Demonetisation and Later….
During the Constituent Assembly debates in 1949, Dr BR Ambedkar had said,
“We must observe the caution which John Stuart Mill has given to all who are interested in the maintenance of democracy, namely, not to lay their liberties at the feet of even a great man, or to trust him with power which enables him to subvert their institutions. There is nothing wrong in being grateful to great men who have rendered lifelong services to the country. But there are limits to gratefulness.”
At 20:00 hours on 08 November 2016, in a televised message that shook the nation, Prime Minister Narendra Damodardas Modi unilaterally declared that 500 and 1000 denominations Indian Rupee paper currency had been made invalid or extinguished from that midnight itself. That was an executive order by an individual. It may have been the Prime Minister but no Court of Law had been asked to adjudicate whether such an executive order was tenable under the Constitution of India.
That single television speech had rudely transformed India into a ‘Black’ or ‘White’ state. You were either a Bhakt (White) or a Pakistani (Black) with no room for reason. Dialogue and discourse had died a sudden and painful death. The story had just started unfolding at that point of time.
Initially, the primary objectives stated for taking this step was to fight the scourge of black money, get rid of counterfeit currency, stop terror funding and kill creation of further black money.
Unfortunately for the country, that narrative has remained in constant flux to this day.
First, repeated terror attacks that were mounted on the Indian army raised questions on the merit of the stoppage of anti-terror funding reasoning provided by the government.1
Second, crooked style of functioning in banks made everyone wonder whether eradication of black money was truly achieved. It seemed as if public servants, especially Bank employees, were ordained to become the new hoarders of untaxed ‘black’ money.
Further, the multiple seizures of fraud new currency notes in large quantities immediately within days after the declaration, especially in BJP ruled states, negated the claim about removal of counterfeit money from the market.
Post demonetization, the Reserve Bank of India (RBI) Governor Urjit Patel stated that close to 80 per cent of the demonetised currency notes were returned to the banks.2
While in reality, automatic tele-machines were defunct for most parts of the day and night; and if the ATMs were functional, it enabled monetary transactions for a few hours, once in few days. Thus implying Patel’s assumptions were based on the physical cash that flowed into banks, got exchanged without proper documentation and was restored with original owners albeit after deductions of heavy commissions.
The disconnect between Patel’s statement and ground realities was all too stark, and perhaps scary as well.
Governor Patel also spoke of large-scale hoarding of notes – which was very true – and warned against such activities.3
His words alone could not help check such indulgences. There had been seizures of bulk new currency in the range of over Rs 100 crore in denomination of 2000 notes, in Madhya Pradesh 4 and Gujarat.5
They however formed a small chunk of the hoarded notes. It is common knowledge that many bank officials and postal department personnel – the two channels through which demonetised currency was allowed to be exchanged in bulk – had colluded with racketeers and commission agents to exchange old currency notes through foul means. They seemed to have played similar games with new currency stocks as well for a long time afterwards.
By the government’s own admission, over Rs 11 lakh crore of the total Rs 14 lakh crore of the extinguished currency in INR 500 and 1000 denominations got back to RBI in a month’s time.6
The central bank or the government did not expect more than Rs 3 – 5 lakh crore back.7
The real deposits of scrapped currency massively exceeded the official calculations.
The worst case scenario was also of the failure of the government/RBI to ensure small change. Banks were dispensing with only Rs 2,000 notes even after a month of the demonetisation exercise. The serious difficulty in getting change for this high denomination note continued for a long period exceeding two months. Where did all the existing small denomination notes disappear was another big mystery. This was making the scenario more chaotic and unbearable for the poor and working class.
