The DeMo question that will continue to haunt the government for a long time

Demonetisation, the signature project of prime minister Narendra Modi has come a cropper. Much-trumpeted demonetisation of high value currency in last November has not yielded any black money, given that over 99 per cent of old notes have been deposited in the banks. Every other spin being given to the exercise is nothing but semantics.

Old currency notes valued at Rs 15.28 lakh crore have been deposited in banks as against Rs 15.44 lakh crore that was in circulation, if one were to go by the RBI annual report. This demolishes initial claims of the government that demonetisation has struck black money, terror funding and counterfeit peddlers a big blow. While no worthwhile black money got extinguished during the entire exercise, the cost of printing new currency, concomitant economic disruptions, pain and suffering endured by the common man far outweigh the benefits.

What the government yielded immediately was a minuscule Rs 16,000 crore in terms of value attached to extinguished notes. This was not what perhaps the Modi government and RBI expected to achieve through this tortuous exercise. There may even be an element of truth in the suggestion from some quarters that demonetisation was effectively utilised by black money hoarders to push currency in their private vaults into the banking system and thereby legalise the tender.

In the face of startling RBI revelations, Modi government and finance minister Arun Jaitley have still put up a brave front. The spin given to the demonetisation was strikingly different. Integration of formal and informal cash economy coupled with increasing digitisation apart from a huge jump in tax revenues have been cited as big positives. May be it is true that all this has happened but was it worth it? This question will continue to haunt the BJP-led NDA government not only now, but later in Parliament and outside in the political narrative.

Already, the first political salvo has been fired with the Congress seeking an apology to the nation. Former finance minister P Chidambaram has gone to the extent of blaming RBI for the wrong advice to government on demonetisation. There’s no way that BJP, its alliance partners in NDA and the Modi government can justify demonetisation while nothing worthwhile has been achieved. Several outfits in the Sangh Parivar also have had reservations on demonetisation that led to huge job losses especially in rural and informal economy. This again cannot be denied.

None can also deny the fact that the economic growth continues to be muted given that the GDP growth moderated to 5.7 per cent in April-June 2017 from 6.9 per cent in the fourth quarter of last financial year, a large part of it attributed to after shocks of demonetisation.

Modi and Jaitley may or may not agree, but former prime minister Manmohan Singh’s prediction of about two per cent GDP loss due to demonetisation may come true. Going forward, government will be able to recover the lost ground only if the data mining is quickly done and black money hoarders and tax evaders are rounded up swiftly. For instance, quickly resolving the 18 lakh suspect cases of cash transactions may be a face saver for the government. Investigations into over 14,000 property owners with over Rs 1 crore worth immovable assets who have still dodged the tax authorities thus far will have to be concluded early. Going after benami properties is yet another area where a lot could still be achieved and the political discourse reversed to the ruling alliance’s advantage.

While correcting the public perception was very important before the Lok Sabha elections, better understanding between RBI and government on key issues like demonetisation will have to be achieved.

Demonetisation, the signature project of prime minister Narendra Modi has come a cropper. Much-trumpeted demonetisation of high value currency in last November has not yielded any black money, given that over 99 per cent of old notes have been deposited in the banks. Every other spin being given to the exercise is nothing but semantics.

Old currency notes valued at Rs 15.28 lakh crore have been deposited in banks as against Rs 15.44 lakh crore that was in circulation, if one were to go by the RBI annual report. This demolishes initial claims of the government that demonetisation has struck black money, terror funding and counterfeit peddlers a big blow. While no worthwhile black money got extinguished during the entire exercise, the cost of printing new currency, concomitant economic disruptions, pain and suffering endured by the common man far outweigh the benefits.

What the government yielded immediately was a minuscule Rs 16,000 crore in terms of value attached to extinguished notes. This was not what perhaps the Modi government and RBI expected to achieve through this tortuous exercise. There may even be an element of truth in the suggestion from some quarters that demonetisation was effectively utilised by black money hoarders to push currency in their private vaults into the banking system and thereby legalise the tender.

In the face of startling RBI revelations, Modi government and finance minister Arun Jaitley have still put up a brave front. The spin given to the demonetisation was strikingly different. Integration of formal and informal cash economy coupled with increasing digitisation apart from a huge jump in tax revenues have been cited as big positives. May be it is true that all this has happened but was it worth it? This question will continue to haunt the BJP-led NDA government not only now, but later in Parliament and outside in the political narrative.

Already, the first political salvo has been fired with the Congress seeking an apology to the nation. Former finance minister P Chidambaram has gone to the extent of blaming RBI for the wrong advice to government on demonetisation. There’s no way that BJP, its alliance partners in NDA and the Modi government can justify demonetisation while nothing worthwhile has been achieved. Several outfits in the Sangh Parivar also have had reservations on demonetisation that led to huge job losses especially in rural and informal economy. This again cannot be denied.

None can also deny the fact that the economic growth continues to be muted given that the GDP growth moderated to 5.7 per cent in April-June 2017 from 6.9 per cent in the fourth quarter of last financial year, a large part of it attributed to after shocks of demonetisation.

Modi and Jaitley may or may not agree, but former prime minister Manmohan Singh’s prediction of about two per cent GDP loss due to demonetisation may come true. Going forward, government will be able to recover the lost ground only if the data mining is quickly done and black money hoarders and tax evaders are rounded up swiftly. For instance, quickly resolving the 18 lakh suspect cases of cash transactions may be a face saver for the government. Investigations into over 14,000 property owners with over Rs 1 crore worth immovable assets who have still dodged the tax authorities thus far will have to be concluded early. Going after benami properties is yet another area where a lot could still be achieved and the political discourse reversed to the ruling alliance’s advantage.

While correcting the public perception was very important before the Lok Sabha elections, better understanding between RBI and government on key issues like demonetisation will have to be achieved.