The debate over the impact of demonetisation on the Indian economy and, for that fact, society, is unlikely to conclude in a hurry.
Economists — who have a remarkable track record of getting their diagnosis and prescriptions all wrong — are unlikely to budge from their belief that disruptions and surprises are not good for the health of any economy. It may take a positive electoral verdict for Narendra Modi in 2019 for the first revisionists to emerge and praise the far-sightedness of the prime minister.
A similar lack of unanimity is also bound to govern the conclusions of public policy analysts — a relatively new breed of busybodies spawned by American academia. Part of the reason could be the initial haziness that surrounded the November 2016 decision. Was it to unearth hidden stacks of cash? Was demonetisation a pre-emptiness response to a growing counterfeit menace? Or was it, as the village gossip continues to insist, a vindictive move aimed at targeting the non-BJP parties ahead of the Uttar Pradesh Assembly election? The BJP won that election quite spectacularly but I can’t think of anyone who attributed the victory to a paucity of resources of the Samajwadi Party and the Bahujan Samaj Party. Indeed, in the month after demonetisation, when the National Capital resonated with colourful stories of cash recycling, there were fantastic tales of how parties claiming to represent the wretched of the earth found ways of dispersing mountains of cash.
Call it Indian ingenuity or the rottenness of our bank officials, the point is that if demonetisation was expected to lead to huge bonfires of cash in street corners, it was a monumental failure. Indians with unaccounted cash didn’t rush to destroy the evidence. It, now, transpires that they held their nerve and found more and more innovative ways to either deposit the cash in banks or exchange old notes for new notes. The Reserve Bank of India, now, claims that nearly 99 per cent of all the cash in circulation at the time of demonetisation was deposited in the treasury, and less than one per cent disappeared.
Modi’s critics are, consequently, in a celebratory mood. Since, in their perception, demonetisation was about lessening the amount of cash in circulation and killing off black money, the RBI report indicated that the whole exercise was a monumental failure. The implication is also that there is no consequential amount of black money in India and Indians are presumably the most honest people in the world. The latter claim hasn’t been made too publicly by the journalists, bleeding hearts and liberal truth seekers, but the implications are obvious. Less obvious is Rahul Gandhi’s claim — made with customary forcefulness — that demonetisation happened because Modi wanted to please some friends. The connection isn’t fully self-evident but, then, Rahul Gandhi has an uncanny knack of seeing the world from unusual angles.
The RBI report — which, unlike newspaper reports, is devoid of gratuitous editorialising — has helped to revive the demonetisation debate after the subject went into storage following the BJP triumph in UP. This time, however, the debate is over the consequences — both intended and post-facto discoveries — of demonetisation. Unlike the initial reaction that invariably centred on sad stories of hardship and ruined wedding ceremonies, the Modi government has been hitting back with good news stories.
The news, indeed, has been quite encouraging. The 8.2 per cent growth in GDP is great news, as even Modi’s critics were forced to admit. But even more significant is the revelation by the finance minister in his blog that the number of income tax returns has jumped from 3.8 crores in 2014 to 6.8 crore in 2017-18. This is a huge increase and suggests that more Indians are now paying tax on their personal incomes. If we read this along with the revelation that the tax authorities are actively investigating some 1.8 million cases of cash deposits during demonetisation which can’t be credibly explained, we may get a sense of why many more Indians now feel that being law abiding is a good thing.
When it comes to innovation and subverting any system, Indians are second to none. After demonetisation, the bold and the bent put it across that the best way to salvage cash holdings was to put it into sacks and deposit it into bank accounts. The calculation was that it would be quite a while before the authorities cottoned on to what was going on. Moreover, it was also felt that brazenness would exploit the apparent lack of coordination between the banks and the revenue authorities.
In hindsight, these assumptions have proved to be half truths. The cash deposits now have addresses and identities and their subsequent movements are all traceable since they happened within the banking networks. This implies that some people have to answer questions regarding their big cash deposits in November and December of 2016.
Their nervousness is palpable. And this is why for the victims of demonetisation — those now threatened with punitive fines and the loss of their cash mountains — there is a last battle to be fought. The alliance to defeat Modi in 2019 is also a project to return to the days when only complete idiots paid taxes while the clever ones drew their sustenance from being brazen and innovatively defiant of norms and laws.
Modi must be defeated, they believe, because he has made India a more law abiding society. Not like the old days when the law was so wonderfully tailored to an individual’s importance.
Swapan Dasgupta is a senior journalist and Member of Parliament, being a presidential nominee to the Rajya Sabha.