The big takeaway is not what portion of the scrapped currency has returned as deposits into the banking system. It cannot be a barometer of demonetisation's success. What matters is, what portion of the money that came back is wealth that had never been accounted for
The year 2016 was the year of Black Swans, the biggest one being Donald Trump trumping Hillary Clinton, leaving the credibility of American media that never saw it coming, in total shambles. Closer home, Prime Minister Narendra Modi undertook the game-changing demonetisation exercise, in an exemplary show of courage and foresight.
Naysayers have been quick to dismiss the demonetisation initiative, citing the fact that a large part of the demonetised currency has found its way back into the coffers of banks. Even without the note-ban, the Modi Government has unearthed more than a whopping Rs1.44 lakh crore by way of unaccounted wealth in the last two and a half years, of which more than Rs66,000 crore is money declared under IDS (Income Disclosure Scheme), Rs53,000 crore is amount evaded via indirect taxes and Rs25,000 crore is undisclosed income, including money laundered into some foreign banks — now under scrutiny by the Income Tax department.
Now, coming back to demonetisation, what most economists have either due to sheer ignorance or wilfully ignored, is the fact that, of the total demonetised currency that found its way into the banking system, approximately Rs7.34 lakh crore are bulk deposits. Of this, almost a good four lakh crore rupees have merited attention from Income Tax authorities and the Enforcement Directorate because of good reasons, including one of Rs25,000 crore that suddenly appeared in dormant accounts, Rs80,000 crore that is money repaid in cash for prior period loans taken, Rs10,700 crore in bank accounts in north-eastern states, Rs16,000 crore in a few co-operative banks, and so on.
Thus, those dismissing the demonetisation drive as a futile measure, are indulging in wishful thinking. If indeed four lakh crore rupees of the total scrapped currency that came back into the banking system was unaccounted for, then Modi would have achieved more than what he set out to do on that evening of November 8, 2016.
Remember that this sum is roughly four per cent of India’s GDP, and more importantly, it is 26 per cent of the currency that was demonetised! If 26 per cent of the scrapped currency emerges as unaccounted wealth after final numbers are collated, then detractors of the Modi Government would have shredded their own credibility to embarrassing bits, because numbers don’t lie.
The big takeaway is not what portion of the scrapped currency has returnedas deposits into the banking system. It cannot be a barometer of demonetisation’s success. What matters is, what portion of the money that came back into banks is wealth that had never been accounted for but suddenly found its way into formal banking channels.
The fact that UPI, RuPay and mobile wallets saw a 1,342 per cent, 446 per cent and 210 per cent jump respectively in the number of transactions between November 8 and December 25, 2016, is a precursor of things to come. A big beneficiary of the entire note-ban exercise has been the average middle class, salaried Indian what with lending rates (MClR) by key banks having been slashed by almost 80-100 basis points, from nine per cent to about eight per cent, in many cases. This has led to a fall in home loan rates.
Property prices, that were artificially kept elevated by nefarious builders, have fallen by 30-40 per cent, and rightfully so, given that 919 million square feet of unsold inventory exists in just four metros of Delhi-NCR, Mumbai, Bangalore Hyderabad. True, car sales took a hit, but RC Bhargava, chairman of Maruti Suzuki, has on record stated that the dip in car sales was primarily due to inventory de-stocking by dealers. Do note that between April and December 2016, car sales surged by a good 9.3 per cent for Maruti. Again, domestic air traffic growth in December 2016 came in at a solid 22.3 per cent, rising for 20 straight months in a row,topping global charts.
The 31.6 per cent year-to-year jump in excise tax collections in December 2016, coupled with a 12.4 per cent year-to-year jump in service tax, is again a good reminder to naysayers of demonetisation that the economy is on the right track. In fact,the excise and service tax numbers for the period April-December 2016 are even better — at 43 per cent and 24 per cent respectively. The icing on the cake has certainly been the IIP number for November 2016, that surged to a 13-month high at 5.7 per cent, driven by a 15 per cent, 9.8 per cent, 8.9 per cent jump respectively in capital goods production, consumer durables and electricity generation. Yes, these robust numbers benefit from a low ‘base-effect’, but 5.7 per cent, even off a low base, is commendable.
The biggest beneficiary of demonetisation has unarguably been the poor man on the street,thanks to retail inflation down to a three-year low at 3.4 per cent in December 2016, and food inflation even lower at 1.37 per cent. Don’t forget that inflation is the most regressive form of taxation, hitting the poor the hardest. In November 2013, retail inflation and food inflation under a failed Congress-led UPA, stood at 11 per cent and 15 per cent.
Moving away from the economics of demonetisation, where the Modi Government has scored massively is on the social impact. Be it Pakistan-sponsored terrorism in Kashmir or hawala funding or the Rs400 crore counterfeit currency (FICN) racket, there has been a 50 50-60 per cent dip in each of these, not to mention the fact that Government presses in Quetta and Karachi, infamous for abetting the FICN racket, have run out of business, post-demonetisation. True, Maoists and their battered sympathisers have called demonetisation a “financial emergency”, but no one expects any better from a bunch of Naxalites and jihadis who have had their back broken, borne out by the fact that 564 Maoists surrendered last November alone.
Some sections of our misinformed media that are still to come to terms with the resounding mandate of the BJP-led NDA Government in 2014, would do well to read excerpts from the The Guardian, which says that, thanks to demonetisation, human trafficking has virtually stopped in places like Assam, Meghalaya, Manipur, Nepal and Bangladesh, including at the notorious ‘Siliguri corridor’ and Khalpara. Research by global rescue groups says that demonetisation will eventually help save the lives of at least 50,000 Indian women and children every year, who could otherwise fall prey to the notorious $20 trillion global human trafficking industry.
Hence, for the self-masquerading activists against poverty, for human rights, justice and equality, and a divided and feeble opposition that has lost its mojo, there is no place to hide. The guilty who have had a kosher existence under a diabolically corrupt and inept Congress regime that ruined the socio-economic fabric of India, cannot preach.
(The writer is an economist and chief spokesperson for BJP, Mumbai)