THE DEMON OF DEMONETIZATION CONTINUES TO HAUNT

By Ruma Dubey

The jury is still out. There is no definitive YES or NO answer to the question dogging every Indian’s mind today – did demonetization work?  But a BIG definitive YES goes to PayTM, which has been the biggest winner of this, with 250 million registered users – 105% jump since Jan’16!

Its been a year and one thing we can say with complete conviction – India has neither gone cashless nor have the counterfeit notes stopped coming from Pakistan.

Really, cash in back in business. All those deals which six months ago had become a bit wary of accepting cash are back to doing so with more gusto. One big reason for the return of cash is undoubtedly GST. People prefer paying in cash to avoid paying a hefty GST – it has been proven historically that higher the tax, more are the tax evasions and lesser in the collection for the Govt. Another reason is that cash is a habit and changing that would take generations.

More puzzling is this data – when demonetization was announced, the Govt had stated that one-third of the Rs.15.44 trillion of notes invalidated would just vanish, will not come back into bank deposits. But that did not happen – 99% of the notes have come back into bank deposits.

One more reason citied for demonetization was to tackle the menace of counterfeit notes. That was a very legitimate reason and for some time, it did stop. The Govt had claimed that the new notes would make faking impossible. But that does not seem to be the case as fakes of the new Rs.2000 notes have started doing the rounds.

So if we look at two reasons – cashless and faking, both really did not benefit from this clean-up. In these two contexts, demonetization was a flop.

On the other hand, where it has worked is in widening the tax base – this was the most tangible benefit of demonetization. Once again no definite number on how much surge but the message is that tax base has increased. We say no definite number because Jaitley in May out the number at 9.1 million new tax payers; Modi in August put it a 5.7 million and the Economic Survey pegged it at 5.4 million. The IT department in August put this number at 25% rise. So many conflicting numbers; wonder why there is so much discrepancy when taxes are all filed online today?

There has been an increase in cashless transactions. This data comes from RBI – in Nov’16 the volume of debit and credit cards was at Rs.35,240 crore and in Sept’17, it stood at Rs.47,820 crore. Dec’16, a month after the announcement saw the maximum rise at Rs.52,200 crore.

One big advantage is the fall in Maoists activities. End of Nov’18, less than a month after the note ban, out of 564, officials stated that 469 Maoists and their sympathisers had surrendered before the authorities. Cash starved, Govt claims that Maoist as well as separatist activities in J&K, especially stone pelting has come down or stopped.

The impact on the economy, along with GST, we all are experiencing it. The Govt keeps on saying that the long term effect of demonetization would be good; well, we can only wait and watch.

But one thing which has happened is a deficit of trust – most do not trust any numbers which come from the Govt. This was never a case before and this lack of faith in numbers is very scary – if we cannot trust the Govt whom should we then? The problem is that there is a lot of mismatch between what we see and actually experience on the ground and what the Govt publishes. So when that is the case, how does one trust the numbers which the Govt has released to justify why demonetization has worked when what we are experiencing is contrary?

Having said all this, irrespective of demonetization and GST, Modi remains the most popular leader in India. Hope still rides pretty high and people still have that faith that he will change the country and it will take time. They believe that everything that he has done will give long term benefits and for the longer good, we need to bear this short term pain. Thus for all those who think that Modi is done, they better have a rethink as he remains as popular as ever.