Intelligence agencies which should have kept a close watch on the mischief at play and reported to the government as to what was happening on the ground did not do a good job. It is well known that in the very same night the demonetisation was announced, a lot of those who stocked ill-gotten cash rushed to jewellers , making massive purchases of gold and diamond, and got such outlets to remain open for practically the whole night. Reportedly as high as 15 tonnes of gold was sold in the 48 hours after the demonetization announcement on November 8. All of these were recorded as having sold – or bookings done – between 8pm of 08 Nov to 12pm of 09 November, by way of manipulation of sales records. The government should have anticipated such games and taken preventive measures. It rather blinked. This strengthened the feeling that no serious planning went into the way of implementation of the demonetisation exercise or in handling the scenario in its aftermath.
The nation’s currency is an economic tool. No other nation in history has used it for political results. To claim that the 2016 demonetisation of the Indian National Rupee (INR) was to root out black money seems a simplistic and far fetched notion. Indians, as a race, have never been educated and encouraged to become tax payers. The benefits that should accrue from paying taxes have not been, ever, made attractive for the meagre 3% of the population that pays direct tax.8
Thus, the character that drives the desire of creating wealth without paying tax cannot be discouraged by this demonetisation overnight.
India survived the Asian Tigers’ meltdown of the late 1990’s. It survived the sub-prime crash of the US and Europe in the late 2000s. It had fared well even when China’s economy was weakening in early 2017. Has anyone in power ever tried to search and find the reasons behind the resilience of the Indian economy. Could it be that the unorganised sector, including the farm, tiny, small and medium enterprises which deal only in cash are in any way responsible for this cushioning. Is it also possible that these unorganised players protect our economy from massive foreign attacks. Let us not forget the tiny haldi (turmeric) farmers of Kandhamal or Koraput. Even their families were seen standing near banks, waiting to change ‘black’ money at a bank branch at least 20 kms away from home. Their problem: they had to make copies of Aadhaar cards and fill in long questionnaires which were in English and Hindi only. Both languages were unknown to them. No one was around free to help. And a mass of paper was to be filled in the quest for a paperless currency. Do the bhakts really believe that villagers in India will open bank accounts and transact business online? Are we, as a nation, truly so far away from ground realities that exist probably 10 floors below our comfortable apartments?
Well, we see people reacting creatively via facetious whatsapp forwards. And ministers are reacting sagaciously on Twitter, as they try to justify an otherwise historic economic reform which has already been declared a catastrophe in the recently released Reserve Bank of India Annual Report 2017.
The Annual report clearly states that Rs 15.28 lakh crore out of the Rs 15.44 lakh crore in currency which was invalidated on 08 November 2016 has come back into the Indian banking system. This means that 98.96% of Rs 1,000 and Rs 500 notes which were extinguished as a result of demonetisation were returned to the central bank by the end of June 2017.
With 99% of demonetised notes coming back, one wonders if bearing all the heat and rain has simply gone into vain. Statistics show a death toll of atleast 150 persons who died out of fatigue and stress while standing at queues outside Banks and ATMs during the initial period following demonetization. In any democracy, a single citizen dying due to conscious governmental apathy would have brought the head of the government down on his knees, begging pardon. Not so in India.
Finally, the Indian National Rupee which was slowly but steadily gaining, on its own steam, acceptance in neighboring countries such as Nepal, Thailand, Sri Lanka and even Singapore and Malaysia suddenly got kicked out of all exchange kiosks. The foreign exchange traders in those few countries were verbal on their suspicion of the currency notes and said they do not have faith on Indian money.
The damage done to India and its physical money by one single man will not be felt immediately. The ill effects are yet to come.
—– by author Tathagata Satpathy
The author of the article, Tathagata Satpathy is a member of the 16th Lok Sabha of India. He represents the Dhenkanal constituency of Odisha, and was re-elected for the fourth time in 2014. He is a member of the Biju Janata Dal (BJD) political party, and the party’s chief whip in the Lok Sabha.
He is the the younger son of former Odisha Chief Minister Nandini Satpathy and Devendra Satpathy. He is also the owner and editor of the daily Odia newspaper, Dharitri, and the English daily, Orissa Post.