Many Indians had expected Prime Minster Narendra Modi to present a report card on demonetisation during his address to the nation on New Year’s Eve. Instead, our esteemed Prime Minister made a speech that was essentially a precursor to the Budget address, showing little signs of contrition for the intense pain caused by his government’s decision. How much of the old currency was deposited into the banking system from November 9 to December 30, 2016? How much of the new currency has the RBI released to ease the pain of ordinary people? Is there a definitive timeline for the resolution of this severe cash crunch that has crippled the economy? How much of black money held in cash was present in the economy before November 9? Without a clear estimate on the amount of black money held in cash, how can anyone measure the success or failure of this measure? These are only some of the fundamental questions the government has failed to answer. The lack of transparency underlining demonetisation has been unfortunate. In response to a Right to Information request, the Reserve Bank of India refused to disclose the reasons behind the decision to withdraw approximately 86 per cent of the country’s currency, citing a specific provision of the RTI Act. One can understand the need for confidentiality before the announcement. It is, however, difficult to fathom why there exists a need for secrecy after its implementation, especially when people are facing terrible problems due to the shortage of cash. As the custodian of the people’s money, the Central bank is answerable for decisions that have a direct bearing on their financial well-being.
“According to information with the government, there are only 24 lakh people in India who accept that their annual income is more than 10 lakh rupees. Can we digest this? Look at the big bungalows and big cars around you. If we look at any big city, it would have lakhs of people with annual income of more than 10 lakh,” the Prime Minister said during his address. Before this apparent revelation, any opposition to demonetisation was met with comments dipped in nationalism. By drawing the people’s attention to this statistic, Modi is attempting to justify this drastic measure. In the process, however, he has also laid down a new yardstick by which the success or failure of his “war against black money” will be judged. If the government is unable to meet this objective, many will interpret the collateral damage caused by demonetisation to be in vain. More worryingly, the government now seems under pressure to substantially increase the number of people brought under the income tax net, leading to fears of undue harassment of taxpayers reminiscent of the “license raj” days. In fact, Arvind Panagariya, vice chairperson of NITI Aayog, has reportedly written a letter to the Prime Minister citing similar concerns. In his letter, Panagariya highlighted the need to codify tax rules to ensure that citizens, especially women, are not unduly harassed for depositing old notes in the stipulated period. Another major point raised by the Prime Minister is that demonetisation has brought more money into the banking system than ever before to the benefit of the poor and the middle-class.
During his address, he failed to present any data to defend this assertion. Moreover, this claim seems to border on the disingenuous, considering how these deposits were coerced back into the system. Economists have argued that the process of rising bank deposits is likely to be reversed as soon as the current withdrawal limits are lifted, and people can withdraw their money from the banks. Finally, Modi did little to assure the people that major reforms will be initiated to stem the flow of black money in politics. His pitch to hold Lok Sabha and Assembly elections simultaneously does little to further the anti-corruption front. Bringing political parties under the ambit of the Right to Information Act, amendments to the particular provision of allowing political parties only to declare contributions received by them over Rs 20,000 and the introduction state funding are the way forward. Wholesale electoral reforms are the final frontier in the fight against black money. Instead of answering fundamental questions on demonetisation, Modi used his speech to announce a slew of welfare measures. One includes a 4 per cent rebate on interest for loans up to Rs 9 lakh under the Pradhan Mantri Awas Yojana. It does little to assuage the pains of millions of daily-wagers and small farmers, who have lost their livelihood and earnings in the past two months. How many of them can afford a loan of Rs 9 lakh? One positive from his speech is the promise to deliver the Rs 6,000 stipend per month for pregnant women under the National Food Security Act, which has been left unimplemented for the last three years.