By Satyaki Chakraborty
It was five years ago, on that fateful night of November 8, 2016, Prime Minister Narendra Modi announced his ‘historic’ decision of demonetization promising that it would act as a game changer in the Indian economy by driving out black money, weed out fake notes and check terror funds but the official figures prove the contrary as the rich become richer and the poor more poor in the wake of slowdown and the pandemic in the last two financial years.
The BJP government has been continuously changing the thrust of the initial objectives announced by PM year after year and the latest was that the confiscation of currency was not an objective of demonetisation. Getting it into formal economy and making the holders pay tax was the broader objective, as of now. The system required to be shaken in order to make India move from cash to digital transactions. Nothing is far from truth.RBI figures again show that cash is back and the digital transactions are on the rise and this, in any case, would have happened, even without resorting to demonetization.
On the other hand, the disruption which the demonetization created led to the death of about 120 persons, mostly poor, many of whom died while waiting in the queue before the banks, and crippled the informal economy which is still to recover. The Prime Minister and the Finance Minister are not talking of terror funds or black money any more. They are now talking in more general terms, trying to explain how the tax collections have improved leading to more resources, better infrastructure and a better possibility of growth.
Soon after demonetization, reports indicated how some businessmen, including bullion merchants, took advantage of dmonetization in making huge money through foul means. Further, many of the people had some inkling of the measure coming. The impact in the job market was immediate. Studies made about first four months of 2017 showed that 1.5 million jobs were lost during January-April 2017due to demonetisation. The estimated total employment during the period was 405 million compared to 406.5 million during the preceding four months of September-December 2016
A CMIE study showed that the lasting effect of demonetization in labour participation rate was apparent in the months of 2017 and in 2018 also. The damage that was done to the informal economy due to demonetization got accelerated as the slowdown of the economy affected jobs in 2019 and finally covid pandemic took the toll in 2020-21 and also the impact is continuing in the current fiscal 2021-22, though some revival has taken place after the lifting of the lock down in different parts of the country. The jobless growth is continuing and it is most visible in the informal sector.
The situation in the informal sector of the economy is still pathetic and it is paying the price of the Prime Minister’s demonetization blunder. According to the economic census, there are 56 million non-agricultural enterprises and if 72 million farmers are added to this, 120 million economic entities exist in the informal sector. This sector has the largest number of employment in the country and it is in distress. There is really no reliable data about the real impact of demonetisation on the rural jobs, but the rise in distress among the farmers is an indication of the nature of woes that have hurt the informal economy.
When Narendra Modi announced demonetisation of old Rs 1,000 and Rs 500 banknotes one of the key objectives was to promote digital payments and curb black money flows. According to the latest Reserve Bank data, the notes in circulation in value terms soared from Rs 17.74 lakh crore on November 4, 2016, to Rs 29.17 lakh crore on October 29, 2021. The notes in circulation (NIC) increased by Rs 2,28,963 crore on October 29, 2021, from Rs 26.88 lakh crore as on October 30, 2020. The year-on-year increase on October 30, 2020, was Rs 4,57,059 crore. The data revealed that the year-on-year increase in NIC on November 1, 2019 was Rs 2,84,451 crore.
The value and volume of banknotes in circulation had increased by 16.8 per cent and 7.2 per cent, respectively, during 2020-21 as against an increase of 14.7 per cent and 6.6 per cent, respectively, witnessed during 2019-20.The banknotes in circulation had increased during 2020-21, primarily on account of precautionary holding of cash by people due to the pandemic.
Most leading economists of the country, including Dr. Amartya Sen, Dr. Abhijit Vinayak Bandyopadhayay, Dr. Arun Kumar, flayed the demonetization at that time as the move would impact the unorganized and the poor while taking care of the rich who had many devious ways of transferring their black money into other assets. It is time to ask the Prime Minister why he should not be made responsible for the present worsening economic plight of the majority of the population as a result of the Modi regime’s demonetization decision. (IPA Service)