HYDERABAD: November 8, 2016. Over 87 percent of the currency in circulation was abruptly demonetised, causing untold misery to millions of citizens over the next few months. Long lines at banks, complete paralysis in the informal sector, mass layoffs, senior citizens losing lives standing in the snaking queues - the grim reports kept occurring on a daily basis during that period. Fast forward two years, the Reserve Bank of India (RBI) has, in its recently-released annual report for 2017-18, stated that 99.3 percent of the demonetised currency has been back into the banking system. The primary assumption of the move was that the currency would never find its way back to banks, which was comprehensively disproved.
Second – it was widely publicised that the move would make a large number of people get into the ambit of the tax department. True, but numerous experts point out that there could have been other measures taken to widen the tax net, instead of taking the drastic step of demonetisation.
Third – counterfeiting still exists, and as per reports, in less than two months after demonetisation, a large number of fake 500 and 2000 notes were seized by government agencies across the country.
The silver lining from the exercise was that digital payment providers had windfall gains. Though it was believed that a “no-cash economy” would eventually be a part of our lives, in the later months of de-mon, cash transactions slowly started to rise.
Politicians, cutting across party lines, unanimously condemned the move. World-renowned economist Raghuram Rajan, former Governor of RBI, criticised the exercise as “not a good idea, and not well-planned”. Economics professors at IIT Delhi, JNU and other premier institutions panned the move, saying a cashless economy “may not be as helpful to the poor as being thought”. Many experts also found fault with RBI for not printing enough notes in advance and with banks for the inordinate delay in recalibrating ATMs across the country. Nobel laureate and Bharat Ratna Prof Amartya Sen severely criticised demonetisation, calling it a “despotic act” that showed the “authoritarian nature of the government”.
Not surprisingly, the RBI’s report shows that consumers preferred to hoard cash (2.5 times more) after demonetisation than when compared to pre-de-mon years. Interestingly, International Monetary Fund (IMF) maintains that demonetisation would bring “permanent and substantial benefits”, over a “long-term”. Do the poor benefit in the long run? Only time will tell.
Another worrying aspect about a cashless economy is cybercrime. In a country such as ours, where millions of poor do not know the abc of Internet, middlemen invariably can get access to their bank accounts, and the potential for fraud is immense. There is the related issue of social engineering, where even those educated at top institutions are falling prey and getting defrauded by conmen.
Ugrawai in Kamareddy district was hailed as the first “cashless” village in the weeks after demonetisation. But as time passed, it had gone back to accepting cash payments. Who would swipe a card for drinking tea worth `5?