It was expected that people whose holding of such currency was in black money will not be able to exchange or deposit it in banks. In this way it was expected that the black money held by the public will be extinguished. But today it has been found that almost the entire amount of Rs 1000 and Rs 500 notes held by the public has returned to the banks. This either means that there was hardly any black money holding with the public or the people have converted their black money into white and deposited it in banks.
Whatever be the case the entire process of demonetization launched by the government has turned out to be meaningless.
All that has happened is that old Rs 1000 and Rs 500 notes were deposited in banks and the banks replaced them with new notes.
The entire process was reduced to a painful process of exchanging old notes for new notes. The pain suffered by the public in the process was huge. About 100 people are reported to have lost their lives standing in the queues for exchanging and depositing currency. People suffered huge pain standing in queue, often from early in the morning till the day was out and all this for a meaningless venture.
When the scheme was announced it was expected to have three objectives. First black money will be unearthed. Second counterfeit currency will be extinguished. The third objective was to curb terrorism as it was expected that all money held by terrorists will be extinguished. None of these three objectives have been fulfilled in practice. We saw in the beginning that no black money was unearthed as a result of demonetization. Secondly, counterfeit currency formed only a negligible proportion of total currency in circulation and more over counterfeit currency is now being printed afresh. Thirdly terrorists have been caught holding new currency and they have also means of converting old currency for new and some terrorists acquire new currency by looting banks.
While the three original objectives of demonetization were not realized a new objective was added to the entire exercise. This new objective was to convert India into a cashless economy. With this objective in mind a series of measures were announced like providing subsidy and other incentives for doing digital transactions and dis-incentivization of using cash in the economy. The objective of introducing a less-cash economy is a noble one. But this objective could have been realized and all measures introduced to promote digital payments could have been set in motion without demonetization and all the pain associated with it.
Demonetization has given a body blow to the Indian economy. Economic growth rate in the country will receive a setback. The farming community is in distress. They don’t have enough money to buy seed and fertilizers. The small scale industries don’t have the money to pay the employees. Migrant labour is not being paid wages and they are returning home. The hardships imposed by demonetization on the country is huge and all this without any worthwhile reward.
It will take several more months for normalcy to return in the country. The reputation of the RBI has been tarnished and several question marks are being raised about the autonomy of this institution. It is being widely believed that the government has encroached upon the autonomy of RBI. The RBI governor watches like a mute spectator while all these things are happening.
The demonetization exercise by the government will be remembered in history as a huge blunder. It is only the rich industrialists, who have no concern for the common masses, that continue to shower praises on the government for this meaningless exercise. The man on the street has been made to believe that it is all for the good. It is the good fortune of the government that the Indian public is docile and their immense capacity for tolerance has been stretched to its limits.