One year on, the jury is still out on whether Prime Minister Narendra Modi’s gambit to demonetise Rs 500 and Rs 1,000 notes on November 8 last year has yielded the desired economic benefits. The government, on its part, has maintained that it was a decision meant for economic good and that it has, by all means, delivered positive results.
On the eve of the completion of one year since the decision, Finance Minister Arun Jaitley termed demonetisation as a watershed moment for the Indian economy. The decision, he said, had led to increased tax compliance, enabled easy identification of shell companies, pushed India towards a less-cash society and managed to put the squeeze on terror-funding.
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The opposition, on the other hand, has decided to observe November 8 as ‘Black Day’ to register its protest against the government’s decision. Data furnished by the Reserve Bank of India in its annual report this year has provided the opposition their much-needed ammo to renew their attack on the government over demonetisation.
What RBI data says
- As per the central bank, over 99 per cent of the demonetized Rs 500 and Rs 1,000 notes are back in the banking system.
- Rs 15.28 lakh of the Rs 15.44 lakh crore demonetized currency in circulation had returned to the system.
What’s the criticism?
The release of the RBI data has resulted in strong criticism of the government for making people go through all the pain for nothing. One of the stated objectives of the demonetisation decision was to rid the economy of black money floating in the system.
However, with only Rs 16,000 crore not returning, the government suddenly found itself on the backfoot. The incessant delay in the counting of money deposited during demonetisation had already risen eyebrows and when the data finally came out, things only went from bad to worse.
Also Read: Demonetisation a watershed moment for Indian economy, says Arun Jaitley on 1 year of note ban
In the early days of demonetisation, experts had estimated that nearly Rs 3 lakh crore of unaccounted money would not come into the system. Former Attorney General Mukul Rohtagi is on record saying that Rs 4-5 lakh crore would probably not find its way back.
Of claims and counter claims
The criticism that has followed since the release of the RBI data sent the government on a data overdrive as the anniversary neared.
Starting November 1, social media networks have seen central ministers go on a relentless spree to quash any misgivings that people may have regarding the drastic move that removed 86 per cent of the currency in circulation in one stroke.
The government, through its aggressive data push, has sought to drive home the point that demonetisation hasn’t been a futile exercise after all. In a series of tweets, FM Arun Jaitley listed out several positive outcomes of demonetisation.
Among some claims listed as a direct impact of demonetisation included reduced stone-pelting incidents in Jammu and Kashmir and drop in Naxal activities in areas hit by Left Wing Extremism; making India a less-cash economy and thereby reducing the flow of black money in the system; around 50,000 bank accounts related to over 28,000 companies being struck off and the taxman acting against 1,150 shell companies used as conduits to launder more than Rs 13,300 crore.
While most of the claims by the FM are based on facts, the government’s overdrive in trying to defend the notes ban decision does come across as a form of defence mechanism.
Consider what the other ministers of the Modi government are communicating as what demonetisation has already achieved.
The government claims that the note ban decision has cleansed the country’s financial system, has resulted in better jobs for the poor loans have gotten cheaper, revenues to municipalities have increased, so on and so forth.
The truth is that while these claims at best denote the intent that demonetisation hopes to bring about and not what it has achieved already. Post-demonetisation, these are objectives that the government may now look to achieve, but does not signify what it has achieved already.
The same holds true for the opposition’s claims as well. The Congress claims that demonetisation had dealt a decisive blow to the economy and the “ill-conceived” decision had only led to hardships for people with no tangible benefits to the economy at large.
That too could not be farther from the truth. Consider the following:
- As per data furnished by the ministries of Finance and Corporate Affairs, the government’s crackdown on shell companies shows that around 35,000 of the 2.24 lakh suspected shell companies struck off by the Registrar of Companies deposited Rs 17,000 crore post the demonetisation drive only to withdraw it later, thus raising suspicions of ‘wrong entries’.
- In one such case, an account with a negative balance just before the demonetisation day saw Rs 2,484 crore being deposited and withdrawn soon after.
- The Income tax department is set to begin dispatching notices under the Income Tax Act to nearly 70,000 entities that deposited over Rs 50 lakh each in old notes into bank accounts but did not care to reply to data uploaded in their accounts or even file returns.
- A total of 2 lakh such accounts have already been identified; 1.3 lakh account holders have already responded to the inquiry.
These developments, and many such on similar lines, cannot be brushed aside as mere optics. These are decisive steps that have come about only through the scrutiny of post-demonetisation data by banks and government agencies. One cannot deny that these are progressive steps towards countering the scourge of black money.
Why the exaggeration
Both the government and the opposition have struggled as far as making the real impact of demonetisation clear before the public. While the government appears to have gone overboard to defend the decision, not taking into account the hardships faced by people, the opposition too has shown undue haste in slamming the government’s decision.
The impatience shown by the government in branding notes ban a success, and the opposition’s haste in its criticism both point to the politics behind their respective assertions.
With just days into the Gujarat and Himachal Pradesh elections, neither side wish to be seen on the backfoot. The exaggeration by both sides, thus, is an attempt to score political points, and should be seen just as such.
As far as tokenism goes, the Centre plans to mark November 8 as ‘Anti Black Money Day’, as if to reinforce its intent behind the move and blunt the opposition’s protest against it.
That’s as cheesy as it can get!