It will soon be almost 10 months since the fateful day when our PM Modi announced something called ‘demonetisation’ and in one single sweep declared almost about 85% of our country’s currency null and void.
Now with the announcement nearing a year, there are opposing views to each side, where some call demonetization a complete and utter failure there are also those who believe it to be a success.
The recent news of RBI data that reveals almost 99% of the banned notes being returned has further put red flags over demonetization and whether it all was worth it or not.
Here we take a look at some arguments made by both sides, those who support it and those who think it to be a failure and allow you to make the final judgement:
1. Demonetisation Failed At Stopping Black Money:
In this piece done by Financial Times they commented on how demonetisation has failed at stopping black money and reported that, “the bank’s estimate follows media reports that complex money-laundering networks sprang up in the wake of the demonetisation to help wealthy Indians deposit huge volumes of previously undeclared currency without exposing themselves to tax authorities. Such people allegedly sold the old notes, at a discount, to brokers who then dispatched low-income Indians to deposit or exchange them at banks.”
2. The Benefit Is Not That Impressive:
Aditi Nayar, the Principal Economist at ICRA, in an article by Busines Standard commented that, “In real terms it may not be a small number, but certainly it is nominal, less than expected. The return is less than what was expected in the monetary terms. The cost of printing is one of the main reasons why the surplus from RBI to govt has halved this year.”
3. Firstpost Says That Black Money Is Now White:
While commenting on the recent data reveal by RBI, Firstpost commented on how this reflects as a failure of demonetisation. They reported that, “But with the data suggesting return of 99 percent of the money to the system, one can safely assume that the black money, instead of getting extinguished, has whitened.”
4. Manmohan Singh Prediction Came True:
Last year right after demonetisation, Manmohan Singh, our former PM had predicted that “The national income, that is the GDP of the country, can decline by about two percentage points as a result of what has been done. This is an underestimate, not an overestimate.”
The prediction has come true now as reported by India Today in, “Data released by the government today showed that India’s Gross Domestic Product (GDP) fell to a three-year low of 5.7 per cent in the April-June quarter of financial year 2017-18. This was a drop of 0.4 per cent point compared to the previous, January-April, quarter when the GDP grew by 6.1.
The drop, however, was much higher compared to the corresponding April-June quarter of FY 2016-17, when GDP growth was registered at 7.1 per cent.”
5. Digital Economy Not Much Of A Success:
In this piece by The Hindu, it can be seen that while many people opted for Digital transactions soon after demonetisation they are slowly going back to using cash for transactions, “There were 671.49 million transactions in November, rising to 957.50 million in December before shrinking to 862.38 million in July. In value terms, it was ₹94 lakh crore in November, ₹149 lakh crore in March, and ₹107 lakh crore in July. So, the use of cash initially diminished but has been steadily increasing thereafter.”
Demonetisation Is A Success:
1. Demonetisation Cannot Be Used As The Only Weapon Against Black Money:
In this article by Economic Times, they commented on how wrong it is to focus on black money through only demonetization.
“The Modi government has taken a number of initiatives to root out black money.
Demonetisation is just one of them. The others are the drive against benami property, GST, the push towards a less-cash economy. You can’t analyse or fully appreciate the black money crackdown by only focusing on demonetisation. It is a major move all right but one of the many aimed at rooting out black money.
2. Financial Express Tells The Real Benefit Of Demonetisation:
Financial Express in one of their articles, said that the success of demonetisation cannot be questioned. They also reported how PM Modi in his Independence Day speech said that “Rs 3 lakh crore worth of black money that would have never come into the formal system has come in because of the demonetisation.”
And that “the real benefit, however, will be in terms of expansion of the tax base and additional tax collections, both in the direct taxes and the indirect taxes.”
3. ET Counters Firstpost On Black Money Becoming White:
ET counters the point made by Firstpost in my failures section of how black money is now white by reporting that, “The big number on demonetisation is not the amount of money that has come back into the system. It is the amount of suspicious transactions that have been uncovered by the banks, the RBI after the deposits. This amount, according to various estimates, is about Rs 1.6-1.7 lakh crore. Bear in mind that money doesn’t become white just because it is deposited in banks. The money leaves an address, a trail. The depositors become known to bankers and the income tax department.”
4. GDP And Other Problems Are Only Short Term:
The chief India economist at Barclays, Siddhartha Sanyal, in this piece done by Business Standard also comments on demonetization by saying that, “Of course, immediate gains look miniscule and the disruption in terms of GDP is significant, but thankfully there has been a normalisation. We have seen improvement in tax compliance, both in direct and indirect taxes. It is wrong to nitpick the data based on just one or two quarters. We need to take into account long-term effects too. Overall, demonetisation has been positive for organised sectors.”
5. One Step Closer To Digital Economy:
In this analysis done by The Hindu, one factor they looked at was the cash-less economy that PM Modi had encouraged during demonetisation and whether it was truly fruitful or not. They reported that, “Both in number and value, digital transactions increased sharply after November but also dipped sizeably thereafter.”
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