A failed experiment

Even after a year of painful demonetisation, the government is struggling to smoke out black money. Contrary to its expectation, almost the entire black money stash found demonetisation an easy way to blend in the banking system and thereby earn interest. Even the attempt to curb counterfeit notes through the move failed. The other two principal promises — choking terror funding and ushering in the era of digital economy — did not exactly take-off. FM Jaitley’s assertion that demonetisation has reduced stone pelting in J&K is, at best, an oversimplification of a complex issue. Admittedly, the removal of old currencies from the system did accelerate digital payment transactions. The tempo, however, quickly went down soon after re-monetisation. Later, the GST encouraged small businessmen to dump digitation and resort to cash to escape the tax net.

Demonetisation, however, did nudge people towards greater compliance. But, this would be more out of the coercive pressure of the tax inspector, which is not an easy sentiment. This fear has already robbed “household savings” of millions of families by forcing women to disclose their small reserves, and thereby, killed the Indian culture of micro-savings. Thus, demonetisation destroyed the informal financial cushion that often came in handy at times of a family crisis. Lifetime savings of Gurkha regiment retirees in Nepal became worthless. Similarly, Indian currencies kept as valued forex by millions of citizens in neighbouring Bhutan, Bangladesh, Sri Lanka and Myanmar became worthless paper, thereby eroding trust in the Indian rupee. Imagine, if the US were to do the same with the dollar.

Undoubtedly, PM Modi’s stated intent behind demonetisation had initially been well-received by the people, who patiently endured it for more than 50 days. Its socio-economic costs, however, have been enormous. Most of those who lost jobs or shut their small business units due to the currency squeeze were from extremely vulnerable background. Many people also lost their lives due to this futile experiment. Whatever be the government’s self-congratulatory sales pitch, for many Indians it has been a jolt from which they will take a long time to recover.