Almost every calculation about the entire exercise appears to be proven wrong. It started with the Prime Minister Narendra Modi selling it as a crusade against black money, reduce terror funding, and greater digitisation of the economy.
To be sure, Finance Minister Arun Jaitley or his officers did not talk about monetary gains from banning Rs 500 and Rs 1,000 notes. The only sin was the then Attorney General, Mukul Rohatgi, telling the Supreme Court that about Rs 3 to 4 lakh crore would not come back since it might be with terrorists.
Those estimates were as questionable then as it is now. Probably, Rohatgi may have thrown the number just to silence the judiciary which has been active in administration, from decoding alcohol consumption behaviour of truck drivers to how cars above 2,000cc pollute the capital city.
Thanks to excel sheets and computing powers, market analysts came up with projections how Rs 4 lakh crore will be available for the government since many fearing prosecution by the Income Tax Department would create a bonfire of unaccounted currency. Now, almost all the notes are back. Unfortunately, the analysis was from mostly law abiding citizens which prevented them from stepping into the shoes of crooks and gauge their behaviour.
RBI estimates now show that Rs 15.28 lakh crore of the Rs 15.44 lakh crore banned made their way to banks.
The data reflect Indian citizens’ faith in the Income Tax Department’s incompetence and corruption to track and punish them rather than the failure of the exercise. It is either because it does not have the data analytics capability, or one can bribe his way out.
Former Governor Raghuram Rajan has been prophetic. When demonetisation reared its head, he had this to say: “My sense is the clever find ways around it. They find ways to divide up their hoard into many smaller pieces. You do find that people who haven’t thought of a way to convert black to white throw it into the Hundi in some temples. I think there are ways around demonetisation.” Is there anything to show beyond the suffering of people who had to stand in queues for days to get their money back?
So, what did demonetisation achieve? It brought plenty of funds into the banking system. What many rate cuts by the RBI could not achieve, it achieved by bringing down lending rates by as much as 100 basis points. A basis point is 0.01 percentage point.
Instead of looking at it as a standalone event, if one stitches up making cash transaction beyond Rs 2 lakh punishable and the implementation of the Goods and Services Tax that brings in millions of traders into the tax net for the first time, one can reasonably conclude it may be like Sindhu’s long journey where benefits may show up in future. Perseverance is key.
Fifty-six lakh new individual tax payers, a 34 per cent jump in self-assessment tax by individuals give some hope on tax compliance. Inflows into mutual funds of Rs 1.7 lakh crore between November and June this year compared with Rs 9,160 crore is a glimpse on financialisation.
The 350 crore transactions in debit and credit cards valued at Rs 6.6 lakh crore last fiscal was higher than the Rs 4 lakh crore a year ago is a sign of what’s happening on digitisation. There would still be crooks who find ways to evade tax and generate black money. There is a huge army of people who thrive on advising people how to escape tax – consultants and auditors. India has a penal code, but that hasn’t stopped rapes and killings. So, will it be with financial laws.
“I believe our economic system is ripe for a change, and demonetisation 2016 has triggered the possibility of a change not because of the questionable decision, but because of the nature of reactions of the masses to the enigmatic decision of Prime Minister Modi. I believe that an invisible, non-quantifiable message from the people’s response to the crisis is actually an implicit mandate for the authorities as well as for the society as a whole,” says Dr Y V Reddy, a former RBI Governor in a foreword to a book on demonetisation by Ram Manohar Reddy.
Lung power will decide the debate on television channels on whether it is a failure or success. But the final judgment rests on the integrity and ability of the men at Aayakar Bhavan, the home of Income-Tax officers.
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