation industry felt the immediate jolt of demonetisation, with 800, 000 truckers affected by a cash crunch. About 400,000 trucks were stranded at major highways across India.
Another sector worst hit was agriculture, as transactions are heavily dependent on liquidity in the market. Farmer union protests against demonetisation were witnessed in Gujarat, Amritsar, and Muzaffarnagar. Such was the extent of shoddy planning that demonetisation was timed to coincide with the time of Kharif harvest and Rabi sowing. Recent data shows that 25-50% Sales have dropped across markets with occurrences of dumping of agricultural produce.
The RBI suffered a loss of Rs 577 crore loss on account of huge consignments of imported/indigenous currency note paper used for Rs 1,000 and Rs 500 denominations. This figure also includes wastage of ink, transportation and cost to calibrate ATMs to the size of new notes. The RBI in its recent report admitted to lower profits after demonetisation. Moreover, Public Sector Banks may continue to register highest GNPA(Gross Non-Performing Asset) ratio.
The informal economy was hit so bad, that the World Bank remarked on it. India’s GDP came down to 5.7% in the last quarter, compared to 6.1% in the previous. Had Narendra Modi consulted former Prime Minister Dr. Manmohan Singh, then he would have advised him against the move. Days after demonetisation, the economist-turned-politician said that demonetisation would pull down the GDP by 2%. His words now sound prophetic. E-commerce segment was also hit hard, as companies saw up to a 30% decline in cash on delivery payments. Congress Vice President Rahul Gandhi was one of the first and most vocal critics of demonetisation. He had said that this was a hit delivered to the poor and marginalised. He called it an outright “scam”, and with all figures and data now at our disposal, Mr. Gandhi stands vindicated.
Faced with hard, unforgiving data, the government is now trying to put a positive spin by saying that the other objectives of demonetisation were met. However, it’s rather outlandish claims also stand summarily demolished.