Today, November 8, 2018, the second anniversary of demonetization. What do you think, Two Years On, Whether Demonetization was a Boon or a Bane? Let’s have a look at what has happened so far, after two years of demonetization.
Two Years On, Whether Demonetization was a Boon or a Bane?
Demonetization has to be assessed on two aspects: whether it was economically or politically successful? The outcome of this assessment will give a clear answer to the question, Two Years On, Whether Demonetization was a Boon or a Bane?
Before starting the assessment of demonetization, let’s recall the aim of demonetization.
The aim of Demonetization:
On the eve of November 8, 2016, while announcing the demonetization of INR 500 & INR 1000 Currency notes, the Indian Prime Minister mentioned the aim of demonetization. In his announcement, he said that demonetization aims:
- to curb black money,
- weed out fake notes, and
- outlaw terror funding.
Did the aim of the demonetization meet?
Could we really achieve this with Demonetization?
If you see, after two years of demonetization, none of those aims has fulfilled. In fact, much more cash is in the circulation today than 2016. So, two years on, demonetization doesn’t seem to be a boon yet. Now, further, let’s assess the demonetization: whether it was economically or politically successful?
Demonetization: whether it was economically or politically successful?
Economic Aspect of Demonetization:
The Negative Aspect:
The instant economic impact of demonetization was almost negative. Prime Minister Modi said that any short-term negatives were the hardships that were undertaken while cash in the system was brought back in.
Former Finance Minister P Chidambaram said “Over 100 lives were lost. 15 crore daily wage earners lost their livelihood for several weeks. Thousands of SME units were shut down. Lakhs of jobs were destroyed”. The country paid a huge cost for demonetization.
As per his analysis, the Indian economy had lost 1.5% of GDP in terms of growth. Lately, he tweeted, “That alone was a loss of Rs 2.25 lakh crore a year”.
Reserve Bank of India (RBI) says it had received INR 15.31 lakh crores of INR 500 and INR 1,000 notes, or 99.3% of the Rs 15.417 lakh crores worth of notes which were in circulation as on November 8, 2016.
This means just INR 10,720 crore of INR 500 and INR 1,000 notes failed to come back to the RBI, as against government expectations that well over INR 3.00 lakh crores of black money would not return to the banking system.
Not only this but, as per an analysis of RBI’s report, the central bank spent nearly INR 13,000 crores was spent in the span of two years to remonetize the economy. This, in turn, definitely had an impact on RBI’s profit. As a result, RBI paid a lower dividend to the government. The amount which RBI paid to the government in 2016-17 is almost half of the amount it had paid in 2015-16. In 2015-2016, INR 65,876 crores whereas in 2016-17, it is INR 30,659 crores.
The Positive Aspect:
The Economists believe that the cash ban led to the following benefits:
- increasing financialization of savings,
- more income-tax compliance, and
- drove India towards becoming a more cashless economy.
The number of people filing income tax is increasing from 2.24 crores during the same period of 2017-18 to 3.43 crores as on July 31, 2018.
A report says, counterfeit notes came down to 31.4% after demonetization. In 2016-17, there were 7.62 lakh pieces of fake notes, which came down to 5.23 lakhs in 2017-18.
The government claims that the demonetization helped the government find out fake companies. The BJP spokesperson Sambit Patra says 5.00 lakh companies were shut down, thanks to demonetization.
The World Bank says that India was projected to grow by 7.3% in 2018 and 7.5% in 2019, which means Indian economy is recovering from the temporary disruptions caused by demonetization and the introduction of the GST.
Political Aspect of Demonetization:
The Negative Aspect:
Demonetisation is being seen through the political spectacles as well. Since the demonetization was announced months before the assembly elections in Uttar Pradesh, therefore, it was also seen as a clear political goal to present PM Modi’s image as an anti-corruption reformer.
For some analysts, it was a move to drain out opposition parties’ cash chest right before the crucial elections in UP. Whatever be the intention, the elections saw the BJP sweep the state with a huge victory.
Surveys of public opinion: Whether Demonetization was a Boon or a Bane?
In a survey by LocalCircles, more than 50% Indian Citizens think that the government could not uproot the black money as targeted by the government on the eve of November 8, 2016. Hence, black money still exists in the country. 60% of the 15,000 participants in the survey said that black money has not conquered and will surely increase ahead of 2019 general elections.
As of now, there are no answers to whether demonetization was a boon or a bane. Possibly, the 2019 general elections will conclude the debate.