Although some people, including one of the authors of this article, had been advocating withdrawal of bigger denomination notes for quite some time, the intent was different from what the Narendra Modi government is doing now. It was believed that, in spite of the fact that cash comprises only 6% of total black money in India, with banning of Rs. 500 and Rs. 1000 notes it would become inconvenient for people to hoard large amount of black cash as well as to pay huge sums as bribes. It was never the suggestion to reintroduce bigger denomination notes. They were supposed to be banned permanently. By bringing in new Rs. 500, Rs. 1000 and Rs. 2000 notes the government is creating new opportunities for hoarding and corruption.

Utter mismanagement of demonetisation

The manner in which decisions have been changed almost every day regarding limits and rules for depositing old currencies and withdrawal from bank has made a mockery of the functioning of the entire financial system. One among the many ludicrous moments was when the Reserve Bank of India (RBI) directed the banks not to accept amounts bigger than Rs. 5000 with more than a week to go before the period during which one could deposit old notes was to expire and the Finance Minister said there was no limit but people should deposit whatever they have only once. After a confusion which prevailed for a couple of days both decisions were withdrawn. There was no well thought out rationale to most orders and little coordination between the ministers, including the Prime Minister, and the banks, including the RBI. In the entire process the RBI has lost whatever autonomy it had carefully built over the years. It is literally dancing to the tune of PM and FM now.

While on the one hand people were given freedom to deposit whatever they had including black money with a 49.5% tax, whenever somebody came up with big amounts the Income Tax authorities were after that person. People who would queue up in front of banks found that they could not withdraw even the limited amount of their own money that the government was promising them. To avoid long queues people who went later to deposit old currency more than a week before the officially declared deadline of 30th December, 2016, were being questioned about the source of money. With the exception of imposition of Emergency never before in the history of independent India the government has held the system hostage in this manner. The government is not willing to honour its own announcements and keeps going back on promises. The credibility of the entire banking system has been eroded for a long time to come. Now people will remain ever suspicious of this institution and its decisions.

Farcical display of Income Tax raids and letting off the big fish

Within days of new notes being introduced large amounts started being recovered from people, even in new currency. A question to be asked is, when the government had put a limit of Rs. 24,000 and Rs. 2,000 which could be withdrawn from banks and Automatic Teller Machines, respectively, how did big amounts make public appearance? Could it have been possible without the connivance of bank officials? In the period since demonetization was enforced we have heard about a number of people caught with lakhs and crores of rupees, part or full in new currency, but we hardly came to know about any action against bank or RBI officials as culprits for the release of big amounts in new currency. No prominent big businessman or business group, especially among politically influential ones who are known to deal in black money, has been raided either.

So, we have a bizarre scenario. Ordinary citizen is being treated as a culprit in her dealings with the banks and big offenders are not even being touched.

Major source of corruption – black money and election nexus – remains unquestioned

Nor did we hear of any raids on big politicians or political parties when a fundamental reason why black money exists and is encouraged in our economy, institutionally, is that it is used for contesting elections. It is a known fact that of all political parties, Indian National Congress (INC) and Bhartiya Janata Party (BJP) are the top two recipients of unaccounted cash donations. Over the past decade both parties have reported to have received a total of Rs. 5,450 crores from unknown sources, most of which is likely to be black, i.e., tax on which was not paid. A significant portion of these funds would likely have been contributed by big businessmen and corporate houses. Corruption in government schemes and projects is another big source of funds, especially for ruling parties. Government officials, who act as agents of parties, most having assets disproportionate to their known source of income were also spared.

This has a serious meaning. Since no action has been taken against people who were involved in hoarding big amounts in black which is used for contesting elections, the system of corruption and black money financing the political parties would go on. In other words, the cycle of corruption would continue as before and the governance would keep getting compromised. Then what was the purpose of all this drama.

