Two years on, demonetisation debate continues relentlessly

November 8, 2016, marked a consequential (positive or negative – the debate remains unabated till date) day in the history of India when all of a sudden, currency notes were made redundant. The country was taken aback when two years ago Prime Minister Narendra Modi made a hurried midnight announcement that the currencies in the denominations of Rs 500 and Rs 1,000 will no more be valid. 

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During the address to the nation, Modi promised that the aim of demonetisation was to eradicate black money from its root. The demonetisation will benefit to counterfeit currency and cease corruption. However, what came as a greater consequence is the shock move that in one stroke rendered 86 per cent of the nation’s cash in circulation worthless. Even today opinions are sharply divided as to whether the move was able to achieve what was intended of it.

While today marks the second anniversary of demonetisation that has divided the country’s opinion, political parties continue to play their cat-and-mouse blame-game strongly. The move triggereda constant war between the BJP and the Opposition parties multiple times and till date remains a topic of heated debate. The Congress has called for a nationwide protest on Friday and the Trinamool said it will observe a 'Black Day' to mark two years of notes ban.

Former Prime Minister Manmohan Singh in a statement said, "The havoc that it unleashed on the Indian economy and society is now evident to everyone. Notebandi impacted every single person, regardless of age, gender, religion, occupation or creed."

The demonetisation can be assessed based on its political, economic and social impact on society. 

The economic impact of demonetisation

The Indian economy is largely a cash-driven economy and demonetisation has affected to the very core of it. The GDP growth rate of 8.01 per cent in 2015-2016 fell to 7.11 per cent in 2016-2017 after demonetisation. Not only was GDP affected, but the jobs in this country was majorly disturbed. A  major portion of the Indian workforce is a part of the informal economy. They make use of cash to meet their expenses and demonetisation resulted as a complete nightmare to their daily chores. According to CMIE’s Consumer Pyramids Household Surveys (CPHS), approximately 1.5 million jobs were lost during the final quarter of the financial year 2016-17. The estimated employment during this period was 405 million as compared to 406.5 million during the previous four months.

Moreover, the ultimate aim of demonetisation to uproot black money from the market remained a silhouette of a very distant dream. The Reserve Bank of India’s confirmation that most demonetised notes were returned to the central bank confirmed the last thread that ruled against the executive decision. The decision to ban specified notes not only failed in its stated objective of washing out hidden wealth but also ended up causing damage to the economy. 

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According to an RBI report, immediately after demonetisation, sales of consumer durables and appliances slipped by 40 per cent. In its latest Article IV Consultation report on India, released in August 2018, the International Monetary Fund (IMF) has said: “The impact on growth appears to have been more severe and longer-lasting than anticipated at the time of the 2017 Article IV Consultation with a disproportionate impact on the informal sector.”

However, economists believe the cash ban led to an increase in financialisation of savings, more income-tax compliance, and encouraged India to become a more cashless economy. More number of people have filed income tax: going up from 2.24 crore during the same period of 2017-18 to 3.43 crore as on July 31, 2018.

According to one report, counterfeit notes too came down 31.4 per cent after the cash ban. There were as many as 7.62 lakh pieces of fake notes in 2016-17. The quantity went down to 5.23 lakh in 2017-18.

The Political impact of demonetisation

The announcement of the demonetisation came three months before five Assembly elections, which hints towards a clear political agenda behind the decision. The decision has been weighed on upon the political prism, as it can also be called a move to leave the opposition parties high and dry without cash, ahead of the UP elections. 

However, after two years, the word seems to evaporate from the Prime Minister’s speeches and has housed in the opposition’s mentions. While the Opposition described it as a "disaster" the BJP said, it was a "stringent action against corruption". 

The winter session of Parliament, two years ago, was jam packed with angry protests from the opposition over demands for a vote on demonetisation. Despite the protests, this did not coalesce into a larger expression of protest against the government despite the pain caused by demonetisation to the poor who have suffered overwhelmingly because of it. 

The Social impact of demonetisation

In a survey conducted by LocalCircles, more than 50 per cent Indians think that black money still exists in the country. According to LocalCircles, 60 per cent of the 15,000 participants in the survey said that black money has not reduced and will increase ahead of 2019 general elections.

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Demonetisation has been praised as well as criticised on various grounds. There has been a lot of opposition regarding the implementation of this policy. In the short run, there have been problems related to liquidity crunch, unemployment, loss of growth momentum, and a temporary halt to major economic activities. All this is evident from the data provided by the RBI.

After two years of demonetisation, the battle to assert whether it was a success continues. The 2019 general elections, perhaps, can shed some light on the decision that has impacted nation like never before.