Two years after demonetisation came into effect on November 8, 2016, the BJP-led government continues to defend the move meant to “wipe out illegal money” even as the Opposition terms the step as “ill-advised” and “Tughlaqi”. On Thursday, the second anniversary of demonetisation, the Congress has declared to hold protests across the country and seek an apology from Prime Minister Narendra Modi for “ruining” and “wrecking” the country’s economy. The party suggested that the PM should well address the nation at 8 pm much like he did two years ago when he announced the noteban with no prior notice.
The noteban exercise rendered 86 per cent of India’s old currencies of Rs 500 and Rs 1,000 invalid.
Congress to hold nationwide protests
Calling demonetisation an exercise comparable to Delhi Sultan Muhammad bin Tughlaq’s ill-advised monetary reforms in the 14th century, Congress leader Manish Tewari said none of the objectives of note ban had materialised two years later.
“Two years ago, the PM announced demonetisation for three reasons — to curb black money, weed out fake notes and proscribe terror funding. Two years later, none of those objectives has materialised. In fact, there is more cash in circulation today than there was in 2016,” he said at a press conference.
The protest on Thursday will be led by Congress president Rahul Gandhi and other senior leaders.
Last year, the Congress had marked the first anniversary of demonetisation as a “black day” against the NDA government, while the government celebrated November 8 as “anti-black money day”. Thousands of Congress workers had held a protest at Azad Maidan in south Mumbai.
On November 8, 2016, PM Modi, in an unexpected move, announced the scrapping of the existing Rs 500 and Rs 1,000 notes with immediate effect. The sudden withdrawal of notes led to liquidity shortage, with long queues outside banks. It had also roiled the economy, with demand falling, businesses facing a crisis, and GDP growth declining close to 1.5 per cent. Many small units were hit hard, with many reporting huge losses even after nine months.
About 115 people reportedly died standing in queues to withdraw money from their bank accounts. The RBI gradually introduced Rs 500 and Rs 2,000 notes in place of the notes withdrawn, but the pace of remonetisation was very slow. This, because the ATM machines had to be recalibrated as they were not manufactured for the sizes of the new Rs 2000 and Rs 500 notes.
The central government and the RBI issued 74 notifications during its execution period of 50 days that included several rollbacks. After demonetisation was announced, the government had allowed the exchange of Rs 500 and Rs 1,000 notes at all banks and RBI branches till December 30, 2016. It had initially allowed withdrawal of only Rs 2,000 per day per card (via ATMs) and over-the-counter exchange of Rs 4,000 per day per account, but increased this to Rs 2,500 and Rs 4,500 respectively on November 13. It later limited the over-the-counter exchange of currency to Rs 2,000 on November 18, before stopping the facility all together on November 24, 2016.
The RBI had initially mandated a copy of PAN card while depositing over Rs 5,000 in old denomination notes but withdrew this condition on December 21, 2016.
99% of demonetised notes back with RBI
Opposition criticism intensified after the RBI, in its annual report for 2017-18 on August 29, 2018, said that nearly all the money that was withdrawn returned to the banking system. The RBI said it had received Rs 15.31 lakh crore of Rs 500 and Rs 1,000 notes, or 99.3 per cent of the Rs 15.417 lakh crore worth of notes which were in circulation as on November 8, 2016.
This meant that just Rs 10,720 crore of Rs 500 and Rs 1,000 notes failed to come back to the RBI, as against government expectations that well over Rs 3 lakh crore of black money would not return to the banking system.
Opposition lashes out at govt
The numbers gave fresh fodder to the Congress and the Opposition to hit back at the government over the rationale behind the move, with Congress president Rahul Gandhi alleging that note ban had only helped the PM’s “crony capitalist friends”.
Stating that the country paid a huge price for demonetisation, senior Congress leader and 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. Indian economy lost 1.5 per cent of GDP in terms of growth. That alone was a loss of Rs 2.25 lakh crore a year.”
Larger purpose of demonetisation achieved: Arun Jaitley
Defending the move, Finance Minister Arun Jaitley said demonetisation had achieved its larger purpose of moving India from a tax non-compliant society to a compliant society, resulting in the formalisation of the economy and a blow to the black money. “The growth of income tax collections in the two years pre-demonetisation was 6.6 per cent and 9 per cent. Post-demonetisation, the collections increased 15 per cent and 18 per cent in the next two years and the same trend is visible in the third year,” he said.
Buttressing his argument, Jaitley further said the number of income tax returns filed had shot up to 6.86 crore in 2017-18, from 3.8 crore in 2013-14. In the last two years, the IT returns had increased 19 per cent and 25 per cent, he said and added that IT collections had increased from the Rs 6.38 lakh crore in 2013-14 to Rs 10.02 lakh crore in 2017-18.
Economy has overcome note ban impact: World Bank
However, in what would have come as music to the ears of the government, the World Bank in April said the Indian economy appeared to have recovered from the temporary disruptions caused by demonetisation and the introduction of the GST. The World Bank said the country was projected to grow by 7.3 per cent in 2018 and 7.5 per cent in 2019 but pointed out that despite growth, India was not creating enough jobs.