Most of you will agree with me when I say this: 8th November 2016 was one heck of a night. Prime Minister Narendra Modi shocked the whole country when he appeared on our television screens and announced that all ₹500 and₹1000 notes will no longer be a legal tender effective from midnight. The move was aimed at curbing the use of phony and illegal cash. What followed in the successive weeks was a massive shortage of currency amongst the citizens of the country.There were long queues in front of all the ATM’s in the country, and you could hear the discord amongst the citizens in those queues. The people were not happy. But deep down, a lot of them wanted demonetisation to be successful. Few days before we marked the 2-year anniversary of demonetisation stint. But the question to be asked is “Has demonetisation been successful?”.
The most significant issue that the country faced in the immediate aftermath of demonetisation was shortage of money. The remonetisation process was slow and tedious. The ATM’s had to be recalibrated to accommodate the new denominations of ₹2000 which took some days. The RBI also put up a daily withdrawal limit on accounts. What ensued was long queues in front of banks and ATM’s. People had to take time out from their working hours and wait in the queues to get their old notes exchanged. Over 100 deaths due to standing in these queues for long hours were reported in the following weeks.
The top economists were divided on their opinions about demonetisation. Some economists like Arvind Virmani, Bibek Deb Roy, Surjit Bhalla and Richard Thaler have praised the move saying that it is a bold and useful method to flush out black money and that its criticism has not been fact based. They believe that demonetisation could lead to a better future. Other top economists like Amartya Sen, Raghuram Rajan, Kauhsik Basu, Larry Summers, Kenneth Rogoff, Gita Gopinath, Manmohan Singh and Arun Shourie have criticised the move saying that it was authoritarian, poorly designed, and that the sector which has been affected the most by this move has been the agriculture sector. Former Chief Economist at the International Monetary Fund (IMF), Kenneth Rogoff stated that it is a “Bold and audacious move for a country with endemic corruption”. Nobel Laureate Amartya Sen and former Chief economist at the world bank Kaushik Basu have pointed out that seasoned dealers in black money will find loopholes to escape the trap and the common people will be affected worse. Former world bank economist and union minister Arun Shourie and Harvard professor Gita Gopinath have questioned the lack of preparation by the government in implanting it.
One favourable outcome has been the move towards digital banking and a cashless economy, but this does not outweigh all the inconvenience caused to the citizens. But what we need to realise here is that it takes many years for a planted seed to grow into a tree and bear fruit. It requires time and care and even then, it may not bear fruit. We have only seen the short-term effects of demonetisation till now.
Demonetisation is going to be marked in our history books in years to come as the bravest move by the BJP led NDA government. In the aftermath of the landmark decision, we saw long hours of debating on TV screens, public conferences and what not. Demonetisation has caused immense amount of discomfort among the people considering India is a country which carry out as much as 80% transactions using hard cash. Two years down the lane, the question to be answered is whether this stint has been able to serve its purpose. Well the answer is “PARTIALLY, it has”. Post demonetisation the revenue department has witnessed a surge in taxpayers with the growth in taxpayers rocketing to 18-20% as compared to 4.2%pre demonetisation. This period also saw a huge rise in the usage of digital money, digital wallets. For a country like India this in itself is a huge economic change. But everything said , 98% of the currency was retrieved back to the banks, so all those black money vanished into thin air? The whole aim of the stint was to curb black money and hawala operations, and the purpose stays defeated. All these pain just to digitalize the economy? Whether demonetisation proves to be a success or failure in the long run, it definitely going to be etched in the memories of 125cr “deshvasi” as the prime minister calls it.
Adithya Padmanabhan N