#Vitarkka: Since it was announced on 8th Nov 2016, Demonetisation in India has become the most talked about subject in the entire world. 86% of the country’s currency was rendered worthless on that dark day. When it was announced, the reactions were multifaceted. The government’s stated aim was to shut down black money or the parallel economy and this was, in their mind, a master stroke. There were to be subsidiary benefits like removing counterfeit currency amongst other outcomes.
Conceived and executed by a handful of people in utmost secrecy, straight out of a Robert Ludlum book, was it really intended to shut down black money or was it a “Brahmastra” to achieve something else? While the streets of India were and are abuzz with all kinds of speculative theories, it’s only those few who cooked up the idea who have real knowledge of its true intention, which the public will never know. The others can only speculate and maybe some may get it right or close to right.
The one popular theory above all others to announce such a scheme, was to win the UP election contested on Feb 2017. The strategy to demonetise just before the elections paid huge dividends. While it was a complete washout for the Congress, it was indeed a masterstroke from BJP’s point of view as it choked the money supply. Uttar Pradesh is India’s most populous state with over 20 Crore people and 403 Legislative Assembly seats to contest (About 10% of all MLA seats in India). With stalwart parties and figureheads who have dominated the political scene in UP be it the Yadav scion Akhilesh who’s Samajwadi party teamed up with Congress to win just 54 seats or the maverick Mayawati’s BSP which won just 19 seats, this drubbing could only have been possible by choking the bloodline of winning elections which is hard “CASH”. BJP ran away with 325 seats and this was a victory of mammoth proportions as they had all the juice to rake up the votes.
Several countries have tried the Demonetisation strategy to achieve various outcomes in their respective countries but mainly targeting the so called “black” economy and one lesson they have to teach us is that it has not gone well in most cases. In 1982, Ghana demonetised their currency which made people invest all their money in physical assets and this made the economy weak. In 1984 Nigeria banned old notes and introduced new ones. The economy collapsed as a result of this. In 1987, Myanmar’s military invalidated 80% of the country currency which destroyed the economy and led to mass protests that killed many people. Between 1992-1996, Australia changed their notes from the existing ones to polymer with a host of security features which even till date is in use and a highly talked about currency. This was done to stop mass counterfeiting. Doing this over a period of time gave them the ability to manage the process efficiently albeit the fact that they are a very small population and an advanced economy. This also did not impact the economy but was a move that made Australia business friendly. North Korea tried this in 2010 and this left people with no food. Just before India, we had Zimbabwe in 2015 which was ridden with hyper-inflation and they made a move to make the Yuan as the main reserve currency which was denied by the Reserve Bank. Currently 90% use the US Dollar as the main trading currency. There has been a lot of criticism of wealth being eroded by bad moves. In all of this, the EURO is the best example of transitioning many currencies into one and yet maintaining the most hygiene and causing absolutely no damage to the many economies or its people.
Across the world, counterfeiting is a problem with currencies of powerful economies. Some of these are the American Dollar, the UK Pound, the Euro, the Chinese Yuan the Mexican Pesos, Canadian Dollar, South Korean Won, the Norwegian Krone and the New Zealand Dollar. All these economies have constantly worked on improving the security features of their currency without jolting their economy as they understand the importance of keeping their country ‘s image intact in the International arena mainly with respect to trade and tourism. India too has counterfeiting problems but the recent demonetisation has not shown any data to suggest that there was massive counterfeiting as suggested.
In the United Kingdom, both the coin and the notes are counterfeited especially the £1 Coin and the £20 Note.To combat this they have introduced a new 12 sided £1 coin with hologram and high tech security features to make it difficult to counterfeit. The Americans have a lot of fake $20 and $100 notes. They too have incorporated high tech security features like colour changing, holograms, micro-printed text and 3D security ribbon. Peru is know to be a master at counterfeiting American Dollars. The Euro has the €20 & €50 counterfeited the most at around 85%. People of the Euro-zone have been guided whilst receiving money to check their currency through the “feel”, “look”, “tilt” method. They too are following the American method of security checks on their notes which make is very difficult to counterfeit. In China the 50 & 100 Yuan Bills are highly counterfeited and the Chinese are printing their new notes with a colour changing hologram to battle counterfeiting.
India has counterfeits. One cant deny that. The Reserve Bank of India (RBI) has revealed that they have detected in 2015-16 a total of 632926 counterfeit notes (about 35% of Rs.100/-, about 41% of Rs.500/- and about 23% Rs.1000/-). In 2016-17 they detected 762072 counterfeit notes (about 42% Rs.500/- notes, about 33% Rs.1000/- notes and 23% Rs.100/- notes). In 2017-18 the numbers were 522783 counterfeit notes (about 46% being Rs.100/- notes, about 25% Rs.500/- notes, about 20% being Rs.1000/- notes and about 4% being Rs.2000/- notes). Counterfeiting in any economy will continue to stay and cannot be eradicated as it is human nature to beat the system. Just like how currencies get counterfeited, so do big brands of clothing and several other products. Therefore to assume that the psychology of addressing this aspect is one motive behind the demonetisation move is farfetched as the worldwide data would not suggest a harsh move like this to achieve a small victory.
