The Reserve Bank of India’s second annual report since demonetisation puts to rest any illusions about the Modi government’s grandest financial gesture. On November 8, 2016, Prime Minister Narendra Modi announced that all Rs 500 and Rs 1000 notes, comprising 86% of the total value of the currency in circulation at that time, would no longer be recognised as legal tender. Nearly two years later, the central bank says, about 99.3% of the notes sucked out of circulation has been returned. Besides, the value of bank notes in circulation has increased by 37.7% over the year, reaching Rs 18,037 lakh crore by the end of March 2018. It is perhaps no surprise, then, that Bharatiya Janata Party legislators who are part of the Parliamentary standing committee on finance have reportedly stalled the adoption of a draft report on demonetisation.
Demonetisation was supposed to be the tonic that cured the financial system of a range of maladies, the government argued. Yet, over the last two years, at least three of its major claims have collapsed. It was supposed to flush out black money and end corruption. The government predicted that Rs 3 lakh crore in currency would not return to the banks. This has proved to be false, as most of the cash has returned. Either the black money was parked in other assets or is yet to be identified as such from the amounts deposited in various banks across India. Meanwhile, the country’s banks reportedly detected a 480% jump in suspicious transactions post demonetisation.
Second, demonetisation was to help detect fake currency, which apparently funded terror and distorted the economy. The government claimed that at any point of time, there was Rs 400 crore in fake currency notes floating in the economy. Nine months after demonetisation, it was claimed that Rs 11.23 crore in fake currency had been detected. Now, the Reserve Bank reports a huge jump in fake Rs 2,000 notes, which were introduced after demonetisation.
Third, demonetisation was to pave the way to a cashless economy and the gleaming new world of digital India. Two years later, the amount of cash with the public has reached a record high, the bank has claimed.
Initially, the BJP spun it well, as the great “surgical strike” on black money, the bold move that would punish the corrupt rich and eventually bring redistributive justice. It tapped into deep wellsprings of anger created by entrenched inequality and it showed the Modi government to be waging war on corruption. But the liquidity crunch led to months of hardship and job losses for thousands, including the poorest of the poor who depend on cash for their daily lives and livelihoods. According to the Opposition, the decision also brought down growth by 1.5%. In the face of mounting evidence against it, the Centre chooses to say demonetisation has met its objectives. But why, then, are BJP legislators anxious to stall the adoption of the draft report of the Parliamentary Standing Committee on Finance, which had said that demonetisation led to at least one percentage point of lost Gross Domestic Product growth, as well as unemployment due to the cash crunch? Could it be that the government, unable to defend the punitive financial measure any longer, would rather keep the full impact of it hidden from public view?