Surprise! Some 99 per cent of the demonetised`500 and`1,000 notes have returned to the banking system, as per information released by the RBI. In other words, the entire black Money turned into white. This, prima facie, raises sharp questions and considerable worry over the perceived lack of efficacy of the Union Government’s highly trumpeted Demonetisation step announced in November last by Prime Minister Narendra Modi himself. The RBI circular demolishes the Centre’s contention at the outset of the note ban that the measure was aimed at curbing black money and checking corruption. Worse, as a result of the ban and the resultant problems in money circulation, the GDP growth slumped to a three-year low of 5.7 per cent during April-June – lagging behind China for the second straight quarter. This was so, also as the manufacturing sector slowed ahead of the GST launch this year. Here are reactions from economists and others who spoke to Orissa POST this week
The stated objectives of demonetisation as cited by PM Modi were curbing black money, checking counterfeit currency and stalling terror-financing. After nine months, none of the objectives has been realized. Rather, demonetisation has proven to be a disaster. Around 100 people died in queues while exchanging their old notes. Lakhs of jobs were lost. Farmers suffered most due to distress sale, and the informal sector was hard-hit. GDP growth declined by 1 per cent. Loss to economy alone was Rs 1.28 lakh crore within 50 days of the demonetisation as per CMIE’s report. It was expected that out of the 15.44lakh crore of demonetized currency, around Rs 3 lakh crore would not return to the banking system, resulting in a higher surplus for the RBI which the government can use at its will. But the grim reality is that only Rs 16,000crore of scrapped money has not returned to the banking system as per the RBI’s annual report. Rather, the cost of printing for RBI has doubled, and the cost of absorbing liquidity has increased enormously leading to a decline in RBI’s payment of dividend to the government by 50 per cent. This shows that black money holders have been able to convert all their money into white.
Santosh Kumar Mohapatra, Economist
Demonetization impacted the people in many ways. The decision was taken without any understanding of the market mechanisms. As a result, it adversely impacted the economy. The absence of money for two months in people’s hands, and the controls in the withdrawal of money made people suffer a lot. It affected economic growth as there was a decrease in the purchasing power of the public. As per economic theory, growth depends on the people’s power to spend. Demonetisation reduced the buying capacity of individuals due to limited withdrawals from the banking system. Then, on the question of abolition of black money through demonetisation. Normally, black money holders stock currency in high denominations like Rs 500 and Rs 1,000. As per RBI’s report, 99 per cent of these currencies returned into the economy. This may lead to economic growth in the long run. The banking system was flooded with heavy deposits after demonetisation. Collection of tax has also increased. People voluntarily declared their income and paid tax. As a result, the government’s tax revenue increased.
Alok Ranjan Behera, Economist
Demonetisation is successful only if it gets everyone to record their sources of income in ways that tax evasion is stopped. But it was clear that demonetisation did not help in tracking down black money or ill-gotten wealth. Demonetisation’s adverse effect on economy is all too visible. It has brought down the GDP growth rate. A situation arose when people did not have access to cash for over two months. This affected the economy very badly.
Aswini Tripathy, Chartered Accountant
Prime Minister Modi, while announcing the demonetisation, had said this was being done to control black money. However, the release of RBI data proves that the operation has failed. The RBI data showed the unreturned Rs 1,000 notes in March 2017 amounted to only Rs 8,900crore. It implies that the hoarders of black money are smarter than the government. Most black money hoarders could convert huge volume of black money into gold and other assets overnight. Similarly, with the help of others, they could convert black money into white. On countering the fake currency menace, it does not seem to be a success either. Immediately after the launch of the new 2000 rupee notes, police confiscated huge stocks of these notes and also fake currency of this denomination. The operation “demonetisation” hurt the common people who feel it convenient to do transactions with cash. Foreign citizens who were having increasing faith on our currency have been disappointed on the demonetisation move.
Amarendra Das economist
Indian retail market runs with hard cash. From smalltime businessmen to the general public, suppliers, transporters, all of them depend on this for their livelihood. The motto of demonetisation was to bring back the black money but it resulted in tough times.
Sudarshan Chhotray, social activist