Demonetisation: An exercise in futility

The major objective of demonetization to steward the nation towards ‘cashless economy’ is today more distant from getting materialized than it was six years ago when the 120 crore Indians were subjected to the painful experiment. Even as the nation would be observing the sixth anniversary of demonetization of two major currency notes today (November 8), the fortnightly data from the Reserve Bank of India (RBI) reveals that the currency with the people has increased rather than declining.

According to the data pertaining to money supply as on October 21, the currency circulating among the people today amounts to Rs. 30.88 crore. It is over 71% more than what it was on November 8, 2016 when the BJP Government at the Centre suddenly slapped the ban on currency notes of Rs. 1,000 and Rs. 500. It is not the first time that it is being proved ‘an exercise in futility’ which subjected 70% of the Indian population not having access to banking, ATMs and the smartphones to extreme inconvenience.

Prime Minister Mr Narendra Modi had repeatedly claimed that the exercise was undertaken to unearth black money, stop terror financing and weed out counterfeit notes and was aimed at improving the tax base. Even if the Government could be forgiven for making the surgical strike at the vast cash based economy, clumsy execution of the transition and death of 55 persons making a beeline at the banks and the ATMs, the abject failure in achieving the major objective – transition towards cashless economy – is telltale evidence of its ham-handed dealing of monetary economy.

The RBI data proves that demonetization was the wrong policy at the wrong time and it were the poor who suffered the most. The dirty stash of Rs. 257 crore, all in the new currency, found in a raid at a house owned by a perfume manufacturer of Kanpur last December had provided enough proof that the staunch defence of the DeMO was mere rhetoric.

Ironically, the introduction of Rs. 2,000 notes had rendered the task of stacking hard currency less arduous. The two currency notes accounted for 86 per cent of the cash in an economy dominated by cash transaction. The fallacy of huge black money was further unraveled by the RBI’s annual report for 2017-18.

Just two years later, the RBI reported 99.3 per cent of the junked currency notes coming back to it thereby making it evident that the black money was just a tiny slice, less than 0.7 per cent, of the entire cash in circulation and the demonetization was a colossal fraud played against the economy and was akin to using a hammer to swat a fly on a glass table top.

However, the objective of stewarding the economy to a cashless system is not worth junking. Going by the humongous size of the informal economy, it could be a slow and a gradual process. The Modi Government reduced it to an event and it must admit that it was a gargantuan misadventure.