This lesson from history is quite well known:
Muhammad bin Tughlaq thought that may be if he could find an alternative currency, he could save some money. So he replaced the Gold and Silver coins with copper currency. Local goldsmiths started manufacturing these coins and which led to a loss of a huge sum of money to the court. He had to take his orders back and reissue Gold/Silver coins against those copper coins. This counter decision was far more devastating as people exchanged all their fake currency and emptied royal treasure.
And nothing seems to have changed ideatically even after close to 800 years since, when another bold and bald move or rather a balderdash move by the Prime Minister of India Narendra Modi launched his version of the lunacy. Throw in Demonetization and flush out black money. Well, that was the reason promulgated along with a host of other nationalistic-sounding derivatives like curbing terror funding, expanding the tax net, open to embracing digital economy and making the banking system more foolproof by introducing banking accounts for the millions hitherto devoid of any. But, financial analysts and economists of the left of the political spectrum saw this as brazen porto-fascistic move, when they almost unanimously faulted the government for not really understanding the essence of black money. These voices of sanity were chased off the net, and chided in person and at fora by paid trolls of the ruling dispensation, who incidentally were as clueless about it as about their existence. Though, some other motives of demonetization were smuggled in in feeble voices but weren’t really paid any heed to for they would have sounded the economic disaster even back then. And these are the contraband that could give some credibility to the whole exercise even though it has turned the world’s fastest-growing emerging economy (God knows how it even reached that pinnacle, but, so be it!) into a laughing stock of a democratically-elected dictatorial regime. What is the credibility talked about here? It was all about smashing the informal economy (which until the announcement of November 8 contributed to 40% of the GDP and had a workforce bordering on 90% of the entire economy) to smithereens and sucking it into the formal channel through getting banking accounts formalized. Yes, this is a positive in the most negative sense, and even today the government and whatever voices emanate from Delhi refuse to consider it as a numero uno aim.
Fast forward by 3 (period of trauma) + 8 (periods of post-trauma) months and the cat is out of the bag slapping the government for its hubris. But a spectacular failure it has turned out to be. The government has refused to reveal the details of how much money in banned notes was deposited back with the RBI although 8 months have passed since the window of exchange closed in January this year. Despite repeated questioning in Parliament, Supreme Court and through RTIs, the govt. and RBI has doggedly maintained that old banned notes were still being counted. In June this year, finance minister Arun Jaitley claimed that each note was being checked whether it was counterfeit and that the process would take “a long time”. The whole country had seen through these lies because how can it take 8 months to count the notes. Obviously there was some hanky panky going on. Despite statutory responsibility to release data related to currency in circulation and its accounts, the RBI too was not doing so for this period. They were under instructions to fiddle around and not reveal the truth. Consider the statistics next:
As on November 8, 2016, there were 1716.5 crore piece of Rs. 500 and 685.8 crore pieces of Rs. 1000 circulating the economy totaling Rs. 15.44 lakh crore. The Reserve Bank of India (RESERVE BANK OF INDIA ANNUAL REPORT 2016-17), which for a time as long as Urjit Patel runs the show has been criticized for surrendering the autonomy of the Central Bank to the whims and fancies of PM-run circus finally revealed that 99% of the junked notes (500 + 1000) have returned to the banking system. This revelation has begun to ricochet the corridors of power with severe criticisms of the government’s move to flush out black money and arrest corruption. When the RBI finally gave the figures through its annual report for 2016-17, it disclosed that Rs. 15.28 lakh crore of junked currency had formally entered the banking system through deposits, thus leaving out a difference of a mere (yes, a ‘mere’ in this case) Rs. 16,050 crore unaccounted for money. Following through with more statistics, post-demonetization, the RBI spent Rs. 7,965 crore in 2016-17 on printing new Rs. 500 and Rs. 2000 notes in addition to other denominations, which is more than double the Rs. 3,421 crore spent on printing new notes in the previous year. Demonetization, that was hailed as a step has proved to be complete damp squib as the RBI said that just 7.1 pieces of Rs. 500 per million in circulation and 19.1 pieces of Rs. 1000 per million in circulation were discovered to be fake further implying that if demonetization was also to flush pout counterfeit currency from the system, this hypothesis too failed miserably.
