What Modi will not say about demonetisation in his speeches
India was promised a miracle in 50 days flat. The magic was supposed to begin on D-day, or demonetisation day, November 8, 2016. The deadline passed. The miracle never happened. The bad news just kept getting worse.
It’s another story that a few smart political marketers spun tales to benefit themselves in the short term. Demonetisation was a disaster for ordinary people, for the economy, for the country. In this two-part essay, I will share fifty facts to establish that demonetisation was a gigantic gimmick. It was a con job - a swindle, a scam, a rip-off - for which the electorate will punish this government at an appropriate time.
The first set of facts relates to the period before November 8, 2016. It describes the situation as it was then and how the preparatory work for demonetisation, the digital payments revolution, "cultural revolution", "great leap forward" - or whatever the BJP calls this farce - had just not been done.
1. Four of five Indian villages do not have a bank and only 34 per cent of existing bank branches are in the rural areas.
2. Eighty per cent of Indian women do not have bank accounts.
3. India is one of the most cash-intensive economies in the world, with a cash-to-GDP ratio of 12 per cent. The informal sector accounts for 45 per cent of the GDP and nearly 80 per cent of employment. There are an estimated 28,000 unorganised mandis in the country and 48.8 million unorganised small- and medium-sized businesses. All cash-driven. Payments of wages and salaries in the informal sector and transactions in mandis and small businesses are almost entirely dependent on cash.
4. Only 6 per cent of black money is in cash. The remaining 94 per cent is hidden in gold, real estate, foreign accounts, tax havens.
5. In 2014, the think-tank Global Financial Integrity estimated an illicit export of $83 billion from India. In 2013, the government allowed the import of about 1,000 tonnes of gold - largely to facilitate conversion of domestic black money.
6. One of the stated goals of demonetisation was to eliminate counterfeit currency. Only 0.002 per cent of currency was counterfeit in 2016. (Post-November 8, fake notes of the new Rs 2,000 denomination were reported within months.)
7. At the time, there were 208,821 ATMs in India. None of them was recalibrated before November 8 to dispense the Rs 2,000 notes.
8. According to the World Bank, in 2015, there were 19.71 ATMs per 100,000 persons in India, or one ATM for every 5,073 persons.
9. A committee headed by the chairman of the Central Board of Direct Taxes (CBDT) noted that demonetisation to "kill" the black economy was impractical despite its "noble aims". It offered learnings from previous attempts at demonetisation in 1946 and 1978 as examples.
10. The number of cashless economies in the world is zero. Only the highly developed economies of Sweden and Norway have managed up to 97 per cent cashless transactions.
11. Rs 3 crore was deposited in the bank account of the BJP’s West Bengal unit just before the demonetisation announcement.
12. The BJP reportedly made several land purchases across the country in October and the first week of November.
13. Sanjeev Kamboj, head, BJP Legal Cell, Punjab, tweeted the picture of the new Rs 2,000 note on November 6 - two days before demonetisation was announced.
14. Only 6 per cent of transactions made by debit cards are to buy goods or services; the rest is to withdraw cash at ATMs.
15. In October 2016, 32 lakh debit cards in India were affected due to a massive security breach in ATMs/Point of Sale (PoS) devices over a period of forty-five days.
16. Only 300 million people in India have smartphones; roughly 550 million have feature phones or "dumb" phones that are no good for digital payments.
17. Out of over 900 million mobile phones, only 67 million cellphones are linked to bank accounts.
18. Only 10.4 per cent of the population uses mobile wallets.
19. Only 1.2 million out of 14.5 million merchants have PoS devices for cashless transactions. According to Ernst&Young, India has the lowest PoS penetration for any major economy.
20. About 90 per cent of sales in the fast-moving consumer goods (FMCG) category take place through kirana stores. Only 1 per cent of these use cashless or digital modes of payment.
21. In June 2017, the total non-performing assets (NPAs) in the country’s banks was reported to be a staggering Rs 800,000-plus crore. Over 90 per cent of this was on the books of public sector banks.
