The first 10 days of demonetisation have seen the tragic death of 47 citizens, never-ending lines and a web of problems and difficulties. The Modi government has proceeded to declare victory even as crores of innocent people suffer. As economists measure the long-term economic impact of the decision, everyone agrees that India’s wheel of development is grinding to a halt in the interim.
It is now accepted wisdom that the demonetised notes account for 86 per cent of the currency in circulation. Eminent Indian economists have argued that when the amount of currency in circulation is this significant then the chances of a currency shock on account of disruption in money supply increases proportionately. India’s mints can print 300 crore notes monthly. Demonetisation has led to the withdrawal of 2,100 crore notes. At this pace, it will take seven months to restore the supply chain. Either the government was aware and accepted the impact on the public as a necessary cost or it was negligent in assessing the harm. Neither scenario is flattering to the BJP government.
It is claimed that more than Rs 4 lakh crore has been deposited in the first five days. Contrast this with amounts disbursed through exchange or withdrawals, stated to be in the vicinity of Rs 71,000 crore. This represents a reduction of purchasing power by over 82 per cent. While it stands to reason that this will lead to a severe economic contraction, there is no guarantee that it will curb black money creation in the future. The link is tenuous, at best, unless literally everyone who deposited the money was a black money hoarder.
The government has, thus, failed to make a distinction between genuinely earned currency and black money received as the result of illegal activities. This is because demonetisation fails to address the conventional stores of black money, that is, gold, jewellery, foreign exchange, property and the share market. None of this is new information. A recently published study says that the cash component of black money recovered in raids accounted for only 6 per cent of the total amount received.
Despite the global markets recovering after Trump’s election, the Indian stock market has continued to decline and the rupee has weakened by almost 3 per cent against the dollar. The benefits of the agricultural and telecom revolutions, as also economic liberalisation, took years to trickle down. And these were not disruptive schemes. The real elimination of major black money has to come from going after the money stashed in accounts abroad, preventing hawala-based remittances, plugging the rerouting of black money through nebulous and multiple jurisdictions and attacking the domestic conventional holdings. The important question to ask and answer is how the current demonetisation exercise helps in achieving any of this.
WATCH VIDEO: How Demonetisation Impacts Rural Population
The fortnight of pain is unlikely to be temporary for many in the informal sector. In a remarkable display of candour, the BJP MP from Porbandar cautioned the government to take note of the worsening situation due to the decision of government to derecognise India’s cooperative sector banks for exchange and withdrawal of new notes. As a result, over half of the rural economy has been denied their economic and occupational rights.
Considering that the major bulk of economic activity and jobs is generated in the informal sector (80 per cent, by some accounts), this will spell a period of economic depression for people across classes. The media has documented how the small shopkeepers, traders, vendors, artisans and even small and medium businesses have come to a halt. Similarly, farmers have no money to buy seeds or other inputs. The sugarcane grower is unable to pay casual labour to load his trolleys. Mill owners have no useable cash to pay for produce. Anyone sceptical about these claims simply needs to visit the Azadpur Mandi in Delhi, where all activity has come to a standstill.
During 437 rallies in the run-up to the 2014 elections, Narendra Modi made repeated promises to create two crore new jobs every year. Recent figures show a negative job creation, now compounded by the current situation. The president of India has expressed deep concern about the negligible job creation. Job losses in a cascading fashion, as we have witnessed in the span of less than a week, do not bode well for the country. Dismissing the genuine concerns of those suffering for long hours and going back home without cash, the PM risks creation of his very own Marie Antoinette moment.
What is also clear is that we are witnessing a new era of tax terrorism with the threat of raids looming large over trades and businesses and everyone depositing Rs 50,000 in a bank account becoming susceptible to be questioned by the authorities. History has repeatedly proven Lord Acton’s maxim “Absolute power corrupts absolutely”. Modi’s original promise of minimum government maximum governance will ring oxymoronic once this regime comes into force.
The PM positioned himself as an iron man for development and an anti-corruption crusader. He campaigned on the promise of bringing back Rs 80 lakh crore of black money stashed abroad within 100 days and depositing Rs 15 lakh in everyone’s account. This is his watershed moment: An ill-conceived, poorly implemented policy that penalises crores of innocent citizens, who stand in lines for days to withdraw their own hard-earned money, as the economy stutters.
In this culture of hate and intolerance for contrarian views, it becomes hard to differentiate facts from spoon-fed propaganda. This is not a visionary scheme. It is a dereliction of duty.
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