Raw numbers of currency returned are out. Yet, it would be a mistake to judge demonetization
When Prime Minister Narendra Modi announced on November 8 last year that the Government and the Reserve Bank of India (RBI) have decided to junk all Rs 500 and Rs 1,000 notes, they caught the country out. The ostensible reason for the Government to have done so was explained in the Prime Minister’s address to the nation. The first was to remove black money, rather to attack the massive cash economy in India. Second, as the Prime Minister stated, was to remove the scourge of fake banknotes pumped into India by its unfriendly Western neighbour. Clearly, the numbers released by the RBI show that only Rs 16,000 crore have been left out of the system with most Indians, mostly legitimately or otherwise, managing to change close to 99 per cent of the high-value currency in circulation on November 8. With the RBI doubling spending on printing new currency to close to Rs 8,000 crore last fiscal, the ‘profit’ made by the Government, which some estimate could be lakhs of crores, turned out to be minimal. In fact, when you consider the immediate economic jolt and virtual suspension in industrial activity, as a result of shock announcement, and the resultant decline of the pace of Indian economic growth, demonetisation is being cited by economists as having not been worth it. Once the Government’s own confusion and constant flip-flops became apparent, confidence in the Government took a slight hit. There is little doubt that demonetisation did benefit the ruling BJP politically, the scale of the party’s victory in Uttar Pradesh can partially be explained by demonetisation. Not only did the process starve political opponents of money, the sub-text of the ‘class war’ that demonetisation revealed paid political dividends.
However, despite criticism and considering the people who were inconvenienced in endless queues, it might be too early to judge the impact of the process. While the RBI spent more on printing new notes, there is far less cash in circulation. And while initial peaks after demonetisation have come down, the process gave a massive fillip to digital payments, although opposition parties quickly blamed the Government of aiding privately-owned mobile wallet systems. However, the rollout of the UPI payment network and the BHIM application have been major positives. It is also a fact that the Finance Ministry and its tax-collecting arms are using sophisticated ‘Big Data’ analytical software and analysing transactions across India. Many suspicious transactions which took place in the aftermath of demonetisation can now be analysed close to real-time, thanks to invisible but evidently obvious investments in artificial intelligence as well. Economic costs though are tough to pay. The Modi Government has been blessed with lower global commodity prices and a growing global economy. But industrial growth, and crucially, jobs growth in India have been stagnant and data indicates that post-demonetisation, these indicators slipped into the red. This is a worrying sign for the Government which needs to create 12 million jobs every year to keep up with ‘demographic dividend’. But the last word on demonetisation is yet to be written, and indeed may not be written for years to come.