A recent survey by Association for Democratic Reforms (ADR) and National Election Watch shows that BJP received the most amount in donations, Rs. 76.85 crores, in amounts above Rs. 20,000, from 613 donors whereas the INC got Rs. 20.42 from 918 donors in the financial year 2015-16. The amount received by BJP was three times bigger than combined donations of the remaining six national parties including Communist Party of India (Marxist), Communist Party of India, Nationalist Congress Party and All India Trinamool Congress. Bahujan Samaj Party did not receive any donation bigger than Rs. 20,000 for the 11th consecutive year. Significantly, BJP received Rs. 67.99 cr. from 283 corporate donors while INC got Rs. 8.83 cr. from 57 donors. Remaining Rs. 8.86 cr. to BJP was contributed by 330 individual donors while Rs. 11.24 cr. to INC was contributed by 859 individuals. PAN details were missing for Rs. 8.11 cr. donations from 318 donors to INC and for Rs. 2.19 cr. donations from 71 donors to BJP. From the above facts it is clear that BJP, which started receiving more donations than INC only since the last three financial years, has now five times more private corporations contributing more than seven times to it than to INC. Similarly BJP has fewer but bigger individual donors than INC. Interestingly, BJP donors are more adept at working with the system which implies they’ll most easily adjust to the cashless economy than, for example, traditional donors to BSP. The cash donations, of amounts in excess of Rs. 20,000, were Rs. 1.17 cr. to INC whereas only Rs. 51,000 to BJP.

At the same time the real culprit, the total cash donations in amounts less than Rs. 20,000 by each donor, as reported by BJP and INC, comprise more than half to four-fifths of their total reported donations. In 2014-15, out of total of Rs. 970 cr. donations to BJP, Rs. 505 were from unknown sources. For INC the corresponding figures were Rs. 593 cr. and Rs. 445 cr. As per Election Commission norms such donations have to be merely reported and their details are not required to be disclosed.

In reality the total black money fund of these parties is likely to be much more than what they report.

Truth is all parties use black money in elections. This is the reason they got together to scuttle the formation of Jan Lokpal Bill during Anna Hazare’s anti-corruption movement. Many parties, especially the ones at the state level, rely on such donations largely from mid-sized merchants, businessmen, mafia and criminals whereas others, such as BJP, are funded heavily by large corporations too. Therefore they push for policies favourable to their major funders, even at the expense of hurting interests of the poor and ordinary folk. It was not very long back when Modi government unsuccessfully made three attempts to weaken the land acquisition law. Compared to politicians like Mayawati, who disallowed Reliance Fresh stores in UP and Nitish Kumar, who prevented entry of Special Economic Zones in Bihar, BJP will have to play more to the corporate tune.

While the black money which Narendra Modi promised to bring from foreign banks never came, the government has increased the limit under ‘Liberalised Remittance Scheme’ to $ 2,50,000 per year from $75,000, allowing more money to leave the country, which doesn’t have a role in national economy after it is gone.

Impacts of demonetisation: grim present and grim future

Therefore, in the short run, the entire demonetisation exercise has caused only a temporary inconvenience to a few small and mid-sized black money hoarders and none whatsoever to big businessmen, bankers, politicians and political parties. On the contrary, it has allowed innumerable black money hoarders to launder their cash into white, as almost all of the high denomination old notes have come back to the banks. In the future all corrupt and black money related activities will continue unabated.

The push for digitisation is likely to increase online transactions and make them accountable, however, that will be only a blip in the face of overwhelming reliance on cash among the small businessmen, shopkeepers, farmers, traders, distributors, less skilled workers and informal sector entrepreneurs. In any case, enabling people to adopt digitisation and making economic transactions accountable requires drastic upgrade of infrastructure rather than demonetisation.

The short term effects of demonetisation – positive or negative – are going to be eclipsed by some deeply damaging impacts in the medium-to-long term. We are listing below some of these impacts only briefly:

(a) Shifting the focus of development and governance from “welfare of people” to “sacrificing the poor for fabricated nationalist causes”.

At least 100 people have died since 8th November directly because of mismanaged cash supply. Many poignant videos available on the social media show how some persons committed suicide because they could not draw money for urgent family needs, some could not save their loved ones as private hospitals refused to treat them without deposit of fee, several aged people could not survive the exhaustion of standing in long queues, countless daily wage workers have lost jobs and desperately cut daily intake of food in their families, and many – mostly the poor and low income citizens – have been subjected to humiliating experiences of being part of disorderly crowds and melee outside banks. A few deaths and unruly queues at banks are still being reported every day by some local media and activists even after 45 days of banning old notes. If the government would like to propagate the myth that all these people are foot soldiers in the fight against corruption, i.e., they are suffering for a national cause, should these deaths not be compensated in the same manner as the sacrifice of a soldier on border or death even in some accident or natural calamity? Chief Minister of Uttar Pradesh, Akhilesh Yadav, has taken the initiative to give Rs. 2 lakhs each to families of 14 such‘demonetisation victims,’ but it is the responsibility of the central government to undertake such an exercise nationally.

