It is two years to one of the most dreaded days India has ever seen. In a predominantly paper currency based economy, pulling out the most used currency notes and making them invalid in a single stroke can only be defined as outrageous and outlandish. What the Modi government did in the name of demonetisation defies the basics of economics.
The terrible mistake the government made was to unleash demonetisation as a “surgical strike” on ordinary people in the name of chasing black money hoarders. There is a saying in Kerala – that the ones who know how to steal, should also know how to escape from getting caught. Black money hoarders are not petty small time thieves. They are seasoned professionals who know very well what to do with the hoarded money; the ones who can stash away huge amounts of accumulated cash and move it all to foreign countries – which is even happening right now as I write this article. Local businessmen and traders hoard money by manipulating their taxes among other means. Demonetisation was supposed to be a top-secret operation, but in a country like India with corruption at every level of the society, can a government operation be a secret?
The big sharks got the information in advance, and they disposed of their black money before, and in the initial days after demonetisation was implemented. What mainly happened was that the government got back almost all the 500 and 1000 rupee notes in circulation – which was the crippling blow to their narrative on demonetisation. They tried to divert people’s attention to supposedly other benefits of demonetisation such as digitisation of the economy and ending the funding for terrorism in J&K, but every explanation got debunked. As both the usage of paper currency and terrorist activities are unlikely to be affected by demonetisation. Here is the list of all the supposed objectives that the government used during their ever-changing narrative about demonetisation, but none of these has been achieved:
The real purpose of demonetisation seemed to be far more than merely targeting black money. NPAs (Non-Performing Assets) had mounted to the point where banks had almost run out of money. To get some sense of control of the situation, RBI was even merging banks. The idea was to take back all the high currency notes from the people and fill up the coffers of the banks. The recovered black money could be used to write off many of the corporate NPAs and release new loans to them.
The fact is that the people were not prepared to absorb the aftershocks of such an offensive on the country’s economy. Everyone was forced to rush to banks and exchange their 500 and 1000 rupee notes with the new 2000 rupee notes. RBI had to take the onus to meet the exploding demand for 2000 rupee notes. Moreover, the new note was a different size from the old 500 and 1000 rupee notes, so all ATMs had to be calibrated to dispense the new notes. Banks ran out of the 2000 rupee notes several times. The situation was so grave that people were not able to withdraw their own money from their bank accounts even for emergencies. I really don’t understand how people accepted the black money narrative and quietly changed the currency notes in their possession – without questioning the logic of its implementation.
There is a good reason why the demonetisation initiative failed. Hardly any black money was recovered. After all the 500 and 1000 rupee notes in circulation returned to the banks, the government had to repay all the collected money from people in the form of new 2000 rupee notes. To top this off, the government had to also bear the massive additional cost of printing the new notes and calibrating ATMs all over the country. What’s more baffling is that after the government demonetised the existing high-value currency notes, why would it release an even higher currency note?
When I was in the UK, I used to get 5, 10, 20 and 50-pound notes from ATMs. For 100 pound notes, people have to go to the banks and state their purpose for using them. This has been the practice there for several years now. Demonetisation can be done in a phased manner, but no economist would recommend doing it the way it was implemented in India.
Now that the government has asked the RBI for a third of its cash reserve to be used for revitalising banks, the demonetisation demon has started haunting it again. What is the purpose of such a drastic move is what everyone is asking. Is it to offset the losses the government incurred during demonetisation? Invigorating banks could lead to writing off bad corporate NPAs, and additionally, they could even get more loans which could help BJP get funding from the corporate for the elections. Ordinary people who suffered the most because of demonetisation will get no benefit from such a move. Despite all attempts at showing flattering economic numbers, ground reality has been the extreme opposite.
The value of Rupee went on a free-fall before it has hit some ground, fuel prices skyrocketed and along with it the cost of essential commodities. The government injected the next paralytic dose: GST to add to the woes – before the economy could absorb the shock of demonetisation. While the government could claim that tax collection has increased after implementing GST, the reality of the twin blows can be starkly observed in business establishments. Restaurants, shops and malls that were booming with business for a very long time have mostly fallen silent. The expressions on the faces of waiters and salespersons say it all. Any day could be their last day at work without the hope of getting another job.
Farmers were dumping their produce such as tomatoes and onions because they were not even able to sell at Re.1/kg. Real estate business has come to a standstill. The government’s push for digitisation in the middle of this economic crisis is killing off the business opportunities of roadside vendors, and small and medium enterprises (SMEs), and the government has no answer to how they will survive once they have to shut their shops.
From a personal perspective, the last two years have been horrendous for my parents and me. I was forced to move out of my job at that time and was attending interviews when demonetisation struck us. I stopped getting interview calls and never got any after that. For an educational loan default, the bank almost evicted us from our house. We had to sell it at a throwaway price in a distress sale and escape from the clutches of the bank. Banks, on the other hand, are desperately trying to offset their mounting corporate NPAs by squeezing out every penny from their ordinary borrowers. What is worse is, banks are more interested in acquiring the collateral given for the loans than the repayment of loans.
To reduce NPAs in educational loans, the loan repayment scheme has been restructured to help ease the burden on the borrowers after taking into account their plight. But unfortunately, existing borrowers were not given the benefit of the scheme. When I approached the bank questioning the spirit of the new scheme and requested to avail the extension in the repayment period since I was not a willful defaulter, the bank redirected me to approach the High Court. The loan scheme document belongs to the Indian Banks Association (IBA) with recommendations from RBI, so I had to petition the Government of India, RBI and IBA along with the bank. The judge was baffled with my request. The bank’s lawyer also had nothing to oppose the case, so they kept on delaying the verdict for more than a month.
Then representations came from the Ministry of Finance and RBI to not give us any more time for repayment. Their brazenness could be seen from the fact that even though the case was in the High Court, the bank authorities came home with an eviction notice from the district judicial magistrate and that too without a date on the notice. The High Court judge seems to have been given no choice but to dispose of the case, and we were given one week to vacate our house. The bank’s authorities even told us that they were proceeding to evict us because they did not want to give us time to pursue the case anymore. It was the vindication of my eligibility to get the extended period.
Maybe it was divine intervention that we found a buyer in the nick of time, and we could do OTS (one-time settlement) with the bank. When the government and judiciary treat it’s own citizens and aged people in this way, what can illegal immigrants expect from such a system? The banks can now use the verdict of my case to deny anyone else who approaches them with similar requests in the future. We hear about multi-crore scams almost every day now, and while the government is freely allowing the perpetrators of the scams to escape the country, it is preying on and baying for the blood of people who vote for them.
Demonetisation has widened the rift between the haves and have-nots. Only the haves have benefited and the ones in the position of authority and power have become richer. Digitisation has largely benefited the big players in the market. Arun Jaitley recently stated that confiscating people’s money was not the objective of demonetisation. That’s precisely what they did, but that was not all. They hijacked people’s lives by bringing the economy of the country to a grinding halt. It has become abundantly clear that the government has no clue how to get out of the rut they have created. To compound their misery, general elections are upon them next year. They came to power in 2014 on the plank of growth and development, but after their abysmal performance, they have no agenda this time which is why they are firing up the Ayodhya and Sabarimala issues to polarise votes on religious lines.
Demonetisation will remain etched in the dark pages of Indian history just like the Emergency. There is no doubt that history will question and ridicule this government for the sufferings it brought upon the people.