It’s been nearly a month since the 50-day ‘pain period’ lapsed. December 31 was the last date for depositing old ₹500 and ₹1,000 currency notes. The government, or more precisely Prime Minister Narendra Modi, had promised that by December 31 things would return to normal. That is, there would be enough new currency notes in circulation and bank ATMs would be functioning normally.
But December 31 has come and gone and life hasn’t returned to normal. The restrictions in bank withdrawals are still in place, there is still a shortage of new currency notes and ATMs, when they’re functioning, are not dispensing money in the required denominations. The only visible difference is that the queues outside banks and ATMs have vanished; perhaps people have adjusted themselves to the ‘new normal’.
But there has been an eerie silence from the government on another front. Even after enduring months of difficulty, we have no idea how much of the existing stock of black money has been flushed out. There is still no reliable data put out on the amount of old ₹500 and ₹1,000 notes deposited into banks. In other words, we still have no idea how much of the ‘extinguished’ notes have returned to the banking system.
Exact figure unknown
In November, there were reports that 60 per cent of the amount held in old notes had returned to the banks. Now, a couple of reports say that up to 93 and 97 per cent of the old notes are coming back into the banking system. The government has not responded to these reports, saying it needs more time to put out accurate data.
The RBI Governor has not spoken yet. In fact, at the recent Vibrant Gujarat Summit, he was reported to have given the slip to the hungry media that was waiting to pounce on him!
In a recent media interaction, NITI Aayog Vice-Chairman Arvind Panagariya also declined to comment on the issue and bought more time for the government. So, unless the government puts out official figures of the amount generated through the scrapped ₹500 and ₹1,000 returning to the banking system, we will not know how much black money has been extinguished.
Though Revenue Secretary Hasmukh Adhia has said that not all the money that has returned to banks can be deemed as ‘white’, and the taxman has said that suspicious high-value deposits will be probed, the final figure will still be crucial to judge the efficacy of this exercise.
Was it worthwhile?
Now the question is, if a major chunk of the amount in scrapped notes has indeed returned to the banking system, then was the whole demonetisation exercise worth all the trouble? Before the note ban, did the government have an estimate of the volume of black money in circulation and did it have a target of the amount of such currency it was going to suck out?
These are questions that only the government and the RBI can answer but, at the moment, all we are getting is a deathly silence from them. One hopes that at least in the coming days, the government puts out some figures so that an independent assessment can be made on the success or failure of this biggest financial exercise in monetary history, as The Guardian described it.
In the meantime, the Central Statistics Office has lowered the growth estimate for 2016-17 to 7.1 per cent; but it took into account data only till October, so it does not capture the impact of the note ban. Economists from most investment banks, rating agencies, and think-tanks have been sceptical about the CSO’s estimates, saying that growth could fall further. ICRA’s and HSBC Global Research’s estimates were the lowest, at 6.6 percent and 6.3 per cent, respectively.
But most of these agencies have said that growth would rebound in 2017-18 and the disruption caused by demonetisation is going to be short-term in nature.
Assembly elections
Now with the Election Commission announcing the dates for upcoming elections in five States, including the crucial Uttar Pradesh, there is a very real danger of these elections turning into a referendum for the government’s demonetisation exercise. If the BJP manages to wrest power in Uttar Pradesh and Punjab, it will go to town about the ‘success’ of the note ban exercise and how the people have endorsed it. And it will end up burnishing Modi’s image as a crusader against corruption. Likewise, if the Opposition comes to power, it will read the mandate as a vote against demonetisation.
The danger in this narrative is that it tends to ignore the complex local issues at play and reduces the whole exercise to a referendum, which does little credit to our federal polity. This is not to say that the note ban will not be an issue in these States, given the impact that it has had on people’s lives, but there are other important local issues also at stake — the drug menace in Punjab, for example. But turning these State elections into a referendum for demonetisation will, no doubt, serve the BJP’s interests.
In the meantime, one can only patiently wait for the government to put out some hard data so that a calm and rigorous assessment can be done on the success or failure of demonetisation.