This exercise of demonetisation cost the Reserve Bank about Rs7,965Cr in 2016-17 on printing new notes of Rs500 and Rs2,000. During the previous year the spend was Rs.3421Cr. Between July 2017 to June 2018, RBI spent another Rs. 4912 crore on printing currency making the cost till date about Rs.12877Cr post demonetisation.
There is a classic saying “If it aint broke dont fix it”. The Indian economy was in no sense broken. Sure there was a black money or parallel economy market which was run by businessmen and the government alike. No one was a saint for sure. But these people were all known by the tax authorities and their numbers were estimated at less than 50000 people in the entire country. Yes, that’s about all the people there are who control the parallel economy at the scale which would interest the government. The other area where the parallel economy ran was amongst small traders and petty manufacturers who trusted cash all their lives as they were dished with an environment that moulded them for decades and as every election neared, they heard promises made of a clean corruption free environment and things only got worse. This government too had made promises and there is another classic saying “Promises are meant to be broken”. So with that environment one could easily put it that it was a harsh move that impacted Crores of innocent people who had clearly put their faith in the government and didn’t expect this move. The people however have to be praised as they endured the ordeal in the hope of all hopes that the country would be rid of corruption. Wishful thinking!
Many a news channel and news print wrote about the unnecessary deaths that happened during this period. People are said to have died in bank queues to collect cash for medical emergencies, marriages were cancelled, business stress for lack of money made people die of heart attacks and so many got hurt in the process. Being a key season for farmers and them being an 84 Crore strong community, they endured a lot and worse of all was the dishing out of curious Rs.2000/- note. Now why would a government announce a higher denomination note when the whole idea of this exercise was to curb the black economy? The note was also of poor quality (The Australian example was there to emulate if one was to pick the best in the market. Afterall we are trying to be the best right?) and much smaller in stature which was even more curious. Was it made in a hurry hence the bad quality? Did it have a detecting micro chip? Would there be an ensuing demonetisation so they’ve spent much lesser on the printing the notes? A long list of questions. A teenager in a conversation asked me if it would have been better to have printed a whole lot of Rs.100/- notes with a host of hi-tech security features and once ready with supply then sack the Rs.500/- and 1000/- notes subsequently whereby the hoarding of cash would have been a lot more challenging for the few who do hoard cash and in any case the farmers need only Rs.100 notes and not larger denominators? Right thinking I thought and more-so the fact that now with this Rs.2000/- note, one can hoard cash a lot more easier. Wow!!! The government also in the process made it easy for the 50000 club. Sadly the farmer couldn’t find change for the 2000/- and their entire crop season went into a tailspin. The subsequent year saw a crash in farming produce by 25%, which by now you can imagine is a lot of money for the poor farmers.
In the end the ones who had cash converted it through buying property, gold, foreign currency, struck deals with their bankers, lent money to a business, made their people stand in lines and exchange the notes and so many more strategies employed. RBI declared in 2018, a year and a half later that over 99% of the notes had come back. It’s hard to tell how much of all this data is true. Had the RBI weeded out the fakes in this data? It was next to impossible for bankers to check for fakes during demonetisation as they were understaffed, unprepared and their customers fear frenzy made it absolutely impossible. To add to the bankers woes the ATM cassettes to accomodate the new notes were not even ready at the right time to help ease the stress which caused even more agony. It was like an emergency time at the banks, as it was a game of “need for speed“.
Many theories have been floated that the fakes were undetectable as they were printed using the exact same paper, print ink etc and these amazing theories are highly speculative as there is no proof to substantiate these claims. To further debunk this theory, if there were so many fakes, how come the RBI landed up with just 99.30% of the currency rather than a whole lot more? If a person or agency could print fakes exactly like the original, wouldn’t they have gone on a printing frenzy?
Fast forward to the current moment and the economy has slowed down substantially. The real estate market is in tatters. The job market has taken a beating of huge proportions. Corruption has become even more rampant and blatant. Skeletons falling from the closet with so many Non Performing Assets (NPA’s) and many more round the corner. Banks are heading to darker times. The RBI is being shaken up. The list goes on. The objective stated by the government to weed out black money was not achieved as no report from the tax department was released to show how many individuals had disproportionate cash nor any data to show politicians or Bureaucrats who had illegal cash.
In the end to win one election, was so much disruption necessary? Many of you may say ‘YES’ because politics is about winning at all costs. The ruling party did just that and kudos to them for such a smashing victory in UP. Afterall, a 140 Crore country can be put to stress by the ruling party….can’t it?
Raj Kaushik – Vitarkka