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 was Modi govt’s failed national improvement scheme’

The new India being forged through the pain of demonetisation makes a clear distinction between the ‘us’ and the ‘other’

Latest News: The year 2016 was one of surgical strikes. Just when we were recovering from the patriotic adrenaline rush of being in a state of semi-battle with Pakistan, we witnessed ‘a surgical strike ‘on black money, terror funding and drug money’. Two years on, we continue to reel under the effects of demonetisation. With the benefit of hindsight, this is a good time to ask: what on earth was it about?

Demonetisation as neoliberal yet participatory development An obvious reading aligns with the Narendra Modi government’s agenda of neo-liberal development. The current regime, like its predecessor UPA, has embraced globalised, business-friendly development. Here, the market is expected to deliver economic growth. However, the market is not a level playing field. The government tends to ally with specific businesses interests. In this partisan state-business alliance, the population at large needs to be brought on board. It has to be somewhat enthused about the unfolding economic story, and participate in this as labour, aspirational consumers, or even investors.

Viewed from this perspective, demonetisation was a vast exercise in increasing cash flow to banks, to strengthen their position as lenders to business. How do the rest of us come on board? We come aboard as ‘active participants in the benefits of economic progress’. We are feted as ‘honest citizens… fight(ing) against corruption, black money, benami property, terrorism and counterfeiting…’ in the words of the PM during his ‘Demonetisation Day’ speech. We become fighters standing in queue to exchange our old money for a newer version of the cash, as also ourselves.

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Black day vs anti-black money day: BJP, Opposition face off over note ban

Manmohan Singh said if anyone benefited demonetisation, GST, it was China whose imports to India grew by 23% in just 1 year

A year into demonetisation – Anti-Black Money Day, the opposition and the government on Tuesday exchanged verbal blows over the action with former Prime Minister Manmohan Singh calling it disastrous while Finance Minister Arun Jaitley rejected the charge saying there was an ethical and moral rationale behind the decision which had given a “new direction” to the economy.

Jaitley, however, acknowledged that the “benefits may not be immediately visible” but would make future generations proud.

Fielded by the party in poll-bound Gujarat, Manmohan Singh said the measure had failed its ostensible purpose of curbing wealth accumulated through tax evasion as it was known by now that none of the stated objectives of eliminating black money, terror financing and counterfeit currency have been met.

ALSO READ: War of words: It’s govt’s ‘anti-black money day’ vs Oppn’s ‘black day’

“The fact that more more than 99 per cent of the (spiked) currency came back into the banking system has punctured the government’s claim. There are also widespread reports of the rich converting their black money into white while the poor have undergone immense suffering,” he said, “invoking the memory of more than a hundred people who lost their lives last year in the wake of the demonetisation”.

Calling the withdrawing of 86 per cent of legal tender in one single stroke as undemocratic and a coercive move, the former Prime Minister said “the demonetisation was clearly not the solution” to end the menace of black money and tax evasion in India.

“Demonetisation has proved to be a mere bluster to reap political dividends while the real offenders have escaped,” he said, again calling it “an organised loot and legalised plunder”. | READ MORE

Berkeley speech: Rahul concedes Cong became arrogant, hits out at note ban

Gandhi hit out at Modi govt's demonetisation drive and said India could not afford to grow at its current pace

 

Arrogance crept into the Congress party around the year 2012 and we stopped interacting with people, Congress Vice-President Rahul Gandhi conceded in his address to students of the University of California, Berkeley on Tuesday. He was speaking on 'India at 70: Reflections on the Path Forward'.

Further, commenting on the present Naional Democratic Alliance (NDA) government's economic policies, Gandhi said the November 2016 decision to demonetise high-value currency notes and the hastily rolled out Goods and Services Tax (GST) had put a great pressure on India's economy. He added that Prime Minister Narendra Modi's demonetisation drive had led to a decline in the country's economic growth.

"Millions of small businesses were simply wiped out as a result of demonetisation. Farmers and manual labourers who used cash were hit extremely hard. Agriculture is in deep distress and farmer suicides have skyrocketed across the country. A completely self-inflicted wound, demonetisation caused an approximate two per cent loss in GDP growth," Gandhi said...READ MORE

Note ban effect: Currency printing cost more than doubles to Rs 7,965 crore

Of Rs 15.44 lakh cr demonetised currency in circulation, about 99% came back to RBI as on June 30

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The Reserve Bank of India (RBI) spent Rs 7,965 crore on printing currency notes between July 2016 and June 2017, compared to Rs 3,420 crore in 2015-16, an increase of 133%, according to RBI’s annual report 2016-17.

This was highest over the last 17 years, Bloomberg reported on August 30, 2017.

The rise in expenditure was attributed to newly designed notes of higher denominations and the need to replace demonetised currency, the RBI report said. Banknotes were often airlifted from the presses to RBI offices across the country to ensure currency was available after demonetisation, adding to the cost of distribution.

Prime Minister Narendra Modi on November 8, 2016 announced the withdrawal of Rs 500 and Rs 1,000 notes–which constituted 85% of cash in circulation–in a move to fight corruption, black money, money laundering, terrorism and financing of terrorists as well as counterfeit notes, a narrative that kept changing, as IndiaSpend reported on December 5, 2017.

Of Rs 15.44 lakh crore demonetised currency in circulation, about 99% or Rs 15.28 lakh crore came back to the central bank as on June 30, 2017, the annual report said.

After demonetisation, the Reserve Bank injected 23.8 billion pieces of banknotes into circulation, valued at Rs 5.54 lakh crore, between November 9 and December 31, 2016. About 74% fewer notes were in circulation on March 31, 2017, compared to November 4, 2016.(economy news)

Circulation of banknotes in terms of value declined by 20% to Rs 13.10 lakh crore ending March 2017, over the preceding year while the volume of notes increased by 11%, due to “higher infusion” of notes of lower denomination, post demonetisation.

