So how did that demonetisation thing work out for you?

It is exactly six months since Prime Minister Narendra Modi withdrew 86% of currency from circulation. Time to take stock.

There is a short answer and a long answer to the question in the headline. The short answer: it worked out very well for the prime minister and the ruling party. The resounding victory his party won in several state assembly elections in March is proof of that. There’s a new spring in the step of party president Amit Shah, and cabinet ministers now gloat that the position of the prime minister is reserved for Narendra Modi till 2024. In general, voters have bought the line that demonetisation was a courageous assault on the corrupt and the filthy rich on behalf of the poor and the downtrodden.

But it is also fair to say that demonetisation has worked out pretty well for the above-mentioned corrupt and filthy rich. What do we mean by that, and how do we know this? What we mean is that those who had black money by the truckload have managed to: (i) put all of that money into the banking system and (ii), get it converted into white – or new legal currency – at a small cost to themselves and little gain to the government.

How do we know this? As for (i), we know this because the government and the Reserve Bank of India continue to maintain radio silence about the extent of demonetised currency that has flown back even four months after the window for depositing old notes closed. Mind you, until December 13, the RBI was giving out updates on how much currency was returning and it stopped doing so only when it looked like the dam was about to burst, with news reports even suggesting that even more money could return to the system than had been printed by the RBI because fake currency too was finding its way to the banks. Since this government is not particularly known for being coy about its wins, the sudden and continued silence begs to be taken as confirmation that the money is all in.

What we do know

But how do we know (ii) that the money has got back into the system without much gain for the government? That is easy. Remember that initially, the government was counting on black money not returning to the banks at all, so that the RBI could then invalidate the unreturned money and find a way to transfer that sum as a bonanza to the government. But once it was clear that most of the money was indeed coming back, the government panicked and brought in a new voluntary disclosure of income scheme that allowed black money holders to declare their ill-gotten money by paying a 50 % tax on it, and keeping another 25% in the Pradhan Mantri Garib Kalyan Yojana at no interest as a fixed deposit for four years. This scheme for voluntary disclosure closed on March 31, 2017.

So if we know how much tax was paid under this scheme, we know exactly how big a price was paid by the fat cats to get their illegal money converted into legal white. Thankfully, we do know the figure. Take a guess what that number could be? Bear in mind that someone like Jagdish Bhagwati, the numero uno economist who had put his weight behind the demonetisation move, had quoted a figure of Rs 5 lakh crore as the extent of currency held in black, in a co-signed article in a business newspaper. Assuming that all of that Rs 5 lakh crore had returned to the system, contrite and now willing to pay a 50 % tax, government’s coffers should have puffed up by Rs 2.5 lakh crore. Compared to that, how much did the government actually collect as penalty and tax? Rs 2 lakh crore? Rs 1 lakh crore? May be Rs 50,000 crore? Nope. The government collected a grand royal sum of about Rs 2,300 crore under the scheme.

In other words, if we go by the Bhagwati figure of Rs 5 lakh crore as the extent of currency held in black, the filthy rich whom the government was assaulting mercilessly have so far paid less than 0.5% of their illegal currency hoard to the government as the cost of converting it all into new currency. If you were one of them, you would think that things worked out pretty well – and maybe you would even decide it is time to open a champagne bottle.

As for Income Tax Department...

Of course, one could argue that the game is not over yet. That the Income Tax department could go after the suspicious depositors one by one and extract from them what is due to the government. But anyone who knows how the IT department functions would take such arguments with a large pinch of salt. According to the Central Board of Direct Taxes, it has identified 1.8 million people whose deposits do not match their taxpayer profiles. The IT department has a sanctioned staff strength of about 72,000 with a vacancy rate of 30%, and the yearly tally of cases scrutinised comes to barely 3.5 lakh. Even if the entire department drops everything they are currently doing (which will mean less revenue from those cases) and focuses only on these 1.8 million cases, it will take at least five years to scrutinise them all. In other words, there is no easy way the department can dramatically increase the revenue it is currently earning, especially when you take into account the opportunity costs of not doing their regular scrutiny. The fat cats perhaps know this. Or they know other things that we don’t. Either way, since they have decided not to take the voluntary disclosure bait, a reasonable bet would be that they are feeling quite comfortable with the situation. The fact that the Union Budget for 2017 projects no abnormal increase in income-tax collections suggests the comfort they feel is not baseless.

