{"id":5127,"date":"2017-05-09T18:47:29","date_gmt":"2017-05-09T13:17:29","guid":{"rendered":"https:\/\/teekhapan.wordpress.com\/?p=5127"},"modified":"2017-05-09T18:47:29","modified_gmt":"2017-05-09T13:17:29","slug":"six-months-after-demonetisation-cash-is-king-again-and-questions-still-remain","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2017\/05\/09\/six-months-after-demonetisation-cash-is-king-again-and-questions-still-remain\/","title":{"rendered":"Six Months After Demonetisation Cash is King Again and Questions Still Remain"},"content":{"rendered":"
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On November 8, 2016, the prime minister Narendra Modi announced his government\u2019s decision to demonetise Rs 500 and Rs 1,000 notes, to an unsuspecting nation. The decision came into effect from the midnight between November 8 and November 9, 2016, and suddenly rendered 86.4 per cent of the nation\u2019s currency in circulation, useless.<\/p>\n
It\u2019s been six months since then and more than four months since December 30, 2016, the last date for depositing the demonetised Rs 500 an Rs 1,000 notes, into bank accounts. But even after this period as far as the government is concerned, a few basic points remain.<\/p>\n
a) How much demonetised money finally made it into bank accounts? When demonetisation was first announced, this number was shared regularly. Nevertheless, the last announcement on this front from the Reserve Bank of India(RBI) came on December 13, 2016. As of December 10, 2016<\/a>, Rs 12.44 lakh crore of demonetised currency had made it back into the banks. b) The initial idea behind demonetisation was to curb fake currency notes and eliminate black money. c) The government has still not offered a good explanation of what prompted it to demonetise. There has been no similar decision taken by any other country in a stable financial situation like India currently is, in the modern era. The best that the government has done is blamed it on the RBI. As Meghwal told the Lok Sabha<\/a> in early February 2017: \u201cRBI held a meeting of its Central Board on November 8, 2016. The agenda of the meeting, inter-alia, included the item: \u201cMemorandum on existing banknotes in the denomination of Rs 500 and Rs 1000 – Legal Tender Status.\u201d\u201d d) Other than eliminating black money and fake currency notes through demonetisation, in the aftermath of demonetisation, the government wanted to promote cashless transactions. As Modi said in the November 2016 edition of themann ki baat<\/em>\u00a0radio programme: \u201cThe great task that the country wants to accomplish today is the realisation of our dream of a \u2018Cashless Society\u2019. It is true that a hundred percent cashless society is not possible. But why should India not make a beginning in creating a \u2018less-cash society\u2019? Once we embark on our journey to create a \u2018less-cash society\u2019, the goal of \u2018cashless society\u2019 will not remain very far.\u201d<\/em><\/p>\n How are things looking on that front? Look at the following table. It shows the volume of digital transactions over the last few months.<\/p>\n
\nGiven that Rs 15.44 lakh crore worth of currency notes had been demonetised, nearly 80.6 per cent of the currency had found its way back into banks, nearly three weeks before the last date to deposit demonetised notes into bank accounts.
\nNeither the Reserve Bank nor the government has told the nation how much money eventually made it back into the banks. This is an important question and needs to be answered.<\/p>\n
\nAs far as fake currency goes the minister of state for finance Arjun Ram Meghwal told the Lok Sabha in early February<\/a> 2017 that the total number of fake notes deducted in the currency deposited into banks after demonetisation stood at 2.46 lakhs. This amounted to a total value of Rs 19.5 crore.
\nAs mentioned earlier, the total value of demonetised notes had stood at Rs 15.44 lakh crore. Given this, the proportion of fake notes deducted is almost zero and can be ignored. Hence, as far as detecting and eliminating fake notes was concerned, demonetisation was a total flop.
\nHow did it do as far as eliminating black money is concerned? The hope was that the black money held in the form of cash will not make it back into the banks, as people wouldn\u2019t want to get caught by declaring it. But by December 10, 2016, more than four-fifth of the demonetised notes had already made it back into the banks. Since then the government and the RBI have not given out any fresh numbers. It\u2019s surprising that it has been more than four months since December 30, 2016, and this number is still not out in the public domain.
\nAlso, it is important to point out here: \u201cHigh denomination notes are known to facilitate generation of black money. In this connection, it may be noted that while the total number of bank notes in circulation rose by 40% between 2011 and 2016, the increase in number of notes of Rs.500\/- denomination was 76% and for Rs.1,000\/- denomination was 109% during this period.\u201d
\nIf high denomination notes facilitate generation of black money, then why replace Rs 1,000 notes with Rs 2,000 notes. Given that a Rs 2,000 note is twice the value of a Rs 1,000 note, it makes black market transactions even more easier. It also makes storage of black money in the form of cash easier, given that it takes less space to hide the same amount of money.
\nAgain, this is a basic disconnect in what the government planned to achieve through demonetisation and what it eventually did. No effort has been made to correct this disconnect.<\/p>\n
\nAnybody who has studied the history of the RBI would know that the RBI would never take such an extreme step without extreme pressure from the government.<\/p>\n