Demonetisation: where is the Prestige?

We are close to completing a full year since the monumental misadventure called Demonetisation was unleashed upon an unsuspecting nation. Actually, demonetisation was just the starkest episode in a series of political stunts that Narendra Modi has pulled off. A quick recap:We are close to completing a full year since the monumental misadventure called Demonetisation was unleashed upon an unsuspecting nation. Actually, demonetisation was just the starkest episode in a series of political stunts that Narendra Modi has pulled off. A quick recap:

On 8th November 2016, at 8 pm, Prime Minister Narendra Modi suddenly announced to the nation, that the government intended to eliminate the 500 rupee and 1000 rupee note — dramatically, in four hours’ time. These two denominations account for 86% of the currency in circulation in India currently. Doubts emerged immediately:

  • Why were the 2000 rupee notes issues? It seems now that it was a stop-gap measure to tide over the inevitable and crippling cash crunch. Anyway, there was a cash crunch as even the 2000 rupee notes were insufficient, exposing the utter unpreparedness on the Reserve Bank of India’s part. It appears that only Urjit Patel was kept in the dark. Speaking of which, Patel is still supervising the currency count, in what must rank as the slowest and clumsiest operation of the Reserve Bank of India.
  • It has never been quite clear what the economic purpose of Demonetisation is. Now that all the currency is back, we are told that it is so that all the paper currency held in the economy is sucked back into banks – so that all the money has a name/address (and potentially Aadhaar) attached to it. But we now know that fake currency is not really a problem. Also, those illegally stashing away funds are using non-cash instruments.
  • Exchanging those currency notes were always going to be a pain. But accessing them once you had deposited those notes were even harder. According to RBI data, the number of ATMs in rural areas actually decreased from 41,663 in September 2016 to 40,997 in June 2017. On the other hand, ATMs in metro centres went up by 9% over the same period.
  • The economy has suffered – the data is undeniable now. Jobs were lost; businesses are down. GDP measures that focus mainly on the formal sector have dipped as well.  only the poor died as a result of being unable to access their money. The rich got their cash exchanged/deposited one way or the other. Bags of new currencies were mysteriously found at various places. Political parties bought parcels of land and made big deposits just before 8th November 2016.
  • So corruption was not quite eliminated. Naxals and stone pelters did not disappear. An occasional sound-byte floats around claiming that the number of tax-payers have increased – data that can be easily busted by looking at the definition of a ‘tax payer’, as James Wilson does in this blog.

 

Did India become cashless at least?

Use of point-of-sale devices: as the supply of paper currency in the economy contracted, you see a “spike” after demonetisation – but the use of debit and credit cards is a largely urban phenomenon.

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How about NEFT and RTGS? Notice the difference in magnitude between NEFT/RTGS and POS. NEFT and RTGS total over Rs. 11,000000 crore, as opposed to POS transactions of Rs. 71,712 crores (and about 35-40% of the POS transactions are credit card transactions, so it is quite unlikely that the poor and lower middle-class are making those purchases)

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I leave you with this:

“Every great magic trick consists of three parts or acts. The first part is called “The Pledge”. The magician shows you something ordinary: a deck of cards, a bird or a man. He shows you this object. Perhaps he asks you to inspect it to see if it is indeed real, unaltered, normal. But of course… it probably isn’t

The second act is called “The Turn”. The magician takes the ordinary something and makes it do something extraordinary. Now you’re looking for the secret… but you won’t find it, because of course you’re not really looking. You don’t really want to know. You want to be fooled. 

But you wouldn’t clap yet. Because making something disappear isn’t enough; you have to bring it back. That’s why every magic trick has a third act, the hardest part, the part we call “The Prestige”.” 

– Christopher Priest, The Prestige

For his legion of supporters, Modi is a magician. He has made apparently made black money disappear (the economy too, but that’s collateral damage). Meanwhile, people are still waiting for the promised windfalls from demonetisation. Also, that original promise of the return of black money, and the Rs. 15 lakhs worth of acchhe din remains hard to forget.

Can Modi bring it back? What do you think?

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