Stated reasons

In his speech announcing the withdrawal of the notes on November 8, Prime Minister Modi put forward four big reasons for the move. Apart from tackling black money, the other three were tackling corruption, fake currency and terror financing. So let us go through them one by one.

As far as corruption is concerned, even economists close to the government who supported the demonetisation move admit that demonetisation in any case could not have been expected to have any effect on the future flow of black money, but only on the already existing stock. In the words of Bhagwati and his co-authors: “it is a truism to argue that it cannot by itself tackle future flows of black money.” Their argument is, of course, correct. And there’s anecdotal evidence, from the IT department itself, that supports it.

As for fake currency, the government is yet to answer what precise security features the new notes have that the previous ones didn’t. If anything, the numerous reports of faulty new currencies being dispensed by ATMs and banks suggest it should be easier to print fake currency now than earlier. Reports like this only strengthen that suggestion.

What about terror financing? At the height of the demonetisation mayhem, one of the claims repeatedly made by the government was that it had broken the back of both the stone-pelters in Kashmir and the Maoists in tribal regions. A flippant claim, one would think, but a claim that many media channels bought into with great excitement. As events in both Kashmir and Chattisgarh have shown since, if at all anything was broken, it was probably toenails, not the backbone. So this claim too doesn’t stand up to scrutiny that well.

That brings us to rationalisations that the government put forward after the demonetisation exercise started – the primary among them being the need to move towards cashless digital payments. Let’s keep aside the question whether moving towards cashless payments is a great idea in the first place and merely check whether this objective is being met at all.

Niti Ayog, which has been at the forefront defending the demonetisation move, put out some astonishing claims about the growth in digital payments after demonetisation, but the figures released by the RBI demolished those claims in a very embarrassing manner. There’s also this statement by the CEO of the National Payments Corporation of India saying the number of digital transactions is declining.

There is thus a fair degree of consensus now that digital payments growth is by and large reverting to the trend that was prevalent before demonetisation, with many who were forced to go digital returning to usual practice. The expectation that digital payments would grow at a new exponential rate has been virtually given up.

The flip side

So much for the gains. But what about losses? Did the significant losses to Gross Domestic Product that were predicted come about? At first look, perhaps not. The Economic Survey put the losses due to demonetisation at 0.25% to 0.5% of GDP, compared to a 2% hit to GDP predicted by former Prime Minister, Manmohan Singh. But this could be because current GDP measurements rely too much on the organised sector and too little on the unorganised.

It is well accepted that the brunt of demonetisation was borne by the unorganised sector and the organised sector may even have gained a little bit through higher market share. A Quarterly Employment Survey done by the government captures this differential impact in an indirect manner: it says in the third quarter of 2016-17, the manufacturing sector added 72,000 employees, but laid off 1,12,000 casual workers. Economist Prabhat Patnaik gives a variety of other reasons too for why the hit to GDP looks less in official figures than in real life.

Stock market behaviour, again a barometer of organised sector performance, has been noticeably bullish this year, with the Sensex going past 30,000 for the first time. That suggests a relief that the worst fears about demonetisation haven’t materialised at least as far as listed companies are concerned. It is worth bearing in mind, however, that over the last three years, the Sensex has gone up by barely 31% – or by less than 9.5% a year.