While all this ought to generate outrage and trigger emergency relief measures, what we have witnessed instead are highly muted reports in the mainstream national media and absolutely no words of grief from the Prime Minister or his senior ministers. Real suffering of people solely due to incompetent management of demonetisation is being justified, even glorified by some, as a minor cost in return for greater future gain. By all realistic analysis, the purported future gain remains a figment of imagination.

(b) Damaging the reliability of key institutions of economic and financial governance.

As mentioned before, large-scale laundering of black cash into white has happened since 8th November. Well connected touts, some bank executives and politicians have acted as efficient conduits in this process. The government’s failure to prevent or even control such large-scale and widespread laundering has shown it to be administratively incompetent. Pathetic planning and execution of cash replenishment has only reconfirmed this fact.

During financial years 2013-14 to 2015-16, twenty-nine state owned banks wrote off a total of Rs. 1.14 lakh crore of bad debts, the largest so far and much more than they had done cumulatively in the preceding nine years. At present the top ten corporate groups owe close to Rs. 6 lakh crore to state-owned banks and financial institutions. According to the Finance Ministry, the total outstanding amount in 2,071 accounts in state run banks that have been classified as non-performing assets or bad loans is Rs. 3.88 lakh crore. Thousands of crores of loan write-offs of some of the wealthiest businessmen were announced recently. All this stands in glaring contradiction to post-demonetisation acts of making lakhs of ordinary citizens go through the distress of cash crunch, lost jobs and reduced incomes, and temporary small-time raids on some mid-sized cash hoarders.

Forcing vast deposits of public money into banks, a minor percent (but significant amount) of which might remain with the banks for a long time, will relieve the banks to tide over their bad debts, and thus pave the way to grant further loans to the same defaulter companies. This will severely compromise financial governance. Rather than strengthening the due process of monitoring non-performing assets, making defaulter debtors accountable and tightening the discipline of lending and other banking activities, the current move sends a wrong message that largest defaulters can be let off the hook easily, the banks need not become more independent and fiscally responsible, and short cut measures can be relied on to rescue both. This is akin to a banana republic.

(c) Farmers and small and mid-sized businesses affected.

Lack of cash in the economy affected the livelihood of farmers and small businesses. The farmer was not able to sell her produce and procure seed, fertiliser, etc. for the Rabi crop season. Similarly, small and mid-sized businesses which rely on cash for purchase and sale were badly affected, some had to close down. People lost their income by standing repeatedly for hours in front of banks and ATMs, which was a terrible national waste. The arbitrary rules now force people to make a number of visits to banks for tasks which used to be accomplished in a single trip. The banking system came to a stand still for some of its regular activities like opening of new accounts during this period of madness.

(d) Legitimising “reactionary decisions and event management combined with nationalist propaganda” rather than “serious pursuit of development policies” as a solution to nation building.

In these two and a half years the Modi government has no worthwhile result to show. New employment generation in 2015-16 has been the lowest in the past seven years, and both investment and exports have seen a decline. Budgets of public health care and education have fallen in spite of India’s pitiable performance in these crucial sectors and an urgent need for upscale. All major initiatives of this government such as Make In India, Swachh Bharat, and Start Up India have been utter failures. They have sucked up thousands of crores with no significant outcome on the ground.

While demonetisation too is an event backed with similar government propaganda, it is the most tragic so far. It has caused enormous distress to the poor and is likely to impart a big dent in the economy. The impact of job losses and fallen incomes on the health and well-being of families of daily wage workers and small farmers will be prolonged over several months or more than a year. Fabricating emotions of patriotism around demonetisation has helped to digress attention from its real impacts.

Some of these adverse socio-economic impacts might eventually become irreversible or the cost of recovering from them could be extremely high. This is so because the path being pursued by the government, i.e. series of events managed with nationalist propaganda, will probably keep many people confused for longer periods and delay the process of getting the focus firmly back on the real development priorities of citizens’ health care, education and employment. But for how long can the people’s discontentment due to absence of security and economic opportunities be contained?

By Sandeep Pandey and Rahul Pandey
Contact:, 91 9663376767

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