22. The RBI submitted a list of defaulters for loans above Rs 500 crore to the Supreme Court in a sealed cover. In November 2016, the Supreme Court asked the RBI to disclose the names of wilful defaulters who owed more than Rs 85,000 crore to public sector banks. This disclosure has not been made yet.
23. According to the Panama Papers, 1,195 Indians are reported to have around Rs 25,420 crore in tax havens.No conclusive action has been taken to bring back this black money.
24. As early as April 2016, the State Bank of India’s (SBI) economic research department had prepared a report with remarks on demonetisation of high-denomination notes. Was news being selectively leaked? How confidential was the demonetisation exercise?
25. In November 2016, the total value of transactions by card fell to a nine-month low due to severe constraints in consumption. Transactions on the Unified Payments Interface, a mobile payments system introduced by the National Payments Corporation of India, stood at only 287,388 in November. Private mobile wallet companies such as Paytm and MobiKwik saw a multi-fold increase in transactions. They were the true beneficiaries of D-Day.
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In the opening week of 2017, Pranab Mukherjee, the then president of India, made his first authoritative remarks on the demonetisation issue. While welcoming moves to tackle corruption and black money - who wouldn’t? - as a wise and experienced public servant, and trained economist and former finance minister, he warned against gimmicky quick fixes:
"Demonetisation… may lead to a temporary slowdown of the economy. We all will have to be extra careful to alleviate the suffering of the poor, which might become unavoidable…"
To us in the Trinamool Congress, the president’s careful but clear words were a vindication. He reflected our concerns entirely. India was promised a miracle in 50 days. After the 50 days sought by the prime minister were behind us, how would one look back at the horror experience called demonetisation and its aftermath? I have already outlined 25 inexplicable facts related to the demonetisation disaster dated to the period before November 8. Here, now, are 25 facts, not opinions, referring to the period after November 8:
1. In the first two months since the announcement, 120 people died due to demonetisation. The Trinamool Congress prepared a document on demonetisation deaths and tabled it in the Rajya Sabha. We were humbled that other political parties and even media houses used this compilation to highlight the #DemonetizationDisaster. But the bigger question is: Who is the megalomaniac responsible for these deaths?
2. In the first 50 days after the announcement, at least 60 policy changes were announced. These were linked to demonetisation of currency and exchange, withdrawal and banking transactions related to the high-value notes driven out of circulation.
3. The value of the money taken out of circulation was Rs 15.44 lakh crore. The RBI data that was subsequently published splattered egg on the government’s claims. Ninety-nine per cent of the money came back. So where is the black money that was supposed to have been extinguished?
4. Demonetisation was meant to target terrorist funding. Exactly two weeks after the demonetisation announcement, terrorists killed in an encounter in Bandipora, Jammu and Kashmir, were found with the new Rs 2,000 notes. This, when most of the country hadn’t even seen these notes. And how about this - in the 10 months after #Notebandi, terrorist incidents in Jammu and Kashmir went up by 38 per cent.
5. Since Demonetisation Day, quarterly growth has been on a downward spiral, slowing to 5.7 per cent in the June quarter. This has been the slowest pace in three years. Suddenly, the UPA 1’s GDP growth of 8–9 per cent, between 2004 and 2009, is looking like a Roger Federer forehand.
6. Millions of jobs were lost. The manufacturing sector contracted. The Micro, Small and Medium Enterprises (MSME) sector saw a 50 per cent decline in revenue and 35 per cent job losses.
7. Based on the capacity of printing presses, 2,200 crore notes of the new series could never have been printed in 50 days, as promised. A back-of-the-envelope calculation would reveal that the process would take at least seven months.
8. Fifty-eight per cent of the rural economy depends on agriculture. Forty-eight per cent of small and marginal farmers rely on cooperative banks for credit. Farmers were left in the lurch as funds in cooperative banks were curtailed in the midst of sowing for the rabi crop. Rural distress had hit the economy before the government took a U-turn.