Opposition was quick to seize on the data with the former Finance minister P Chidambaram tweeting:
He further lamented that with 99% of the currency exchanged, was demonetization a scheme designed to convert black money to white? Naresh Agarwal of Samajwadi Party said his party would move privilege motion against Urjit Patel for misleading a Parliamentary Panel on the issue.
But, what of the immense collateral damage that the exercise caused? And why is the government still so shameless in protecting a lunacy? Finance Minister Arun Jaitley on asserted that any attempt to measure the success of the government’s demonetization exercise on the basis of the amount of money that stayed out of the system was flawed since the confiscation of money had not been the objective. He maintained that the government had met its principal objectives of reducing the reliance on cash in the economy, expanding the tax base and pushing digitisation. Holy Shit! And he along with his comrades is selling and marketing this crap and sadly the majority would even buy into this. Let us hear him out on the official position:
Denying that demonetisation failed to achieve its objectives, Finance Minister Arun Jaitley said the measure had succeeded in reducing cash in the economy, increasing digitisation, expanding the tax base, checking black money and in moving towards integrating the informal economy with the formal one. “The objective of demonetisation was that India is a high-cash economy and that scenario needs to be altered,” Jaitley told following the release of the Reserve Bank of India’s (RBI) annual report for the last fiscal giving the figures, for the first time, of demonetised notes returned to the system. The RBI said that of the Rs 15.44 lakh crore of notes taken out of circulation by the demonetisation of Rs 500 and Rs 1,000 notes last November, Rs 15.28 lakh crore, or almost 99 per cent, had returned to the system by way of deposits by the public.”The other objectives of demonetisation were to combat black money and expand the tax base. Post demonetisation, tariff tax base has increased substantially. Personal IT returns have increased by 25 per cent,” the Finance Minister said. “Those dealing in cash currency have now been forced to deposit these in banks, the money has got identified with a particular owner,” he said. “Expanding of the indirect tax base is evident from the results of the GST collections, which shows more and more transactions taking place within the system,” he added. Jaitley said the government has collected Rs 92,283 crore as Goods and Services Tax (GST) revenue for the first month of its roll-out, exceeding the target, while 21.19 lakh taxpayers are yet to file returns. Thus, the July collections target have been met with only 64 per cent of compliance. “The next object of demonetisation is that digitisation must expand, which climaxed during demonetisation and we are trying to sustain that momentum even after remonetisation is completed. Our aim was that the quantum of cash must come down,” Jaitley said. He noted in this regard that RBI reports that the volume of cash transactions had reduced by 17 per cent post-demonetisation. A Finance Ministry reaction to the RBI report said a significant portion of the scrapped notes deposited “could possibly be representing unexplained/black money”. “Accordingly, ‘Operation Clean Money’ was launched on 31st January 2017. Scrutiny of about 18 lakh accounts, prima facie, did not appear to be in line with their tax profile. These were identified and have been approached through email/sms. “Jaitley slammed his predecessor P. Chidambaram for his criticism of the note ban, saying those who had not taken a single step against black money were trying to confuse the objectives of the exercise with the amount of currency that came back into the system. The Finance Ministry said transactions of more than three lakh registered companies are being scrutinised, while one lakh companies have been “struck off the list”. “The government has already identified more than 37,000 shell companies which were engaged in hiding black money and hawala transactions. The Income-tax Directorates of Investigation have identified more than 400 benami transactions up to May 23, 2017, and the market value of properties under attachment is more than Rs 600 crore,” it said. “The integration of the informal with the formal economy was one of the principle objectives of demonetisation,” Jaitley said. He also said that demonetisation had dealt a body blow to terrorist and Maoist financing that was evident from the situation on the ground in Chhattisgarh and Jammu and Kashmir. One thing is for sure: more and more of gobbledygook is to follow.
