Demonetisation: Just 0.7% Success?
Recently, the Reserve Bank of India (RBI) finally conceded that almost all the currency notes invalidated in November 2016 have returned to it in the form of deposits. The RBI claimed to receive Rs 15.31 lakh crore in the old Rs 500 and Rs 1,000 notes, or 99.3 per cent of the Rs 15.417 lakh crore worth of notes which were in circulation as on November 8, 2016, when the government announced demonetisation.
In its latest annual report, RBI said that as much as 99.3% of the junked banknotes by value have returned to the banking system, confirming what had been widely perceived by economists and banking experts a long time ago – that most of the money found its way back to the system. This means that just Rs 10,720 crore of Rs 500 and Rs 1,000 notes failed to come back to the RBI, as against the original expectation that over Rs 3 lakh crore of black money would not return to the banking system.
The sudden withdrawal of currency notes in 2016 had created a liquidity shortage, with long queues outside banks and people undergoing immense hardships across the country to withdraw their own cash. It had also dented the economy – with demand falling, small scale businesses and unorganised sector facing a crisis, and GDP growth declining close to 1.5 per cent. Many small scale and informal sector units collapsed, reporting huge losses post demonetisation.
Criticising the demonetisation exercise, former Finance Minister P Chidambaram had fired the first shot at the final report stating in a twitter post -, “So, government and RBI actually demonetised only Rs 13,000 crore and the country paid a huge price.” “Over 100 lives were lost. 15 crore daily wage earners lost their livelihood for several weeks. Thousands of SME (small and medium enterprise) units were shut down. Lakhs of jobs were destroyed,” he added.
Every rupee of the Rs 15.42 lakh crore (barring a small sum of Ra 13,000 crore) has come back to the RBI.
Remember who had said that Rs 3 lakh crore will not come back and that will be a gain for the government!?
— P. Chidambaram (@PChidambaram_IN) August 29, 2018
I suspect that the bulk of the Rs 13,000 crore is currency in Nepal and Bhutan and some that was lost or destroyed.
— P. Chidambaram (@PChidambaram_IN) August 29, 2018
The reference to lives lost was to the purported deaths of people who had to queue up at bank branches for hours together in the days following demonetisation. The central bank took nearly two years to calculate the number of banned notes and then destroy them. The tedious process included day and night shifts, working six days a week and using 15 note-counting machines. “The processing of SBNs (Specified Bank Notes) has since been completed at all centres of the Reserve Bank. The total SBNs returned from circulation is Rs15,310.73 billion,” the RBI declared in its report.
Sounds of displeasure are now emerging from the government’s own quarters: BJP’s ally in NDA, Shiv Sena has now criticised demonetisation. The Sena said that the note ban caused immense losses to the economy, affected the industry, caused the rupee to fall to its lowest level since Independence and made over a hundred people lose their lives, yet the country’s rulers are boasting about development.
“Since demonetisation plunged the country into a financial anarchy, what penance will Prime Minister Narendra Modi undertake to keep his promise to the country? The note-ban exercise was carried out to gain popularity,” the Sena said in an editorial in the party mouthpiece ‘Saamana’.
Post-demonetisation, RBI spent Rs 7,965 crore in 2016-17 on printing new Rs 500 and Rs 2,000 and other new denomination notes, which was more than double the Rs 3,421 crore spent in the previous year. In 2017-18 (July 2017 to June 2018), it spent another Rs 4,912 crore on printing of currency, the annual report said.
Now, since the final RBI Report is out, let us check some of the other claims made by the government during the imposition of notebandi.
According to RBI, just 58 crore ‘fake currency’ notes have been identified, which is a mere 0.0038% of all banned cash. (Reported by NDTV in their Reality Check)
Despite RBI claims that the newly introduced bills are more secure, currency counterfeiters seem to have found a way around it and we should brace ourselves for more fake note discoveries, an SBI report said on Aug 29.
“The promise of RBI that new currency notes of Rs 200 and Rs 500 (post demonetisation) are more secure and less prone to counterfeit is not entirely correct,” SBI’s house economists said in a report released after the RBI came out with its annual report. It said that there is a “noticeable increase” in counterfeit notes detected in the denomination of new Rs 500 (up by 4,178 % ) and Rs 2,000 (by 2,710 %), as per data shared in the annual report.
If there was any doubt about the failure of demonetisation in terms of one of its key purposes – to push India towards a cashless or less-cash economy – the latest RBI data lays it to rest. According to the apex bank, currency with the public (CwP) has reached a record high of over Rs 18.5 lakh crore, more than double the low of about Rs 7.8 lakh crore it had hit post-demonetisation in late 2016. At the same time, the total currency put in circulation by the RBI has also jumped about 44% to Rs 19.3 lakh crore in the same period.
The figures for both ‘currency with the public’ and ‘currency in circulation’ have also exceeded the levels seen before the government’s demonetisation decision on November 8, 2016, that saw nearly 86% of the currency in circulation at that time being invalidated overnight by scrapping the then Rs 500/1,000 banknotes.
The first million dollar question which arises is whether this 99.3% of the money which has returned to the system has become white? Who is ultimately responsible for the deaths of the above mentioned 100 people during Notebandi? Why the same government which earlier claimed demonetisation as an attack on ‘black money’ is now changing goalposts? Was the arrest of human rights activists and social workers on alleged maoist links a distraction from the debate on the core issue of demonetisation?
Also, why is the majority of mainstream media refraining from a detailed discussion on Demonetisation? Why are no pertinent and hard-hitting questions being asked about it? And lastly, but most importantly, the deafening silence of the Prime Minister on this entire issue is very strange as he was at the centre-stage of this entire exercise, as he himself announced the invalidation of Rs. 500 & Rs.1000 currency notes in November 2016.