WITH the publication of the RBI Annual Report, giving the number and value of demonetised notes coming back to the chests of the Central Bank, the issue whether demonetisation (note bandi) has been a success or failure has come up for discussion in public domain in a big way and some persons like Rahul Gandhi, President of main opposition party (Congress) has greatly criticised note bandi saying that it has pushed back GDP growth substantially to the detriment of common people, benefitting only 15-20 people, who are close to Prime Minister Narendra Modi. This article considers how far such criticism is valid and justified.
The RBI has revealed that the total amount of demonetised currency that was returned was close to 100 per cent with it receiving notes worth Rs. 15.31 lakh core of Rs. 500 and Rs. 1000 notes, which is 99.3 per cent of the total value of specified bank notes in circulation as on November 8, 2016, which was Rs. 15.42 lakh crore, while the total value of notes returned from circulation is Rs. 15.31 lakh crore.
From these figures, the conclusion drawn is that all the black money in circulation has become white by coming in circulation and the claim that note bandi has been successful in catching black money is a misnomer with no legs to stand.
According to The Economic Times dated August 31, 2018, Rahul Gandhi has said:
- Demonetisation was country’s biggest scam;
- What PM did was intentional;
- PM Narendra Modi inflicted demonetisation to benefit 15-20 crony capitalists and his friends, who have Non-Performing Assets (NPAs);
- To help them, he took money from the common people and directly put it in the pockets of the biggest and most corrupt crony capitalists. By demonetisation, the PM has intentionally finished off mid-sized business.
Currency lying dormant in boxes, gunny bags, vaults, chests, lockers, etc., has flowed into the economy, making more funds available for the country’s developmental and other needs
All this has been said without any iota of evidence or facts to support what has been said. Even the names of the 15-20 crony capitalists, who are claimed to be the beneficiaries of the note bandi, have not been disclosed. Actually, Rahul Gandhi has in his imagination, some 10-15 persons, who do not exist in real life. He imagines that any benefit announced by the Government is for the benefit of such persons to the detriment of the poor and common people and criticises the Government on that basis. Sometime back, he forcefully said in the context of loan waivers that the Government does not waive the loan of poor/common people, but has waived huge loans of 10-15 people, who are Modi’s friends to benefit them. Again, there are no facts and figures of any sort to support the allegation.
If Rahul Gandhi wants people to believe what he says, he needs to (i) disclose the names of such crony capitalists and their location; (ii) nature of benefit conferred and its quantum; (iii) method of conferring the benefit; (iv) relationship of the recipient with the PM or others in the Government, etc. Without such information, what is said in a passing manner lacks credibility. Actually, Rahul Gandhi seems to believe that if an untruth is repeated several times, it starts sounding like truth. But, such convictions do not succeed in real life in the long run.
Success of note bandi
NOW, whether note bandi has tackled the problem of black money successfully and has benefitted the country and common people can be examined. The answer to both the queries has to be in the positive. The fact that almost equal number of notes have come to the RBI is no measure of its un-success. Rather, a number of benefits could be said to have flowed to the economy, namely:
- Currency lying dormant in boxes, gunny bags, vaults, chests, lockers, etc., has flowed into the economy, making more funds available for the country’s developmental and other needs.
- The unaccounted/black money with deposits in bank accounts have provided trails to the I-T Department to start proceedings against those who hoarded money and did not disclose the same in their Income Tax Returns. Once the cash has come into the bank accounts, the depositors lose anonymity. The objective of note bandi, according to the Finance Minister was not to gain from invalidated notes. The larger purpose of note bandi was to move India from a non-tax compliant to a compliant society by increasing the number of taxpayers, which, as later information would show, has been achieved to a large extent.
- The I-T Department has already started action on the basis of data provide by the banks to see whether the cash deposited is explained. If not, the depositors will have to face the consequences by way of interest, penalty and prosecution. These will provide deterrence to others to not indulge in black money deals.
- As a result of note bandi, the number of income-tax returns filed has increased from 38 million in March 2014 to 68.6 million in 2017-18. The I-T returns filed in 2018-19 up to August 31, 2018, have shown a significant surge, totaling 5.42 crore, far exceeding the previous year, and is up 71 per cent over the previous year as reported in The Times of India on September 2, 2018.
- The new notes have better security features, thereby making fake currency extremely difficult.
- Cash hoarding by households, after note bandi, has decreased substantially. One study shows that the currency to GDP ratio was 10.9 per cent in 2017-18, lower than pre demonetisation levels.
- Digital deals have increased.
- Cash payments have decreased.
- Criticizing the move, Rahul Gandhi said that because of note bandi, GDP took a hit and crores of people were rendered unemployed and mid-sized businesses were finished off. However, every new measure does cause some initial setbacks, but it can be said to be justified if ultimately it meets its goal. Figures published in The Times of India dated September 1, 2018 show that in the first quarter of the current financial year (2018-19), GDP growth returns to 8 per cent after two years; the economy seems to be well and truly out of the slowdown it had slipped into after demonetisation when growth rate fell to 5.6 per cent in the first quarter of last year. Since this growth is powered by a near-double-digit rise in private consumption and over two-digit increase in investments, the growth momentum is likely to build further in the coming months.
I-T returns filed in 2018-19 up to August 31, 2018, have shown a significant surge, totaling 5.42 crore, far exceeding the previous year and is up 71 per cent over the previous year
Criticism in a democracy, like India is welcome as if it provides constructive suggestions and corrections to the Government’s decisions. But criticism just for the sake of criticism by the Opposition is of no purpose. It merely leads to unwarranted confusion in the minds of people. The Opposition needs to be constructive in its approach while evaluating the Government’s decisions – not superficial, revengeful or aim at destroying the image of the Government with no facts and truths in the criticism – doing so merely depicts a destructive attitude.
The writer is former Chairman, CBDT