One of the major offshoots of the demonetisation drive was a push towards a cashless, digital economy. Looking at the chart below, where there is presented the quantum of cashless transactions in some of the major economies of the world…one could only see India’s dismal position. Just about 2% of the volume of economic transactions in India are cashless.
Less cash would mean less black money…less corruption…and more transparency. Is it? Assuming it is, how far the drive would go on driving? But was India really ready to go digital? There were 5.3 bank branches per one lakh Indians in rural India 15 years ago. On the eve of demonetization, the figure stood at 7.8 bank branches per one lakh Indians. This shows that a majority of rural India has very little access to banks and the organized financial sector. They rely heavily on cash and the informal credit system. Then, we have just 2.2 lakh ATMs in the country. For a population of over 1.2 billion people, that’s a very small number. And guess what? A majority of ATMs are concentrated in metros and cities. For instance, Delhi has more ATMs than the entire state of Rajasthan. Given the poor penetration of banks and formal sector financial services in rural India, Modi’s cashless economy ambitions were always a distant dream. Then there are issues of related to security. Were the banks and other financial institutions technologically competent to tackle the security issues associated with the swift shift towards a digital economy? Can the common man fully trust that his hard earned money in the financial system will be safe from hackers and fraudsters? And the answer does not seem be a comforting one!
“Those dealing in cash currency have now been forced to deposit these in banks, the money has got identified with a particular owner” So surveillance was the reason. Makes sense why they are so desperate to link aadhaar to bank accounts. Some researchers have considered couple of factors which have actually caused demonetization in India. First one includes the refinancing of public sector banks in India. 80% of banks in India are run by government, during the last two decades these banks have been used to lend out loans to corporations which stink of cronyism. These politically-affiliated businesses did not pay back their money which has resulted into the accumulation of huge amount of non-performing assets (NPAs) within these banks. From last three years warning signals were continuously coming about their collapse. Through demonetization millions of poor people have deposited their meagre sums within these banks which have resulted into their refinancing, so that they can now lend the money to the same guys who earlier do not paid back their loans. sounds pretty simplistic, right? Sad, but true, it is this simple. The second factor is the influence of technological and communications companies on the government, as these companies are among the fastest growing ones during the last two decades. Making payments through digital gate ways will be very beneficial for their growth. They can expand their influence over the whole human race. The statements from technological giants like Apple, Microsoft, MasterCard, Facebook, Google etc. clearly shows their intentions behind cashless society. Tim Cook the chief executive of Apple said that “next generation of children will not know what money is” as he promotes “apple pay” as an alternative. MasterCard executives consider apple pay as another step towards cashless society. MasterCard is mining Facebook users data to get consumer behaviour information which it can sell to banks. Bill gates said India will shift to digital payments, as the digital world lets you track things quickly. The acquisition of artificial intelligence companies by Google, Facebook and Microsoft is also on its peak. Over 200 private companies using AI algorithms across different verticals have been acquired since 2012, with over 30 acquisitions taking place in Q1 of 2017 alone. Apple acquired voice recognition firm “Vocal IQ and real face Google has acquired deep learning and neural network, Facebook acquired Masquerade Technologies and Zurich Eye. So what is actually going on, as private corporations and governments are desperate to introduce cashless economy through biometric payment system.
No black money was unearthed by Modi’s historic folly. Terrorism has also not gone down after demonetization and neither has circulation of counterfeit currency. So, it was a failure on all counts, a point that has been predicted by economists worldwide. What the note ban did was cause untold suffering and misery to common people, destroy livelihoods of millions of wage workers, caused bankruptcy to farmers because prices of their produce crashed and disrupted the economic life of the whole country. The only people who benefited from the note bandi were companies that own digital payment systems (like PayTM, MobiKwik etc.) and credit card companies. It also seems now that ultimately, the black money owners have benefited because they managed to convert all their black wealth in to white using proxies.