In sum, demonetisation has been a hugely rewarding exercise for the prime minister and the ruling party, an interesting and ultimately relaxing experience for the fat cats with black money, a time of desperation for casual workers and the unorganised sector, a period of consolidation and relief for the organised sector, and an occasion for unrestrained schadenfreude (pleasure derived by someone from another’s misfortune) for many – even if that feeling was based on a non-truth.

You could call this a wash, with nothing much gained in real terms and nothing much lost either. You could also call it a moral disaster – a time when a popularly elected government made a winning political calculation and turned a blind eye to the misery it inflicted upon millions – those who lost their lives without access to cash, those who forfeited their hard-earned life savings because the government broke its promise on how and when to get their notes exchanged, those who were fired from their jobs because there was no money in the system, those who were left holding worthless currency because they didn’t know the system, or were unlucky or were sick...

There also may be a bigger price that we are yet to pay, as a direct result of the lesson the government has learnt from the political success of the exercise: that there is virtually no limit to what it can do, because the people are willing – and perhaps even eager – to sacrifice much.

If eternal vigilance is the price of liberty, it looks like far too many people would rather not buy it.

Tony Joseph is a former Editor of BusinessWorld and can be reached at tjoseph0010@twitter.com

We welcome your comments at letters@scroll.in.
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Ten awesome TV shows to get over your post-GoT blues

With those withdrawal symptoms kicking in, all you need is a good rebound show.

Hangovers tend to have a debilitating effect on various human faculties, but a timely cure can ease that hollow feeling generally felt in the pit of the stomach. The Game of Thrones Season 7 finale has left us with that similar empty feeling, worsened by an official statement on the 16-month-long wait to witness The Great War. That indeed is a long time away from our friends Dany, Jon, Queen C and even sweet, sweet Podrick. While nothing can quite replace the frosty thrill of Game of Thrones, here’s a list of awesome shows, several having won multiple Emmy awards, that are sure to vanquish those nasty withdrawal symptoms:

1. Billions

There is no better setting for high stakes white collar crime than the Big Apple. And featuring a suited-up Paul Giamatti going head-to-head with the rich and ruthless Damien Lewis in New York, what’s not to like? Only two seasons young, this ShowTime original series promises a wolf-of-wall-street style showcase of power, corruption and untold riches. Billions is a great high-octane drama option if you want to keep the momentum going post GoT.

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2. Westworld

What do you get when the makers of the Dark Knight Trilogy and the studio behind Game of Thrones collaborate to remake a Michael Crichton classic? Westworld brings together two worlds: an imagined future and the old American West, with cowboys, gun slingers - the works. This sci-fi series manages to hold on to a dark secret by wrapping it with the excitement and adventure of the wild west. Once the plot is unwrapped, the secret reveals itself as a genius interpretation of human nature and what it means to be human. Regardless of what headspace you’re in, this Emmy-nominated series will absorb you in its expansive and futuristic world. If you don’t find all of the above compelling enough, you may want to watch Westworld simply because George RR Martin himself recommends it! Westworld will return for season 2 in the spring of 2018.

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3. Big Little Lies

It’s a distinct possibility that your first impressions of this show, whether you form those from the trailer or opening sequence, will make you think this is just another sun-kissed and glossy Californian drama. Until, the dark theme of BLL descends like an eerie mist, that is. With the serious acting chops of Reese Witherspoon and Nicole Kidman as leads, this murder mystery is one of a kind. Adapted from author Liane Moriarty’s book, this female-led show has received accolades for shattering the one-dimensional portrayal of women on TV. Despite the stellar star cast, this Emmy-nominated show wasn’t easy to make. You should watch Big Little Lies if only for Reese Witherspoon’s long struggle to get it off the ground.

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4. The Night of

The Night Of is one of the few crime dramas featuring South Asians without resorting to tired stereotypes. It’s the kind of show that will keep you in its grip with its mysterious plotline, have you rooting for its characters and leave you devastated and furious. While the narrative revolves around a murder and the mystery that surrounds it, its undertones raises questions on racial, class and courtroom politics. If you’re a fan of True Detective or Law & Order and are looking for something serious and thoughtful, look no further than this series of critical acclaim.

