Photo Caption: Illustration: Peter C. Espina/GT
The demonetization of 1,000 and 500 Indian rupee notes by Indian Prime Minister Modi on November 8, 2016 has turned out to be a big failure.
Approximately 93.5 percent of the demonetized currency notes have been deposited back into Indian banks. However, when this whole exercise was first launched, the Modi government made tall claims that around 20 percent of the total value of the demonetized currency would not make its way back into the banking system.
In addition, India still isn’t able to provide a 24-hour uninterrupted power supply to its citizens. The majority of shops don’t have POS machines to enable customers to make digital transactions.
In a country of 1.34 billion, roughly only 34 percent of the population has access to the Internet. Furthermore, for the minority that are online, there remain serious problems regarding poor connectivity and Internet security issues. A 2015 study of global banking practices by the World Bank revealed that only 53 percent of adult Indians have bank accounts. Out of this figure, 43 percent of the accounts are dormant.
How then can India switch from a primarily cash-based economy to a digital one overnight in the absence of the required infrastructure?
Further, Modi’s demonetization move has led to an increase in corruption. A parallel economy has sprung up in India wherein any amount of old demonetized bank notes of 500 and 1,000 rupees were being converted into new bank notes or deposited into bank accounts at a commission of 30 to 40 percent.
Bank employees exploited this opportunity to the fullest and converted large amounts of the old currency into new notes, and deposited huge quantities into dormant bank accounts. Political parties have also benefited tremendously.
In an undercover operation by India Today, reporters approached various political party offices in and around New Delhi pretending to be businessmen possessing billions of undeclared Indian rupees.
All political parties were accommodating and offered to take the money from these so-called businessmen as political donations. Then in exchange of around 30-40 percent commission, they were willing to return the money in new denomination currency notes.
Modi keeps talking about honesty and removing corruption from public life yet, his own government filed an affidavit in August 2015 in the Supreme Court of India which opposes placing political parties under the Right to Information Act.
Modi’s government declared old 500 and 1,000 rupee bank notes invalid, saying that high denomination notes resulted in large scale corruption. However, new 2,000 rupee bank notes have been launched and new 500 rupee notes have also been introduced.
This whole exercise is devoid of any sense or logic.
A study conducted by the All India Manufacturer’s Organization (AIMO), which represents over 300,000 micro, small, medium and large scale industries engaged in manufacturing and exporting, showed that the demonetization resulted in around a 35 percent job loss and approximately a 50 percent drop in revenues.
The AIMO report notes that some of the causes for its findings include zero cash inflow, rules hindering cash withdrawals, staff absenteeism, choked fundraising options, a derailed real estate sector, a weak rupee, fear and uncertainty among foreign clients as well as poor preparedness from the Modi government.
This façade of demonetization is like promising homeless people houses on Mars in one month’s time. Unfortunately, the reality is that demonetization has put the Indian economy back by at least a decade, leading to job losses and curtailing expenditures by individuals as well as industries. Furthermore, it resulted in severe mental and physical trauma for older citizens who spend hours in bank queues, where some have even died.
Modi should stop thumping his chest over this failed demonetization drive.
The author is a China-based Indian writer. firstname.lastname@example.org