Modi has crippled India's growth story with demonetisation

Predictions and economic outlooks in 2016 moved from being cautiously cheery to downright gloomy roughly overnight. As it happened, on November 8, when Prime Minister Narendra Modi appeared on television at around 8pm and announced that Rs 500 and Rs 1,000 notes – the backbone of India’s cash transaction economy comprising 86.4 per cent of all the cash exchange – were no longer legal tender, economists, particularly those without a vested interest in greasing the palms that deploy them to fudge facts and mislead en masse, saw the darkness spreading.

While many saw the demonetisation diktat as something that was slated to disrupt the cash-heavy but legitimate and entirely “white” informal/quasi-formal economy of the country, affecting wage labour, decelerating demand, breaking down the supply chain, causing wastage of productive time and labour while standing at serpentine ATM queues for more than two months, the stamp of legitimacy on their grievance came from a different, slightly unexpected quarter.

On November 24, 2016, former prime minister and economist, the ever-laconic Dr Manmohan Singh, warned in no uncertain terms that PM Modi’s demonetisation drive was “legalised plunder and organised loot”. He predicted that the growth rate would be significantly hit, and might come down to six per cent from a whopping 7.3 per cent that had been the case in the third quarter ending September 2016.

Well, it took a good number of economic think tanks, as well as the International Monetary Fund (IMF) to come out with exactly those dire predictions.

While the Centre for Monitoring Indian Economy (CMIE) has said that India’s GDP growth rate for the current financial year is set to slow to six per cent, “on account of demonetisation”, it has, in fact, warned that there’s no hope of recovering from this slower pace for the next five years!

The IMF in its 2016 World Economic Outlook has a marginally better rate in its predictions, at about 6.6 per cent for India, but it mentions that ours is no longer the fastest growing major economy, as China grew at 6.7 per cent during the last year.

Given that we have had a steep fall from roughly 7.3-7.6 per cent growth rate for 10 months of 2016, to six per cent at the end of it, it would mean that since the onset of demonetisation, the growth rate had slowed to about 3.4 per cent, so that the mean growth rate comes down to six per cent from 7.3 per cent in 2016.

And, since 58 per cent of India’s GDP is held by its top one per cent of population, the multi-billionaires and mega industrialists at whose behest demonetisation was brought in in an overnight financial coup, as it were, it is obvious that those at the bottom of the fiscal pyramid, a mammoth 70 per cent of the population who depend a lot, if not entirely, on cash economy for sustenance, have borne the real brunt of demonetisation.

Illogical promises

The initial premise and the promises of demonetisation – that it would curb black money, suck out fake currency from the system and eradicate corruption – have been proved to be thoroughly null and void.

As this public database maintained by a bunch of young number-crunchers shows, the total amount of new currency seized in the freshly minted Rs 2,000 note is about Rs 262.86 crore, a strange number given the cash crunch that most of us suffered for over two months.

This clearly means that black money or hoarded untaxed cash isn’t just out there stuffed in mattresses of Bollywood-styled villains, but is circulating, and those with the connections will always find a way of obtaining excess, unaccounted cash, whether in old notes or new.

As economist specialising in black money and black wealth, Professor Arun Kumar, has explained: “[T]he black ‘money’, or cash component, immobilised is only 3 percent of the total black income generated this year. Black income generation will continue because there are a large number of mechanisms by which it is generated, which may or may not depend on cash circulation.”

Similarly, a study undertaken by the Kolkata-based Indian Statistical Institute has placed the value of Fake Indian Currency Notes (FICN) at about Rs 400 crores at any given time, which is only 0.02 per cent of the currency in circulation.

Given that FICN is the basis of all “subversive” activities, such as financing terror, smuggling of weapons, drugs and other illicit items, the elimination of FICN, a paltry Rs 400 crore, surely did not merit striking at the heart of a currency circulation valued at Rs Rs 15.44 lakh crore, or 86.4 per cent of total currency circulation at Rs 17.975 lakh crore (as of November 4, 2016, according to RBI data).

This means that all the three initial promises that PM Narendra Modi himself made were not only far removed from ground reality, they were completely misleading. Demonetisation could not achieve any of those so-called goals by removing Rs 500 and Rs 1,000 notes overnight from circulation.

Colossal wastage

But the botched job on the security and corruption front is only the tip of the iceberg. The real impact of demonetisation has been crippling of the economy, particularly its cash-reliant sprawling base which employs over 80 per cent of its population, including the salaried middle classes.

Demonetisation has hit agricultural sector, crop sowing, seed purchase, harvest, wage agricultural labour, rendering millions temporarily jobless because of lack of cash. In urban areas, it has crippled street vendors, small shopkeepers, food stall owners, those doing menial jobs like cobbling, sweeping, those in construction and other daily contract labour.

In Gujarat, dairy farmers from milk cooperatives have not been paid for two months. In Maharashtra, farmers are destroying tomato crops because the prices have come down owing to demonetisation and yet hardly any purchase is happening. 

Migrant workers have gone back home in hordes after failing to get employment post note ban. Tourism has taken a huge dip as cash withdrawal limits made it harder for foreign travellers to make it in India, with Kerala losing over Rs 1,000 crore in tourism revenue.

All this when Gandhi’s face kept disappearing from the Rs 2,000 and Rs 500 notes, as the rules of engagement changed faster than we changed our clothes. 

Modi toyed with regurgitating Indira Gandhi’s “garibi hatao” slogan, in his relentless and tear-jerking virtuoso performances on national television. He even fronted his nonagenarian mother, Heeraben, to do the theatre of cashless austerity for him, even as over 105 people lost their lives because of panic, stress and other physical ailments induced by cash crunch.

First as farce, then as tragedy

With the RBI governor sorely missing in action, and experts world over admonishing India’s “sickening and immoral” experiment with sudden cashlessness, demonetisation and its attendant aim to spontaneously shift to a digital-heavy economy, have been thoroughly exposed.

With very few gainers, who have made a killing while others bled, such as the online wallet-turned-payment bank Paytm, new sharks in the water such as Jio Money, and crores of disgruntled, cash-strapped, often hungry and ailing poor and middle class Indians, Modi’s “masterstroke” in monetary patriotism has shown he has little clue about the staggering behemoth that is the Indian economy.

With the growth rate now significantly slowed down, the India story that had beaten even the 2008 Wall Street crash, lies in tatters. Obviously, the extreme inequality in India would ensure that even this six per cent would see highly different growth rates in different sectors, with corporates that want to monopolise the emergent (and downright imposed) financial technologies making hefty profits as millions more are driven to penury, while those below poverty line find even a square meal terribly difficult to obtain.   

What could have been done over a period of at least five years, creating digital and financial infrastructure to support a “whitening” of the economy, has been turned into a terrible farce with no accountability.

In a country where over 40 per cent of its population is still unbanked, while about 250 million have the newly created Jan Dhan accounts with many having just one rupee in them, the mass and coercive digitisation is nothing short of financial genocide.

Unfortunately, PM Modi doesn’t believe in explanations, apology and paying heed to real economists.

Also read: How a Kerala woman woke up to find all her hard-earned money lost to demonetisation

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