A very costly gamble

It's always good – and many times fetching too – if we take the road less travelled. But we need to have at least an inkling of where we will eventually end up. Otherwise, there is every chance that we may land in a quagmire.

When Prime Minister Narendra Modi took to the television screens on the night of November 8 in 2016 and declared an 'unprecedented' war on black money by scrapping high-value currency bills that constituted as much as 86 per cent of the cash in circulation then, the country – a nation of a billion people – went into a tizzy. Even as he sought to defend his monumental but shocking decision by listing out dividends like elimination of counterfeit notes, cutting off fund flow to terrorists and, above all, the eradication of black money menace once for all, that would accrue to India in the long run, people scurried to the nearest automatic teller machines (ATM) to lay hands on some cash for sustenance. That mad scramble continued for the next few months as people stood in long queues to exchange old Rs 500 and Rs 1000 notes. Cash chaos reigned, taking sheen of small business and unorganised sector.

Some estimates put job losses on account of demonetisation at 15 lakh. But luckily for the Modi government, the hoi polloi suffered quietly even as banks rationed new currency notes and the RBI imposed mindless restrictions. There was a hope behind that stoic silence. An argument was in circulation in favour of the note ban then that black money hoarders would not dare deposit their ill-gotten wealth held in cash in banks and such amount would be at least Rs 2-3 lakh crore out of Rs 15.44 lakh crore that went out of circulation. And Modi would use that amount for the benefit of poor. But that turned out to be far from true because more than 99 per cent of the scrapped notes found their way into the banks.

However, the Centre put up a brave face and steered the note ban discourse towards digital economy. Though digital transactions soared during the note ban period as people had no option except using their plastic cards and online channels, the price paid for that is huge as economy took a battering and GDP fell to 6.1 per cent in Q4 FY17 from 7 per cent in the previous quarter. The digital euphoria did not last long either. RBI data suggests fall in digital transactions post re-monetisation.

As the nation reflects on the aftershocks of the ill-advised move one year later, the note ban was nothing short of a bad gamble that the Centre foisted on the nation. It damaged the economic fabric of the country, pushed MSMEs – the backbone of our economy – into chaos and hit the poor hard. It is not to say that war on black money is bad. For a country like India where the largest chunk (22.4 crore) of the world’s poor live, black money is cancerous. But banning currency notes is an immature way of tackling the menace as no one will keep his ill-gotten wealth in cash!