9. The top three states with the highest percentage of increase in Jan Dhan accounts in the fortnight following November 8, were Karnataka, Gujarat and Rajasthan.Were these accounts being misused and by whom? Did the state governments know? Which parties were in power in these three states?
10. Time given to common people for exchange of notes: 17 days (up to November 25). Time given to use the old Rs 1,000 notes in select places: 17 days (up to November 25). Time given to use the old Rs 500 notes in select places: 33 days (up to December 10). Logic of differential deadlines: Unknown.
11. Time given to black-money hoarders under first amnesty scheme in 2015 (Black Money and Imposition of Taxes Act, 2015): Undefined. Time given to black-money hoarders under second amnesty scheme in 2016: Four months. Time allowed to pay penalty: Two months.
12. Time given to black-money hoarders to disclose their income under Taxation Act passed in November 2016: Undefined.
13. The government had announced two amnesty schemes in two years. In the latest one, Rs 67,382 crore was collected from 71,726 declarants, barely 0.5 per cent of the GDP.
14. Since 2014, education costs have risen by 13 per cent, housing by 10 per cent, healthcare by 14 per cent and electricity by 8 per cent. Add to this, frequent hikes in fuel prices, despite the big fall in global oil prices.Demonetisation did not alter this reality.
15. Eighty per cent of funds to major political parties come from unknown sources. From 2013 to 2015, the BJP had recorded receipts of Rs 977 crore from unknown sources.The government has introduced no electoral reforms to tackle black money, corruption and lack of transparency in electoral funding. The concept of electoral bonds is flawed. It starts with a premise of opaqueness and anonymity, not transparency.
16. Over the purported months of planning for demonetisation, the amount of Rs 100 notes in circulation was increased by only 2.8 per cent (2015-16). But then what do you expect? The then RBI governor, Raghuram Rajan, in his bestselling book, I Do What I Do, disclosed that even he wasn’t kept in the loop about demonetisation. In his words: "I think the view of any monetary economist would be that you first print the money and then do the demonetisation, and I don’t know what the rationale for doing it when it was done is. I left the RBI in September 2016, and at no point during my term was the RBI asked to make a decision on demonetization."
17. There has been a near two-point drop in the GDP. It should have been over 8 per cent by now, but we are hovering around 6 per cent.
18. Only 0.0007 per cent of around Rs 15 lakh crore was fake. So what happened to the objective of putting an end to fake currency?
19. The RBI recommended demonetisation of Rs 500 and Rs 1,000 notes hours before the prime minister made the announcement. Eight of the 10 board members had attended the crucial meeting. Two were absent. Eleven had not been appointed.
20. Number of bills introduced in Parliament by the government on demonetisation: Zero. In the 1978 demonetisation exercise, the legislature was not bypassed. A bill was introduced in Parliament and the RBI Act, 1934, was amended.
21. The government had not produced a pre-implementation feasibility report for undertaking such a large exercise by executive order. There was no report, notification or document in the public domain, or in Parliament, to show the current implementation plan either. This has been demonetisation by winging it.
22. Two past prime ministers were economists - Gulzarilal Nanda and Manmohan Singh. Every prime minister since 1956 has had a chief economic adviser (CEA). It is now known that even the then RBI governor was not consulted on demonetisation, let alone anybody else.
23. Did queues outside banks and the shortage of currency in the market end anytime soon after 31 December 2016? No.
24. Has a single economist who advocated demonetisation in theory, even Kenneth Rogoff of Harvard University who is frequently referred to by the BJP militia on Twitter, praised the execution following November 8 so far? No.
25. The number of people affected by demonetization: 1.27 billion, minus the prime minister and a select few who knew about it in advance. Benefit to these 1.27 billion people: Unknown.
(Reprinted with publisher's permission.)
Also read: C Rangarajan on India's road to economic transition - the 1991 liberalisation