Demonetisation at 2: Political fodder, changed aims

It is now two years since Prime Minister Narendra Modi stunned the entire country in a public address by announcing that all bank notes of Rs 500 and Rs 1000 denomination would become invalid effective midnight on November 8, 2016.

During his announcement, Modi proclaimed that Demonetisation would curb funding of terrorism and bring an end to the menace of black money, but two years down the line, not much seems to have changed. In fact, the exercise has become a strong contention point between the BJP and its arch-rival Congress, which has been steadily vying for alliances ahead of the 2019 General elections.

The impact of the move

Demonetisation, pegged as a move to clean India's cash-centric economic system with a digital-focused landscape, rendered 86% of the in-circulation currency invalid overnight.

The immediate result was obvious: People queueing up outside banks to deposit whatever cash they had, leading to several nationwide reports of snake-like lines outside banks, which instantly felt the blow of the move as bankers were forced to work overtime to compensate for the new workload on them.

The other impact was the political slugfest that occurred between the BJP and the Opposition. This was most apparent in poll-bound UP, where the SP and BSP raised questions about the timing of the move.

Needless to say, the Congress also wanted a piece of the pie, and they started off with echoing Arvind Kejriwal's allegation that a select few were in on the demonetisation plan to help them clean out their coffers, bringing up reports of massive deposits occurring in West Bengal and Gujarat units of the BJP just ahead of the announcement. The then Congress vice-president Rahul Gandhi even dared Modi to join him in a public debate on the move.

Meanwhile, BJP president Amit Shah said that the government's move had nothing to do with polls, but said that the BJP will benefit politically going by the reactions of Opposition parties and Modi continued to insist that DeMo was a "crusade" against corruption and black money and asked his rivals to cooperate with his government on the matter.

The third impact was the spontaneous growth of e-wallets. In the first two days, digital payment platforms like PayTM witnessed 7X increase in overall traffic and MobiKwik registered 18X growth in transactions.

There were also reports that over 100 people had died while standing in queues across the country, which happened even as the RBI issued new, smaller Rs 500 notes and a new denomination: Rs. 2000. ATMs across India had to be recalibrated to accommodate the new notes, slowing down the already slow remonetisation even further.

And as if the entire process of depositing notes in banks wasn't harrowing enough for people standing for days in queues, the Centre and RBI continually threw spanners into the gears by issuing over 74 notifications in just the first 50 days of the exercise, many of which involved restricting the amount that could be withdrawn from banks and ATMs in one day.

Almost all banned money returned to system, RBI expenses skyrocket

The biggest shock came when the RBI announced that 99% of all the banned notes had returned to the system, contrary to reported expectations that over one-third of notes would not be coming back.

Additionally, the RBI incurred a cost of Rs 7,965 crore on printing currency notes in 2016-17, up from Rs 3,420 crore the previous year. It spent Rs 4,192 crore on printing new currency notes during remonetisation in the last one year.

Shifting goalposts?

While Modi had originally claimed that black money and terror funding were the targets of the Demonetisation exercise, many other reasons were brought up as time went on to justify the move.

Finance Minister Arun Jaitley, for instance, hit out at critics of demonetisation, saying that Modi chose the harder option for a better future of India’s economy and its people.

“When you are in a cusp of history, and you look at the long-term impact of these steps which are going to be taken, I think India is going to become a society in the long-term with a certainly better GDP, a cleaner ethics, a cleaner economy,” Jaitley said during the Petrotech conference in New Delhi.

When it was learnt that 99% of notes were back in the system, Jaitley was quick to defend Demonetisation, saying: “The main aim of demonetisation was to squeeze the use of cash, increase digitisation, expand tax base, deal a blow to terror funding and formalise the informal economy, and I am sure we have achieved the objective to the extent possible."

Protests planned

Meanwhile, the Congress has announced plans to protest against the Modi government on Thursday against Demonetisation, which the party has repeatedly called a disaster.
“The Congress would like to demand that on November 8, 2018, exactly at that point in time when the prime minister two years ago had issued this 'Tughlaqi farmaan', he must stand up and apologise to the people of this country for ruining and wrecking the Indian economy,” senior Congress leader Manish Tewari said.

Govt targeting RBI reserves?

The failure of Prime Minister Narendra Modi's demonetisation drive, now exactly two years old, along with the general elections round the corner, are the main reasons the government is eyeing the Reserve Bank’s capital reserves, senior RBI officials told DH on condition of anonymity. The government has asked the RBI to funnel Rs 3.6 lakh crores into its hands in a move, the officials say, meant to use the money to fund populist schemes in election season without causing the fiscal deficit to widen further.

Read more: Note ban @ 2: Was the exercise worth taking?