The share of Rs 500 and higher denominations stood at 73% of the total value of notes in circulation at end-March 2017, as against 86% at end-March 2016. And, the share of new Rs 2,000 notes was reported 50% at end-March 2017.

Detection of counterfeit notes up 20% in 2016-17, from 6% in 2015-16

In 2016-17, 762,072 counterfeit notes were detected, of which 96% were detected by commercial banks. Detection of counterfeit currency notes by banks increased 20% in 2016-17, of which 42% were old Rs 500 notes.

Similarly, there was a 79% increase in the detection of Rs 1,000 counterfeit currency notes, from 143,099 in 2015-16 to 256,324 in 2016-17....(Read Full story)

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)

Demonetisation: RBI will give junked notes' figure after counting, says FM

Arun Jaitley says final figures will come out once the fake notes were weeded out

Finance Minister Arun Jaitley Tuesday said the RBI is in the process of counting scrapped currency notes and will come out with the final figures once the fake notes were weeded out.
Answering oft-repeated questions over the issue, he said in the Lok Sabha that the Reserve Bank had received the last tranche of scrapped currency notes of Rs 500 and Rs 1,000 only in July and the central bank would take time in counting the billions of notes.

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On November 8 last year, the government had scrapped high denomination currency notes of Rs 500 and Rs 1,000 which amounted to around 86 per cent of the currency in circulation.
Replying to a discussion on supplementary demands for grants in the Lok Sabha, Jaitley said one of the major benefits of demonetisation was squeezing of funds for terrorists in Jammu and Kashmir and naxalites in Chhattisgarh.

On questions regarding the amount of scrapped currency deposited back in the banks, the finance minister said, "Today they (RBI) have to count every currency note. They have to take the fake currency out...That exercise the RBI is taken to a very advanced level."

The minister said since March demands were being raised for disclosure of the amount of scrapped currency deposited in the banks but it can not be done over night.

"...I am hearing that argument 'tell us the currency'. Please study the subject closely. And therefore as soon as they (RBI) complete this exercise, the figure will be placed by them before the country along with the figure of fake currency," he added.....(READ MORE)

Opposition to FM Jaitley: Scrapping Rs 2,000 note, bringing Rs 1,000 coin?

However, Jaitley did not respond even as the Opposition members insisted on clarification in RS

The Opposition in Rajya Sabha on Wednesday asked Finance Minister Arun Jaitley to clarify whether the government has decided to scrap the newly launched Rs 2,000 note and introduce a Rs 1,000 coin.

However, Jaitley, who was present in the House, did not respond even as the Opposition members insisted for clarification from him on the issue.(economy news)

Raising a point of order during the Zero Hour, Naresh Agrawal (Samajwadi Party) said: "The government has taken a decision to scrap Rs 2,000 note. The RBI (Reserve Bank) has been given order not to print the Rs 2,000 notes... If any policy decision been taken during the Parliament Session, the tradition is to announce it in the House."

So far, the RBI has printed 3.2 lakh crore pieces of Rs 2,000 notes. "And now it has stopped printing... RBI cannot bully. One note ban has been done, the second one is being planned. Let the Finance Minister say..," he said.

To this, Deputy chairman P J Kurien said, "that is RBI's action."

Agrawal then said that the earlier note ban decision was taken by the government and not the RBI. "The RBI board had opposed it but the government took the decision. The earlier decision (of demonetisation) was taken by the government, the second one is also from the government," he said.
Echoing his views, Leader of Opposition Ghulam Nabi Azad too sought clarification from the government on whether it was planning to introduce Rs 1,000 coins.

"Every day we read about a coin of [Rs] 1,000, 100 and 200. What is the actual status? Are we to go by what media is writing? The House is to be enlightened by the Finance Minister. What is the truth," he asked.

"Are we going to have [a] coin of Rs 1,000 coin. To carry coins, we have to purchase a bag? We must know. Our sisters have the purse. We shall also have to buy [a] purse just to carry the coins of Rs 1,000 (denomination)," he said and added that there was no politics in this issue.

Tiruchi Siva (Dravida Munnetra Kazhagam) said he cannot dispense with the media reports completely and sought clarification from the government on the issue.

Janata Dal (United) MP Sharad Yadav said the issue was serious as the rumours are strong, adding that the government should clarify and stop the rumours or else people will start returning Rs 2,000 notes.
 

Why no category for those who couldn't exchange notes by Dec 30, asks SC

Of Rs 15.4 lakh cr worth of currency that was banned, Rs 14 lakh cr has been deposited or exchanged

 

LATEST| The Supreme Court on Tuesday asked the Centre why it chose not to create a separate category for those who couldn't deposit demonetised notes by December 30, 2016 unlike the NRIs and people who were abroad.

A bench headed by Chief Justice J S Khehar said that the Prime Minister, in his November 8 address, had said that those with valid reasons could deposit the demonetised currency even after December 30, 2016, till March 31, 2017.

"Prime Minister in his address had said that people with genuine difficulties can deposit the demonetised currency even after December 30, 2016, till March 31, 2017 with the RBI branches.Give us the reasons why despite having powers under the law, you did not create a category for those people who couldn't deposit the demonetised notes before December 30, 2016" the bench said.

The apex court bench also comprising Justices D Y Chandrachud and S K Kaul said that the PM's address had given hope that those in difficulty would get a chance, till March 31, 2017, after giving valid reasons.

It also said that the government should file an affidavit by April 11 explaining the reason why the window was not created for the people having difficulty and the chance was only given to NRIs and the citizens who travelled abroad.

The SC also asked the Centre whether it intends to give a chance to those category of..... |Read More