Throughout the 50-day demonetization exercise and beyond that, the opposition parties in India have been bent on pillorying Narendra Modi on how the decision was thoughtless, how the cost-benefit comparison of the same was unfavorable for the country, and how millions of jobs would be lost and businesses would wind up.
In the face of relentless attacks from multiple quarters, Modi was determined to stick to the decision, on the support of millions of Indians who were willing to stand by him and take on the temporary hardship, in the hope that the PM would succeed in stopping corruption from occurring in the country.
Different statements from the RBI, different estimates of unemployment from CMIE and NSSO, and the reduction in GDP growth rate served to give the opposing parties a heavy amount of ammunition against the Central government, with the harshest criticism reserved for over 100 people who allegedly died as a result of the demonetization.
The old Rs. 500 and Rs. 1000 notes are all but a memory in the general public mind today, as fresh, newly designed Rs. 500 and Rs. 2000 notes had been issued and have been in circulation for over two years now. But the political debate over the exercise continues to flare up, and no discussion on the current Indian scenario is complete without at least a cursory consideration of demonetization. What then has been the impact of demonetization? Has it been as bad as the opposition makes it out to be? Let’s analyze it considering different aspects.
Derek O’Brien, a TMC MP, tweeted a list of 105 people who died, as alleged by him (and the Opposition) due to demonetization.
— Derek O'Brien | ডেরেক ও’ব্রায়েন (@derekobrienmp) December 22, 2016
The list can also be accessed on the link. Now a person’s death is a tragic occurrence, and I hope all the souls of persons mentioned attain sadgati. However, in order to analyze how their deaths were related to demonetization, I made an Excel sheet, from which we can have some rudimentary analysis.
In 2016, the death rate in India was 7.31 per 1000 persons and the population of India in 2016 was 1,324,171,354 i.e the total deaths that would have occurred in India in 2016 would be approximately 9,979,693. The demonetization deaths would then account for 0.0011% or 11 in every million deaths in India in 2016. For comparison, in the year 2016, a total of 150,785 died in road accidents. On an average, in 50 days of 2016, this would translate to(50*150785/366) i.e 20,599. Thus, statistically speaking, on a pan-India level, road travel was 195 times more fatal than demonetization in the year 2016.
Now let us look at the details of the deaths:
If you look at this list of persons reported to have died in bank queues, you would see that a majority of them are senior citizens, with several of them even above the age of 70. How sure can we be, that such persons died explicitly due to standing in queues?
Heart disease has contributed to 28.1% of deaths in 2016 i.e 2,804,294 deaths. 13 deaths among the 105 are confirmed to be due to heart attacks, but let us for the sake of consideration assume that the deaths that occurred due to standing in queues in banks were also heart attacks. Then we have a total of 70 heart attack deaths among 105. This number would be 0.0025% of all heart disease-related deaths in 2016.
The above cases are suicide-related ones. Now, most people who are mentally strong would not commit suicide at the first instance of distress. How sure can we be, that these persons were not already reeling under mental stress, and the demonetization acted as a trigger to their actions?
Among the ‘demonetization deaths’ one is because a father believed he would not be able to pay dowry for his daughter’s marriage (highly illegal), one was a murder. Six were cases where private hospitals did not accept old notes – had the people approached government hospitals, where old notes were allowed until November 24, those lives would have been saved. Among the persons who died whose ages are known, 28 persons were aged 60 and above among which 19 were aged 70 and above.
By referring to https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG I have plotted the following graph:
As you can see in the above graph, the growth rate of the Indian economy has always been more than the world, the US, and China for the years in consideration, except in 2017 (a year after demonetization), when it was marginally lower than that of China. One must, however, remember, that even in 2017, India was an expanding and not a shrinking economy, and it was expanding much faster than the global GDP growth rate and was, in fact, one of the fastest growing comparatively-sized economies, and as of today, continues to be so. Clearly then, the allegation that demonetization dealt a great deal of harm to the Indian economy is unfounded.
The next problem is of millions of job losses which NSSO and CMIE have been estimating. In this article, I have already described how specious the estimations are. Readers with an inclination to statistics may also read up more here.
The link provides an example of the type of businesses that are claimed to have shut down. It is articles such as these that are cited to suggest how the sudden shortage of cash availability led to small businesses shutting down. However, the last paragraph of the article is perhaps its most important part, which I am reproducing here:
The disruptions, however, have not affected a few registered companies trading in the leather business. These continue to thrive because they are able to produce receipts of all transactions, whether it is the procurement of raw material or sale of finished goods. Wahaj Khan, the owner of Wahaj Khan and Sons Leather Goods, said, “Our business has not been affected by GST or demonetization as it is registered and I pay taxes.”
The implications of this are the following:
Naturally then, businesses which aspired to survive had to formalize themselves, and there certainly was a major pull towards the same. But now we look at two interesting aspects. First, the RBI has in a report made a statement that cash in circulation on March 15, 2019 is 19.1% more than what it was on the day demonetization was announced. On the other hand, digital payments have grown by 440% since demonetization and readers may read on the same in more detail on this link.
The inference that we can draw from this is that if purely cash-based sectors actually did feel the brunt of cash-shortage due to demonetization, as of today, not only would they have fully recovered from the shock, but also would have built on top of the pre-demonetization levels. And if both cash-based and digital transactions are at an all-time high and growing, it certainly indicates a higher-than-ever level of economic activity happening in the country.
This is clearly reflected if we analyze the performance of two cash-intensive sectors, namely logistics and retail (especially unorganized retail). As seen through these articles, the Indian logistics sector is poised to grow at a CAGR of 8-10% and the unorganized retail sector has been growing at a CAGR of 10% , a rate it maintained even in 2017. Even the real estate sector, which temporarily witnessed a slump due to a shortage of cash, is poised to benefit due to demonetization in the medium and long-term.
A suicide in Pakistan by a certain Mr. Javed Khanani would prove to be indicative of the success of demonetization. Javed Khanani used to run a press that would print Fake Indian Currency notes, and considering the objective of the exercise, most of the notes would be high denomination notes. Now when demonetization rendered a vast chunk of these notes, volume-wise, and value-wise, as worthless bits of paper, clearly the effort of several years to pump in counterfeit currency in India was overnight rendered fruitless. This article sheds more light on how the prevalence of fake currency has immensely reduced due to demonetization. In addition, post the demonetization exercise, the government has been able to identify 2.24 lakh shell companies, and of these, around 35000 shell companies which witnessed a total of Rs 17000 crore in withdrawals are currently being investigated.
It would be foolish to claim that demonetization was able to achieve a high level of deterrence against black money. However, the claim that demonetization has been a total failure, with negative consequences for the economy, is at best under-informed, and at worse, as we see from the leanings of most persons making the claims, a deliberately lop-sided and biased claim.