Looking back at demonetisation

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Looking back at demonetisation

Sunday, 02 December 2018 | Kumar Chellappan

Looking back at demonetisation


Author - Meera H Sanyal

Publisher - HarperCollins, Rs 599

Meera Sanyal revisits the much-discussed topic of demonetisation and analyses the historic step and its impact on India in hindsight, says Kumar Chellappan

One of the most widely discussed and debated topics in India during the last two years has been the demonetisation of high denomination currency notes announced by Prime Minister Narendra Modi in his special address to the nation on November 8, 2016.  When he told the country that currency notes of Rs 1,000 and Rs 500 denominations would no longer be legal tender from that midnight, I just checked my wallet and found that I had two currency notes of Rs 20 each. Since I was at my hometown in Kerala and had to rush to Chennai within the next two days, my only worry was how to manage the rail tickets from Aluwa to Chennai. Help came in the form of Bhaskar Kunhi, my brother-in-law, who got the ticket reserved through online booking. He gave me five currency notes, each of Rs 100 to tackle any emergencies.

When I reached Chennai on Thursday morning, it was as if hell has opened up. There was chaos and commotion all over as all the ATMs were shut down and there were long queues in front of all banks to get the Rs 500 and Rs 1,000 currency notes exchanged. Since I had some money in my savings bank account, I managed the days with my ATM card.

Instead of the kirana shop from where I used to buy household essentials, I switched over the super market at and bought everything with my ATM card. To be frank, I never encountered any major difficulty during the fifty-day period.

But elsewhere in Tamil Nadu and Kerala, I saw participants in TV news channel discussions going berserk as if the world was coming to an end. Self-styled economists and financial wizards showered the Prime Minister and the union government with the choicest of expletives. All of a sudden there were reports in national dailies about people who were standing in queues in front of banks succumbing to cardiac arrests. All deaths were attributed to demonetisation. It is unheard of this many people standing in queues dying because of cardiac arrests. Debaters on TV channels even forecast that the “financial tsunami” unleashed over them by the Prime Minister would lead to the collapse of the country. Today, it has been more than two years since the announcement of the demonetisation and India is alive and kicking.

The year 2018 marked the second anniversary of demonetisation and Meera H Sanyal, an articulate banker, came up with a well-researched volume The Big Reverse — How Demonetisation  Knocked India Out. The book of 304 pages features six chapters in which Sanyal has explained the what and how of the financial tsunami in a systematic way. She describes it as a surgical strike carried out by the Government against black money and corruption which were eating into the core of India. Though she has furnished umpteen number of arguments against the demonetisation, one fails to understand why the author is silent about the other side of the mission. The Prime Minister opted for demonetisation because of the pressure on the Indian economy, which according to S Gurumurthy, a respected Chartered Accountant, would have caused the collapse of the country’s financial system.

She has quoted from the Reserve Bank of India Report 2017-2018 released on August 29 that 99.35 per cent of the demonetised currency notes were returned to the banks and claims that the “demonetisation dividend that had been so exuberantly promised has turned out to be a mirage and the math of ‘DeMon’ has gone horribly wrong”

But what went unnoticed was the factors which led the Government to resort to this extreme measure. When the new government under Modi took charge in May 2014, the country’s economy was in total mess. Despite the claims by the previous UPA regime which had an Oxford educated economist as Prime Minister, India was suffering from hyper inflation in all sectors of the economy. The UPA cheer leaders were claiming that the period 2004 to 2011 was the high growth period of the Indian economy. The tenure of the Manmohan Singh Government saw the GDP growing by 8.5 per cent (2004 to 2011) which was described by columnists and finance writers as the golden period. But the truth behind this growth had an ugly face. The total number of jobs created during this period was 27 lakhs according to the UPA Government’s own economic survey. Compare this with the 5.4 per cent growth in GDP registered during the1999-2004 NDA government which saw creation of 60 lakh jobs. Till date nobody has given an explanation for this ‘abnormal’ phenomenon.

While the inflation as well as commodity inflation were below the 5 per cent mark during the NDA regime, this shot up to unprecedented levels during 2004 to 2014. Gold prices and stock market prices increased by 38 and 32 per cent respectively during  1999 to 2004 while the asset prices shot up by more than 10 times during the Manmohan Singh era.

In the initial days of  DeMon, the Government had put restrictions in the amount of money  that could be deposited and withdrawn through bank accounts. To surmount  this, firms with unaccounted money tried many tricks including opening of multiple bank accounts. Subsequent probes detected many companies operating as many as 100 bank accounts. A company was found to have a whopping 2134 accounts to deposit and withdraw cash! Sanyal has devoted a chapter exclusively to educate the readers about lessons from history. The DeMon experience from Ghana is that “for more than a decade after the currency change, Ghananians shunned the banking system, leading to large amounts of cash being held outside the system,” she writes.

She has recounted the experience of the USSR with 1991 DeMon which led to the collapse of the world’s largest country. “The 1991 DeMon undermined the people’s trust in the Kremlin and caused a complete loss of confidence in both the Government and in President Gorbachev. He faced a coup attempt that August which destroyed his authority and led to the break up of the Soviet Union in the following year,” she writes.

Well, nothing of that sort has happened in India. Dr Subramanian Swamy, a known critic of the Modi Government’s economic policy would not say that the Indian economy is being hit for a six because of DeMon. The black money has been flattened out and it had its cascading effect in the prices of gold and  real estate which fell to almost half of what it was before the DeMon.

Had the author incorporated these details in the book, it would have ended up as a seminal work.

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