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politics VATSANALYSIS

Demonetization was a failure but the PM is OK lying about it even after 4 years!

This is a lie because there is no data which says what was the black money in 2016 and what it is now – so nobody can say black money has reduced.

In a written reply tabled in the Parliament in Dec 2016, the then Finance Minister had admitted, “There is no official estimation of the amount of black money either before or after the government’s decision of 08 Nov 2016…”

Now there are other things for which we do have data. Let’s talk about the issue of counterfeit currency for example. PM Modi had claimed that demonetization would solve it (without any basis). It has not been solved.

Source
Source: chart created from RBI data as presented here

Don’t forget, INR ~8,000 crore was spent in 2016-17 just on printing new notes (followed by ~5,000 crore a year after that). For what? A marketing gimmick!

Also let’s not forget that curbing terrorism was also a reason PM Modi had provided for justifying overnight demonetization.

What happened? See for yourself.

Data Source: https://www.satp.org/satporgtp/countries/india/states/jandk/data_sheets/annual_casualties.htm

Before I end this post, let me sum up why black money could never have been solved by demonetization anyway (the Govt. never presented any study whatsoever to justify the move – it was an insensitive illogical idea from the beginning).

The thing is – even when nobody really knows what is the total unaccounted for income in India, almost every estimate acknowledges that a very small portion of it (~1%) is in cash. Majority of the cash that exists is accounted for. So demonetization by design was a move to harass majority of Indians by targeting less than 1% of black income. In what world is this justified? More than 99.3% of all the demonetized note came back to the banking system!

There is a reason, almost nowhere in the world, ‘demonetization’ is ever used for this purpose! Except of course, if you have the confidence to ‘market’ the move as path-breaking initiative to end corruption!

Other than the harassment that most Indians faced while getting their notes exchanged (some died too) and the unnecessary work that our bankers had to do, week after week – demonetization also had some other far-fetched consequences. It looks like it even caused increase in infant mortality rate!

What about the move towards digital payments?

I will make two comments. The night demonetization was announced, PM Modi did not even talk about digital payments as a reason to justify torturing the entire country. Two, India did not become digital overnight anyway as the below chart shows.

Source | UPI transactions were almost non-existent in 2016 – but could this have happened without the need for demonetization? Yes.

If you scroll back up and look at the existing cash in the economy (much more than was in 2016), it becomes obvious that one does not need to take away cash from the system for digital payments to work and grow. There is not a single economist who has ever claimed that India wouldn’t have made the growth in UPI transactions without demonetization. On the contrary, many studies later found the damage that the move did to the economy itself.

Dear PM, show some shame, acknowledge the mistake and move on? Or am I missing something?

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