A year after demonetisation was announced, it is quite clear that the long-term benefits notwithstanding, in the near-term, the misses far outmanoeuvred the hits. In the immediate aftermath of November 8, 2016, nearly 200 people lost their lives across India for reasons that were easily avoidable if only the government had the level of preparedness that such a gargantuan task demanded. Here are some of the reasons why many have termed the whole exercise a ‘misadventure’ at best and an economic hara-kiri at worst.
1. Banned tender back into banking pool: One of the most prominently stated objectives of demonetisation was to ensure that hoarders of ill-gotten gains (read black money) would be taken to task through this financial blitzkrieg of sorts. However, according to data released recently by the Reserve Bank of India (RBI), 99 per cent of banned tender of 500 and 1,000 rupees have made its way back to the banking pool by way of deposits! According to the RBI, Rs15.28 lakh crore in 500 and 1,000-rupee notes came back to banks, out of a total of Rs15.44 lakh crore that was in circulation.
2. Cash is still king: One of the major reasons in support of demonetisation was that with it, people would be encouraged to rely less on cash and take electronic payment options to heart. However, as the dust settled on the initial euphoria over e-payments, cash is back in vogue. In fact, in rural and semi-urban areas, cash was never truly out of the system – even with notebandi (ban on notes). To site just one case in point: There are 880 million debit cards in India, but there aren’t enough point of sales (POS) terminals to swipe them. The result: Currently, digital payments comprise just 5 per cent of all transactions.
3. Rise in money-printing bill: What an irony! In an attempt to boost cashless transactions, the RBI ended up with a huge bill for printing new currency notes of 500 and 2,000 rupees! As a result of the entire process of demonetisation and remonetisation, the cost of printing new currency notes has gone up by a whopping 133 per cent in the last one year.
4. Battle against counterfeiting comes a cropper: According to National Investigation Agency estimates, prior to demonetisation, the total value of counterfeit 500 and 1,000-rupee notes in circulation was about Rs4 billion. This comprised a minuscule 0.028 per cent of the total currency in circulation in India. Post-demonetisation, of all the returned 1,000-rupee notes, only 0.0007 per cent was found to be counterfeit, while of all the 500-rupee notes that came back to banks, only 0.002 were counterfeit.
5. GDP growth on a slippery plank: In the first quarter after demonetisation was announced, India’s gross domestic product (GDP) growth rate fell to 6.1 per cent, from 7.9 per cent for the same period in the previous year. From April-June, the GDP growth rate declined further to 5.7 per cent, from 7.1 per cent during the corresponding period in the previous year. Along with demonetisation, introduction of goods and services tax (GST) has turned out to be a further dampener for trade and enterprise.
-- Sanjib Kumar Das / Senior Pages Editor
