We all know what happened on November 8, 2016, India evening – the demonetization of ₹ 500 and ₹ 1,000 banknotes. Until now, I am unable to figure out whether it was a boon to India or a nightmare. So to make myself clear on it, I decided to personally consider the impact of demonetization on India. Here we go:
Growth in Digital Transactions
Since Demonetization, there is a boom in digital payments across India. As per the CIO report dated November 11, 2016, OlaMoney saw a 1500% increase in wallet recharge, Paytm wallet top-up increased by 435%, and Mobikwik traffic increased by 15 times.
After demonetization, more and more people are going cashless and that’s a good impact as digital payments will not only make transactions easy but will also save printing cost of notes in the future that can be used for other development tasks of the nation.
Failure To Curb Black Money
As per the report of The Economic Times dated December 5, 2016, based on data released by the Reserve Bank of India (RBI), 80% of the money in denomination of ₹ 500 and ₹ 1,000 notes that were in circulation have been deposited in banks until the first week of December 2016.
The deadline for depositing old notes is December 31, 2016 (leaving aside the deadline of March 31, 2016, for direct deposits in RBI, and June 30, 2016, for non-residents). Therefore, the most likely chances are that the remaining 20% of the old notes in denomination of ₹ 500 and ₹ 1,000 will also be deposited in banks resulting in the conversion of entire black money into white money before June 30, 2017.
Apart from cash, black money is kept in the form of gold and underpriced real estate that is already safe without having been affected by demonetization.
Failure To Curb Circulation of Fake Notes
Old fake currency notes might not be of any use for the culprits who are in the illegal business of printing and circulating fake notes but there is no lack of new currency fake notes.
As per the report of India Today dated November 26, 2016, six persons were arrested in Hyderabad city with ₹ 2.22 lacs worth of fake notes in denomination of ₹ 2,000. A week later, on December 1, 2016, NDTV reported that three persons were caught in Mohali city with fake ₹ 2,000 notes amounting to ₹ 42 lacs. On top of that, to make the news even worst, it was found that out of three guys, one was a Make-in-India awardee engineer!
Besides, these are only a few cases that have been caught and reported. There must be countless cases like these that will neither be caught not be reported. Clearly, demonetization has failed to curb the circulation of fake currency notes in the economy.
Rise In Corruption
I am of the opinion that demonetization has opened the doors of new opportunities for the masters of corruption, especially people who are in charge of our financial and banking system. You might have heard about the case of RBI officials who were arrested for illegal exchange of old notes and government people found with unauthorized possession of new notes totaling to crores.
On December 1, 2016, The Hindu reported the seizure of ₹ 4.7 crores worth of new currency notes from the house of two chief engineers employed in the Public Work Department. The Indian Express reported on December 17, 2016, about the arrest of two RBI officials over an illegal exchange of demonetized notes worth ₹ 1.99 crores. I wonder that those culprits, being government employees, must be having links with other government officials, smoothly facilitating their illegal business.
Anyways, the above incidents demonstrate how senior officials in government departments earned huge black money via the illegal exchange of old currency notes during the demonetization scheme.
Undue Public Hardship
I would not like to hit refresh on anything about the hardship faced by every Indian during the time of demonetization. You already know very well what hardship you, me, and every other Indian faced during demonetization.
Mounting Cost Of Printing New Notes
Based on NDTV report dated December 21, 2016, a new ₹ 500 note cost ₹ 3.09 to print and a new ₹ 2,000 note cost ₹ 3.54 to print. Considering the printing expenditure, the total cost to fulfill the demand for new currency notes will set back RBI by a total of ₹ 12,000 crores, as per an estimate of The Hindu shared on November 9, 2016. That cost appears to outperform any monetary benefits that demonetization may offer.
Legendary Opinions On Demonetization
Raghuram Rajan, Former RBI Governor, On Demonetization
Unfortunately, my sense is the clever find ways around it. Black money hoarders find ways to divide their hoard into many smaller pieces. A fair amount of unaccounted cash is typically in the form of gold and therefore even harder to catch. You find that people who have not thought of a way to convert black to white, throw it into the hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money. I would focus more on incentives that lead to generation and the retention of black money.Raghuram Rajan, Former RBI Governer
Amartya Sen, Nobel Laureate Economist, On Demonetization
Telling the people suddenly that the promissory notes you have, do not promise anything with certainty, is a more complex manifestation of authorization, allegedly justified – or so the government claims – because some of these notes, held by some crooked people, involve black money. At one stroke the move declares all Indians – Indeed all holders of Indian Currency – as possibly crooks, unless they can establish they are not.Amartya Sen, Nobel Laureate Economist
Final Thoughts On Demonetization
In a country like India, where out of 125 crore people, only 46 crore people use the internet, forcing people to use digital mode of payment through policies like demonetization is a brutal and inhuman act of power abuse and is no less than a day crime with—unfortunately— no penal provisions.
Of course, there may be some minor benefits of demonetization in terms of no deposit of some percentage of old notes that were stored as black money and India shifting to a digital economy. However, all those positive impacts will be outperformed by the printing cost of new notes, the new opportunities it has opened for corruption, and above all, the undue hardship faced by every common person in India. That is my opinion on demonetization. Of course, you may agree or disagree with my opinion.
On that note, let’s cheers to the democracy of India where, among other things, we all enjoy the freedom of speech and expression, and have all the liberty to express our views respectfully. Isn’t that worth celebrating?