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Lessons From Note Ban

Lessons From Note Ban

The thick veil on the demonetization of 1000 and 500 rupee notes was finally removed by the 2017 annual report of the Reserve Bank of India (RBI). The report released by RBI on August 30 has revealed that 99% of the banned notes retuned. According to RBI estimates, a total of  Rs.  15.28 lakh crore in banned currency notes were returned by June 30, 2017, out of the estimated Rs.  15.44 lakh crore in 500 and 1,000 rupee notes in circulation before the notes ban. The 1% that has not returned to the RBI adds up to around Rs.  16,000 crore.

The response of the political parties to the final statement of the RBI on the adventurous step of demonetization was on the expected lines. The government, particularly the Finance ministry continued to justify the move by highlighting the achievements whereas the opposition parties lambasted the government for the unwarranted misadventure. “Demonetization brought transparency and led to detection of  Black Money”, twitted Information Technology Minister Ravi Shankar Prasad. The former Finance Minister, P Chidambaram said that the one percent demonetized notes not coming back to the central bank was a “shame on RBI”. "99% notes legally exchanged! Was demonetization a scheme designed to convert black money into white?"  Mr. Chidambaram wrote on Twitter. The Congress leader said that the economists behind the demonetization move "deserve Nobel prize" as the RBI gained  Rs.  16,000 crore, but lost Rs.  21,000 crore in printing new notes. Congress spokesperson Randeep Surjewala said that demonetization was nothing but a "disaster" in which 104 innocent people were killed while 'corrupt' made 'windfall gains'.

The CPI(M) leader Sitaram Yechuri wrote on twitter: “Instead of steadying a sliding Economy, demonetization pushed it further down a dangerous spiral”.  AAP leader Ashutosh said that the economy grew between January and March 2016 at the rate of 8.5 per cent, but it declined to 6 per cent for the same time during 2017 due to the severe impact of demonetization. The AAP criticized the Central government and the RBI calling demonetization drive the biggest scam in independent India that broke the backbone of the country’s economy.  All India AIMIM chief Asaduddin Owaisi commented that it was because of the PM Modi’s impulsive decision that people were pushed into distress and the country lost 2 per cent GDP.

PM Modi announced in last November the shocking decision of demonetizing the high value currencies with three main objectives: to tackle black money, to take away counterfeit currency and to stop terror financing. Later, the objectives shifted towards pushing the economy away from cash transactions and increasing the tax base. The fact that 99% of the currency came back to RBI shows that the objective of unearthing black money could not be achieved. Large number of people who had unaccounted money found out many innovative ways to get them exchanged with the new currency. The government could not produce any credible evidence to prove that counterfeit currency and terror financing could be substantially reduced as a result of demonetization.

On the other hand demonetization caused a lot of suffering to the common people, particularly the poor. It resulted in large scale job loss in the informal sector. For weeks, hundreds of thousands of small businesses struggled to find working capital; many of them may have gone out of business permanently. There was so little cash that agricultural prices crashed and, as a result, protesting farmers began to demand that their debts be written off. The governments in Maharashtra and UP were forced to write off the loans of farmers.

The cumulative effect of demonetization is reflected in the slowdown of economic growth in the country. India’s Gross Domestic product (GDP) grew at 5.7 per cent in the April-June quarter, slowing down from 6.1 per cent in the quarter ending in March 2017. India's economy had expanded at 7.9 per cent in the April-June quarter of 2016.  Mr. Manmohan Singh, the former Prime Minister of India, had warned that as a consequence of demonetization the GDP growth would be slowed down at least by two percent and his warning has come true.

The Times of India Newspaper reported on September 2 that former Reserve Bank of India (RBI) head Raghuram Rajan had cautioned the government that short-term costs of a radical ban of high-value currency notes would outweigh the long-term benefits. He had first given his opinion on whether to carry out the ban in February 2016, the paper reported, citing excerpts from Mr Rajan's book on his stint at the central bank, titled "I Do What I Do: On Reforms Rhetoric and Resolve".

Despite the claims by the government, the ground realities have proved that the note ban could not achieve the avowed objectives.  Digitization of the economy and expanding the tax base could have been achieved through alternative means without causing so much hardship to the people and shock to the economy. The BJP has claimed that its massive win in the UP and Uttarakhand assembly elections is an approval of the demonetization by the people. Communal polarization strategy adopted by the BJP along with the division among the opposition parties was the main reason for its victory. People were told by a captivated media that the benefits of note ban would flow down in the long term.

If democracy is to be effective people should be educated on the implications of the policies adopted by the government. The party in power generally has its agenda and keeping itself in power is a priority for it. In the case of demonetization the opposition parties miserably failed to create awareness among the people and educate them about the dangerous consequences of demonetization.  At the same time the party in power with the support of almost captive media tried to brainwash people with a powerful message that demonetization was a bold move by a determined Prime Minister to flush out black money and end corruption.

In a democracy a decisive majority helps the party in power to take bold decisions in view of the development of the country and the welfare of the people. At the same time in the absence of a strong opposition the party in power may resort to policies which are advantageous to itself, but harmful to the people.  Demonetization move was such a dangerous decision in view of winning a series of assembly elections, particularly election to UP assembly. A demoralized opposition failed to protest effectively against the disastrous policy of the government.

Even after getting sufficient proof for the utter failure of note ban the opposition parties could not effectively highlight the harm done to the people and the economy of the country. Making a few statements by party spokespersons is not enough. A series of meetings should have been organized at the village, block, district and state levels to educate the people about the harmful effects of note ban so that the government will be cautious before resorting to such disastrous decisions in the future.

The BJP was shrewd enough to divert the attention of the people from the damaging report of RBI regarding demonetization. The PM made a highly publicized reshuffling of his council of ministers, dropping the non-performers, promoting the performers and choosing new faces. As a result the news about the reshuffle and the new ministers overshadowed the criticism of note ban in the newspapers and TV channels for a few days.

It appears that the main opposition party, the Congress has not learned any lesson from its electoral debacles one after another and as a result it has failed to play its role as an effective opposition. The lethargy and indecisiveness of the Congress party has in fact emboldened the BJP and the PM to embark upon on policies that are harmful to the common people.  In spite of facing humiliating defeats in the 2014 Lok Sabha election and in a series of assembly elections the Congress party has not made any serious introspection and not evolved a strategy to energize the party cadres. On the contrary, it is drifting from one crisis to another. The party units in many states are facing rebellion by the dissidents and the central leadership is not able to handle them properly.  It seems that the confusion regarding its leadership is haunting the party and causing a kind of paralysis in it. It took some initiative to forge an understanding among the opposition parties during the election of the president and the vice-president of India, but there was no continuity.

Unless and until the Congress party reinvents itself and evolves a constructive and attractive programme for the holistic development of India it will not be able to bring together like-minded opposition parties  on common platform to oppose the wrong policies of the BJP. Time is running out for the Congress to resolve its leadership crisis and present an alternative political narrative based on the core values of India and its Constitution and responding to the challenges of today. The most important lesson from demonetization is that the failure of opposition parties to critically respond to the policy decisions of the party in power is dangerous to the people and the country.

(Published on 11th September 2017, Volume XXIX, Issue 37)