On Wednesday, 30 August, Finance Minister Arun Jaitley said that the purpose of demonetisation was not to confiscate money but to make India economy a formal one, to expand tax base and to give a big boost to digitalisation of payments.
Mr Jaitley was responding to the RBI’s report that critics claimed proved that the demonetisation exercise was unsuccessful and unnecessary.
The Reserve Bank of India’s (RBI) annual report revealed, among other things, that almost all of the demonetised currency has found its way back to the central bank. The report also concludes that only 0.0007% of Rs 1,000 notes and 0.002% of old Rs 500 notes were found to be fake. (Overview of the RBI’s report can be read here.)
Mr Jaitley’s statements in the past few days is in tandem with the government’s rhetoric throughout this year: that demonetisation was unleashed with the intention of digitising the country’s economy.
This is surprising. Mainly because the “digital economy” rhetoric was almost non-existent in the weeks after demonetisation was announced on November 8 last year. The rhetoric during those days revolved solely around eliminating corruption and terror funding.
The radical shift in the government’s narrative is inexplicable. Well, almost.
Demonetisation: The stated goals
When the Prime Minister announced the note demonetisation at 8 pm on November 8, 2016, he said the move was to achieve three things:
- Remove black money,
- Curb counterfeit currency, and
- Stop terror funding.
In his speech that evening, the Prime Minister stated the above goals and explained the need to fight them elaborately.
In fact, in its first press release regarding demonetisation, the government clearly said that the move was undertaken “with a view to curb financing of terrorism through the proceeds of Fake Indian Currency Notes and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy…”
Black money, counterfeit currency and terror funding – did demonetisation resolve these goals?
Whether demonetisation achieved these three goals is no longer of question. The RBI report released this week proves that demonetisation’s costs far exceeded its few benefits.
The government argued that at least Rs 3 lakh crore of unaccounted money would be exposed by demonetisation. The RBI report has now revealed that Rs 15.28 lakh crore of the demonetised Rs 15.45 lakh crore has been received as of June 30, 2017. 98.96% of all old notes have been returned.
When it comes to the issue of counterfeit currency, the report concludes that only 0.0007% of Rs 1,000 notes and 0.002% of old Rs 500 notes were found to be fake. Additionally, the problem of counterfeit currency has not been solved as there have been several reports of counterfeit currency among the new denominations in the market. The old counterfeit currency has merely been replaced by new counterfeit currency.
As for terror funding, various forms of extremism continue to plague India. Terror-related incidents across the country rose gradually after a brief respite in the aftermath of demonetisation. The law and order situation in Kashmir has deteriorated again and attacks on civilians and security forces have resumed – the most infamous of these being the 24 April Maoist attack in Sukma, which killed 25 CRPF personnel (more).
From tackling corruption to digitising the economy: the government’s desperate attempts to change the narrative
Let us set aside the debate over whether demonetisation achieved its stated goals. Let us focus solely on the issue of why the government is trying so hard to change the narrative demonetisation.
Why is there such a desperate push to paint demonetisation as an attempt to digitise the economy when it is indisputably clear that this was not the case?
In his speech on November 8, the Prime Minister spoke at length about black money, counterfeit currency and terror funding.
Not once did he mention that demonetisation was being done to digitise the economy.
Not once was the need to convert India to a cashless economy was mentioned.
In fact, here’s a breakdown of the number of times the PM mentioned the respective terms:
Black Money: 17
Fake currency: 5
If the reader wants to cross-check, they can do so easily by going through the text of the speech.
The government abruptly and inexplicably shifted the narrative from fighting corruption to digitising the economy
The PM used a Mann Ki Baat session to shift his rhetoric entirely from black money to a cashless economy.
“Our dream is that there should be a cashless society. This is correct that 100 percent cashless society is never possible. But we can make a start with less-cash society, then cashless society will not be a far-off destination,” Modi said in the programme.
Meanwhile, the RBI Governor spoke along similar lines when he finally broke his silence on demonetisation. He said that demonetisation would help India “leapfrog into a less cash-use economy at par with more developed nations.”
A month after demonetisation, the narrative surrounding demonetisation seemed to have completely changed. Out of nowhere, there was talk of a digital economy and cashless transactions.
Responsible citizens should judge demonetisation according to the reasons the govt gave on November 8
The government’s decision to demonetise 86% of India’s currency overnight should be viewed and judged through the lens of the reasons that the government made for the decision in the first place.
Perhaps, in the weeks that followed demonetisation the government realised that far more money was coming back to the system than they had anticipated.
Perhaps, in the weeks that followed demonetisation the government realised that terrorism was not going to be eliminated anytime soon.
Perhaps, in the weeks that followed demonetisation the government realised that its rhetoric against corruption would be invalidated as its expectations had not been met.
Perhaps, in the weeks that followed demonetisation the government decided that this was why it was important to change the narrative so that alert citizens could not call them out on their failures. (The digitisation rhetoric also is feeble as the amount of cash in the market is nearing pre-demonetisation levels already.)
It is important for us to hold our leaders accountable. It is important for us to judge demonetisation based on its stated goals of eradicating black money, counterfeit currency and terror funding rather than fall prey to diversionary tactics adamant to change the rhetoric to one of a digital economy.