Was Demonetisation A Useless Exercise By Modi? RBI Figures Say Yes

Reserve Bank of India today confirmed that 99% of banned notes have come back. So where is Modi’s claim on India’s economy being ruined by black money?

rbi

Was demonetisation a useless exercise that put many in trouble? The Reserve Bank of India figures say so.

The RBI today put the Narendra Modi government in a bit of a spot. According to the central bank, 99% of the demonetised currencies have come back. This will come as an embarrassment for Modi and high octane political fuel for the opposition ahead of the next general election in 2019.

The government had claimed earlier that about 5 lakh crore of the demonetised currencies may not come back as that is the monstrous size of black money. Now that claim falls flat on its face.

P Chidambaram
Former Finance Minister P Chidambaram

Quick to lash out at the government and his bitter rival Finance Minister Arun Jaitley was P Chidambaram, former FM. He also questioned the Narendra Modi government whether its demonetisation decision was designed to convert black money into white.

He took to twitter to say that only “Rs 16000 crore out of demonetised notes of Rs 15,44,000 crore did not come back to RBI. That is 1%. Shame on RBI which ‘recommended’ demonetisation. RBI ‘gained’ Rs 16000 crore, but ‘lost’ Rs 21000 crore in printing new notes! The economists deserve Nobel Prize. 99% notes legally exchanged! Was demonetisation a scheme designed to convert black money into white?”

But Jaitley hit back without naming Chidambaram saying those criticising demonetisation do not understand it. “Object of demonetisation was not confiscation of money. Object of demonetisation was that India is predominantly high cash economy therefore that scenario requires to be significantly altered.”

But that was like shifting the goal post. The main objective of demonetisation was to wipe out black money which, according to Narendra Modi, was ruining the economy.

Arun Jaitley
Finance Minister Arun Jaitley

According to Jaitley, the “objective of note ban was to bring down cash in economy, bring digitisation, expand tax base and fight black money. People with inadequate understanding of how to tackle black money linked note ban with money returned to system.”

That is half truth. The main aim was to root out black money. Digitisation, expanding tax base etc was later added to the narrative of demonetisation.

Jaitley added that his “next step is going to be to put an end to black money used in elections.”

All said, one has to take into account the fact that a lot of black money was put into the system through fake or suspicious transactions. Notices have been sent to people who made these transactions, but to get a handle on the volume of such dubious remittances would take years. And it may not add up to the over Rs 5 lakh crore that the government had claimed.

Lot of real estate guys also converted their black into white through dubious means.

Another claim was that the government wanted to go in for a cashless economy. That too has failed as cash is back into the system and digital transactions have gone back to pre-demonetisation period.

1000 and 500
Old currency of 1000 and 500 rupee note

Earlier in the day, the RBI confirmed that only 8.9 crore old Rs 1,000 notes out of 632.6 crore have not been returned post the note ban last November. When translated to real terms, only 1.4 per cent of the old Rs 1,000 notes have not come back into the banking system.

Prior to demonetisation, old notes worth Rs 15.44 lakh crore were out there in the market. Out of this, 15.28 lakh crore have been received by the bank.

RBI said there were as many 588.2 crore of Rs 500 notes, both old and new in circulation as of March 31, 2017. As of March 31, 2016, there were 1,570.7 crore Rs 500 notes in circulation.

Raj Shankar

Shankar Raj is a senior journalist with more than 30 years experience, mostly with The Indian Express and The New Indian Express. He was the Editor for Karnataka and Kerala editions of The New Indian Express, and former Managing Editor of the Nyusu Digital Media P Ltd. Bengaluru.

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