Lasting tragedy

Exactly six years ago, on November 8, 2016, at 8:15 PM, people were hardly in a position to understand as to what exactly happened, when the Prime Minister Narendra Modi, unaware of the consequences, unilaterally announced demonetization — resulting in the stripping Rs 500 and Rs 1000 currency units of their status as legal tender. The Union cabinet was informed about the plan only a little while ago on the same day in a meeting. The announcement was made in an unscheduled live national televised address. The surprise decision, which was described by the government as an act to eliminate black money, terror financing and fake currency, totally proved wrong, according to leading economists.

Unfortunately, as a result, the entire India was in a big queue! Millions of households struggled to cope with the immediate situation which was like a future shock. All streets and marketplaces were empty and everyone, whether he or she, young or old, possessing black or white money, was left with no option except to stand in long queues in front of banks. Money, whether white or black, and in circulation in whatever form, is the wealth of the nation and makes the nation dynamic. In an economy like India, where a bulk of the last-mile transactions was done in cash, a measure like this caused fear and panic, and also scarcity of legal currency as people resorted to hoarding for safety-net purposes.

That was a big blow to every ordinary common person of all categories. With no money in circulation, and with markets having a desert look, it was like a Bharat Band, and that too for 50 days. Between the time of announcement of demonetisation and actual operations, everywhere, an unexpected and unhealthy lull scenario prevailed. After late PM PV Narasimha Rao's economic reforms enabling even the poorest of poor possessing high denomination currencies, Modi's demonetisation was the best example of digression.

It was disclosed then, that an estimated Rs 17.5 lakh crores, black or white, was in circulation and 86 per cent of this amount was in higher denominations, besides another Rs 3 to 4 lakh crores of counterfeit money. The remaining 14 per cent was in small denominations. The demonetisation literally pushed 86 per cent of the total money in circulation out of the market. Much of the black money is normally held in land, property, stocks, gold or foreign currency. Even if the entire black money was deposited in the banks, it might have again flown back into the hands of the same people through a different path, as the basic job of a bank is lending, and the beneficiaries are top industrialists.

An individual was allowed to deposit in banks, without any questions and not requiring IT scrutiny, just Rs 2.5 lakhs. But what was the actual value of Rs 2.5 lakh, was a big question. Of late, even a small agriculturist, a vendor, a shepherd, an employee, a small hotel owner or, for that matter, almost all middle-class people keep with them more than this amount which is purely white in nature. Disabling cash of an individual over and above Rs 2.5 lakhs was a long-term disaster for the national economy. This also amounted to devaluation of assets, and its impact started snowballing. Cleansing of black money that required scientific and accepted process did not happen in Modi's arrangement of demonetisation.

India was shaping as one of the biggest economies in the world. Purchase power had gone up multi-fold. In the process of this development, whether accepted or not, those who possess black money are also partners in a way. This is where we should think how best they may also be brought into the picture for a better clean-up process. Ours is a cash-based economy, and not cheque-based or on-line based.

There is no doubt that black money holders were to be disarmed. Once upon a time, the scenario was that the common man was angry on black money-holders. Today, it is different and, in the ever-changing scenario, everyone possesses the so-called black money — maybe in a different form. In a way, this is their hard-earned savings.

Against this background, there were severe hardships for people to carry out activities like marriages, vegetable purchases, agricultural needs, construction labor wage needs etc. The real estate sector activities had come to a grinding halt. No agricultural land sales were reported, and even if there were any, they were distress sales. Normal life was disturbed. Entire economic dynamics changed. Small traders who buy in wholesale and sell in retail were badly affected. Industry too collapsed. State governments too faced a paralysing effect.

Why were these issues not addressed beforehand? Why did not the government prepare the common man for this? Where was the preparedness for an easy exchange of high denomination notes? Did the government fail to make available adequate quantities of currency in the banks? Was there no scientific estimate in advance as to how many normal people would be put to unavoidable trouble? A trial should have been given for yet another voluntary disclosure of black money, with a beneficial amnesty scheme wherein both black money-holders and the government would get equal benefits. A lot of money would have come as investment in various infrastructure development programmes of the government. That might have paved the way for a vibrant India.

Telangana Chief Minister K Chandrashekhar Rao, while making a statement in Assembly on December 16, 2016, cautioned the Central government and PM Modi in more than one way. KCR emphatically said that the government of Telangana is of the view that the Union government should initiate many more steps towards elimination of all forms of black money. He also suggested that besides currency notes, black money held in the form of diamonds, gold, shares and foreign currency, and black money generation through crony capitalism and foreign inflows through money laundering from British Virgin Islands, Mauritius, Singapore should be regulated effectively.

Prior to this, soon after demonetisation, when KCR met Prime Minister Narendra Modi on November 19 in Delhi, he explained to him the difficulties faced by the people of the state and the country, and suggested several remedial measures to minimise the hardship of people. However, nothing happened then. Down the line, what has happened is an open document.

Modi expected demonetisation to extinguish lots of black money. However, Reserve Bank of India data shows that 99 per cent of the money that was invalidated came back into the banking system. The three main economic objectives behind demonetisation, namely, fighting black money, containing fake notes and creating a cashless economy by pushing digital transactions, yielded only a partial success. According to RBI data, of the notes worth Rs 15.41 lakh crore that were invalidated, notes worth Rs 15.31 lakh crore returned. Neither black money nor black-income generation were impacted by demonetisation. Counterfeiting continued.

Against this background, the Supreme Court's Constitution Bench in October questioned whether the government and RBI realised their stated objectives of choking black money, terror financing and fake currency through demonetisation. The court wondered whether the government had thought about the consequences before going ahead with the withdrawal of the high-denomination currency notes. The court also directed the government and the RBI to file comprehensive affidavits.

The writer is the Chief Public Relations Officer to the CM of Telangana. Views expressed are personal