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5. American Horror Story

As the name suggests, AHS is a horror anthology for those who can stomach some gore and more. In its 6 seasons, the show has covered a wide range of horror settings like a murder house, freak shows, asylums etc. and the latest season is set to explore cults. Fans of Sarah Paulson and Jessica Lange are in for a treat, as are Lady Gaga’s fans. If you pride yourself on not being weak of the heart, give American Horror Story a try.

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6. Empire

At its heart, Empire is a simple show about a family business. It just so happens that this family business is a bit different from the sort you are probably accustomed to, because this business entails running a record label, managing artistes and when push comes to shove, dealing with rivals in a permanent sort of manner. Empire treads some unique ground as a fairly violent show that also happens to be a musical. Lead actors Taraji P Henson and Terrence Howard certainly make it worth your while to visit this universe, but it’s the constantly evolving interpersonal relations and bevy of cameo appearances that’ll make you stay. If you’re a fan of hip hop, you’ll enjoy a peek into the world that makes it happen. Hey, even if you aren’t one, you might just grow fond of rap and hip hop.

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7. Modern Family

When everything else fails, it’s comforting to know that the family will always be there to lift your spirits and keep you chuckling. And by the family we mean the Dunphys, Pritchetts and Tuckers, obviously. Modern Family portrays the hues of familial bonds with an honesty that most family shows would gloss over. Eight seasons in, the show’s characters like Gloria and Phil Dunphy have taken on legendary proportions in their fans’ minds as they navigate their relationships with relentless bumbling humour. If you’re tired of irritating one-liners or shows that try too hard, a Modern Family marathon is in order. This multiple-Emmy-winning sitcom is worth revisiting, especially since the brand new season 9 premiers on 28th September 2017.

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8. The Deuce

Headlined by James Franco and Maggi Gyllenhaal, The Deuce is not just about the dazzle of the 1970s, with the hippest New York crowd dancing to disco in gloriously flamboyant outfits. What it IS about is the city’s nooks and crannies that contain its underbelly thriving on a drug epidemic. The series portrays the harsh reality of New York city in the 70s following the legalisation of the porn industry intertwined with the turbulence caused by mob violence. You’ll be hooked if you are a fan of The Wire and American Hustle, but keep in mind it’s grimmer and grittier. The Deuce offers a turbulent ride which will leave you wanting more.

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9. Dexter

In case you’re feeling vengeful, you can always get the spite out of your system vicariously by watching Dexter, our favourite serial killer. This vigilante killer doesn’t hide behind a mask or a costume, but sneaks around like a criminal, targeting the bad guys that have slipped through the justice system. From its premier in 2006 to its series finale in 2013, the Emmy-nominated Michael C Hall, as Dexter, has kept fans in awe of the scientific precision in which he conducts his kills. For those who haven’t seen the show, the opening credits give an accurate glimpse of how captivating the next 45 minutes will be. If it’s been a while since you watched in awe as the opening credits rolled, maybe you should revisit the world’s most loved psychopath for nostalgia’s sake.

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10. Rome

If you’re still craving an epic drama with extensive settings and a grandiose plot and sub-plots, Rome, co-produced by HBO and BBC, is where your search stops. Rome is a historical drama that takes you through an overwhelming journey of Ancient Rome’s transition from a republic to an empire. And when it comes to tastes, this series provides the similar full-bodied flavour that you’ve grown to love about Game of Thrones. There’s a lot to take away for those who grew up quoting Julius Caesar, and for those looking for a realistic depiction of the legendary gladiators. If you’re a history buff, give this Emmy-winning show a try.

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This article was produced by the Scroll marketing team on behalf of Hotstar and not by the Scroll editorial team.