Demonetisation’s outcome continues to divide economists and politicians

One would clearly agree with former Prime Minister Manmohan Singh that ‘demonetising high value currency notes’ two years back was definitely an unconventional economic decision taken by the Modi government. There may not be many who tend to differ with the renowned economist-turned-politician in Singh when he says that demonetisation led to a steep drop in headline GDP growth. For a moment, let us go by the Congress argument that demonetisation was ill-thought and ill-fated as well. The Congress party may be perfectly right to claim that there was no tangible benefit from demonetisation as the entire 86 per cent of liquid cash got deposited into the system.

The central idea beh­i­nd prime minister Mo­di’s move to crack the whip may have got defeated owing to machinations of vested interests and obvious weak links in the system. But, it does not mean that Modi and his team should not have tried out unconventional methods to round up the monsters in the economy. On the other hand they should concede that demonetisation might not have had the desired results in whipping the liquid black money hoarders. Finance Minister Arun Jaitley argued that confiscating illegitimate cash was not the sole reason behind demonetisation but the fact remains that it did not net the black money hoarders. Besides, shifting the goal post for demonetisation may not do any good whatsoever. Job losses and the impact on rural economy were felt big time for two consequent quarters.

On the other hand, Manmohan Singh may have to also reconcile to the reality that demonetisation did not bring down the GDP growth by two per cent as projected by him. No doubt that growth was hit and moderated to 6.8 per cent in the worst performance quarter last fiscal, but that is not same as what Singh claimed.

How do we also ignore the positives demonetisation brought in notwithstanding Congress-led offensive? How can one set aside the significant shift from cash-driven to formalisation of the economy that happened post-demonetisation? Enormous data mining that continues to net big fish is direct fallout from the exercise. Big offenders that got off the hook easily before were identified as a result of data analytics deployed intelligently by sleuths from income tax, enforcement directorate and the economic offences wings.

About 20 per cent increase in personal income tax and corporate taxes during March – September 2018 could be attributed in part to demonetisation and buoyancy in revenues equanimously. This growth is huge given the six and eight per cent increase in income tax and corporate tax revenues seen till October 2016. Filing of tax returns also bulged exponentially to 6.8 crore as against 3.8 crore in 2016-17. The finance minister is right when he says that the huge increase in direct taxes revenues were notwithstanding Rs 97,000 crore relief allowed annually to small tax payers, Rs 84,000 crore cut in taxes for assesses under goods and services tax (GST).

The success or failure of demonetisation needs to be done on scientific parameters based on hard facts rather than narrow political considerations of either the ruling NDA or the opposition parties out to corner the treasury benches.