Demonetisation, 3 years on: A look at impact on key sectors of the economy

With three years of data available to back or reject the various assertions and assumptions, Business Standard looks at the Modi govt’s most disruptive economic measure, the ‘note ban’

On November 8, 2016, Prime Minister Narendra Modi announced to the nation that Rs 500 and Rs 1,000 currency notes — 86 per cent of all currency notes in circulation in value — would cease to be legal tender. The stated objectives were unearthing black money, cracking down on counterfeit currency, and choking terror financing.

Unsurprisingly, there were strong reactions both in favour of and against the unprecedented move, which would come to be known as ‘demonetisation’ or ‘note ban’. While some hailed it as a courageous step against impropriety that was hurting the economy, others saw the move itself as disastrous for the economy.

In the months that followed, even as reports suggested that the government had not come any close to achieving its stated objectives, the government was seen patting itself on the back for the country’s move towards becoming a ‘cashless’ economy, or, as the PM said, a ‘less-cash’ economy. Many called this an act of ‘moving goal posts’ and rushed to label demonetisation as an economic nightmare. Three years later, we have enough data to analyse and gauge the impact of the note-ban exercise on various important sectors of the economy.

Jobs

According to Labour Bureau’s Sixth Annual Employment-Unemployment Survey, the unemployment rate rose to a four-year high in 2016-17, when the government demonetised old currency notes. In 2017-18, the country’s unemployment rate stood at a 45-year-high of 6.1 per cent, according to the National Sample Survey Office’s (NSSO’s) periodic labour force survey (PLFS). Moreover, demonetisation caused a 2-3-percentage-point reduction in jobs and national economic activity in November and December 2016, according to a research.

Demonetisation's failure won't hurt PM Modi, he's already changed the narrative

Modi has learnt never to engage with his opponents and a hapless Opposition is trying to keep up

 

economy news:APCO Worldwide, a transnational public relations company, had their most apt pupil in then Gujarat chief minister Narendra Modi. The one thing Modi learnt was never to engage with his opponents on issues they want to talk about. He sets the agenda and a hapless opposition and media try to keep up. Demonetisation was a Modi-made disaster. Yet the disaster only served to propel Modi to greater electoral heights, and today, as he towers over a clueless opposition, even the return of 99% of the extinguished notes does not change the narrative of one man’s fight against corruption.

Modi had made an emotional pitch on demonetisation – “Give me 50 days, then punish me if I am wrong” – which was the lead story in all newspapers. Today who remembers that? Modi has moved on from “acche din” to “new India” and, like the Pied Piper, carried a mesmerised UP electorate with him. He swept the UP assembly, anointed Adityanath as chief minister and could not care less about what the opposition and media will now say.

ALSO READ: GDP growth hits 3-year low of 5.7%, slowest under Modi govt

Former Prime Minister Manmohan Singh had called demonetisation “an organised loot and legalised plunder”, and the venerable economist had a point. Modi, however, used demonetisation as a chance to reinvent himself as a “messiah of the poor”. The only jibe that struck home was Rahul Gandhi’s comment of a “suit boot ki sarkar” after Modi aired his Holland and Sherry Rs 10 lakh suit (with his name pinstriped on it) in his meeting with former US President Barack Obama.

The suit was auctioned off; the godmen and friends of the BJP are still present and in action; yet, with the demonetisation gamble, Modi achieved his aim.

ALSO READ: 99% of banned notes returned after demonetisation: RBI annual report

Modi and his closest aide, Amit Shah, are a ruthless-election winning combine. They give no quarter and expect none. No niceties of politics are maintained and the BJP has been transformed into a formidable election-fighting machine, modelled from the booth level upwards on the Congress of the 1950s. Modi himself is on 24/7 campaign mode. Consider this: until the Gujarat election later this year, he will make weekly trips to the state.

A senior member of the cabinet told me, “We are quiet in cabinet but occasionally the prime minister scoffs at the media. The opposition is never discussed as they have become irrelevant”.(READ FULL STORY)