Demonetisation Day 50: Still too early to call it an 'utter flop' or 'glorious success'

“Maine sirf pachaas din maange hain… 30 December tak mujhe mauka dijiye…  Agar 30 December ke baad, koi meri kami rehjaye, koi meri galti nikal jaye, koi mera galat irada nikal jaye, aap jis chaurahe mein mujhe khada karenge, main khada hokarke desh jo saza karega, wo saza bhugatne ke liye taiyyar hoon (I have only asked for 50 days. Give me time till 30 December. After that, if any fault is found in my intentions or my actions, I am willing to suffer any punishment given by the country).”

That’s what Prime Minister Narendra Modi said in Goa on 13 November  five days after he demonetised Rs 500 and Rs 1,000 notes. And three days before the 50-day period he sought was up, he delivered a judgement on himself when he said at an election rally  in Dehradun on 27 December:

 “Through the note ban, in one stroke, we destroyed the world of terrorism, drug mafia, human trafficking and underworld...”

 In an interview with India Today  this week, he went a step further when he said:

 “Black money has all been forced out into the open, whomsoever it may belong to — whether it is corrupt politicians, bureaucrats, businessmen or professionals.”

Modi wants us to believe that he has delivered what he promised in the 50 days, and that his “safai abhiyan” (clean-up campaign) will go on.

I have no problem in confessing that I am not an economist. But I am aghast at the way some, like Modi himself, have concluded that this demonetisation is a huge, rip-roaring success that will rewrite the economics textbooks. On one hand, we have those who are singing paeans to Modi in praise of his “bold” war against black money. On the other hand, there are others who, at the very first sight of a long queue before an ATM, rubbished the whole thing as the stupidest thing any prime minister had ever undertaken on the planet since the invention of currency.

Most of those who resorted to the premature song-and-dance were obviously the so-called bhakts of Modi.

And most of those who wrote a political obituary for the prime minister hardly a day or two after 8 November were bhakts of another kind: Left-leaning or Congress-supporting Modi baiters. It is likely that, if Modi hadn’t gone for demonetisation, they might have questioned why he hadn’t, to make good on his poll promise of ferreting out black money. If, after demonetisation, the ATMs functioned smoothly with a copious flow of the new Rs 2,000 and Rs 500 notes, they would have asked why there weren’t enough Rs 100 notes.

If Modi sneezed, they would ask why he wasn’t coughing. If Modi coughed, they would wonder why he wasn’t having hiccups. They are that sort of people. They must be disappointed that the ‘cash riots’ that they were hoping for, haven’t broken out on India’s streets.

On Friday, the two sides will once again deliver their predictable judgments, ignoring the fact that it is the last day for swapping old Rs 500 and Rs 1,000 notes for the new Rs 500 and Rs 2,000 currency. With all its good and bad effects, the demonetisation churn will continue for some more time, and perhaps it will be several months or even a year before we can arrive at a considered judgment as to whether it did any good, and whether whatever good it did, was worth the terrible things that it has so far inflicted on the people and economy of India.

So far, we have seen only the bad effects of it. Dozens have died in queues, and millions have lost jobs. Lack of cash led to a sharp fall in spending, which in turn led to a crash in business in virtually every sector. Fathers couldn’t get daughters married the way they wanted. In some places, farmers dumped their produce on the roadside because it was not worth selling at the rock-bottom prices.

In other places, farmers had no money to buy seeds to grow fresh crops. Not a day passed after demonetisation without a moving tale of woe being reported from one part of the country or another. The picture of a former jawan weeping in a bank that went viral summed up best the agony India went through.

All these problems of demonetisation were a direct result of the woefully slow process of remonetisation. The humongous goof-up in ensuring availability of enough cash after the scrapping of 86 percent of the currency (in value) in a country where 87 percent of the transactions are said to be in cash, is all too clear. Enough has already been said about it by friends and foes of Modi, and those who are neither.

Questions that Modi must answer now

The question upfront now is: What is the country getting in return for all that misery that India was made to go through?

It’s now reasonably clear from official data that the cash windfall that the government had expected from demonetisation — black money that hasn’t been swapped or deposited in the banks which would drop into the government’s kitty — will hover around Rs one lakh crore.

Of the total of Rs 15.4 lakh of cash in the old Rs 500 and Rs 1,000 notes that were demonetised, Rs five lakh crore was estimated to be black. So if only some Rs one lakh remains unclaimed, what happened to the rest of the Rs four lakh crore? How much of it has been burnt by its holders? How much of it has been turned into white by illegitimate means? How much of it has been seized in income tax raids? And how much has been declared under the voluntary disclosure schemes?

These are questions that are not difficult to answer. So Modi must answer them.

This is not to suggest that the absence of a huge cash “windfall” in terms of “extinguished money” means that the demonetisation is a total, miserable failure. Despite claims by Modi baiters, the effect of scrapping the high-value notes on counterfeiters, terrorists, Maoists and drug-traffickers cannot be underestimated, at least in the short term. But the questions that will take more time to answer are the ones related to the expansion of the tax net, additional resources that will be available to the government for job-creating schemes and the effect on  GDP — key aspects that will determine the ultimate success or failure of Modi’s adventure. It will be a while before we can judge these after-effects.

Although you can depend on the Union Budget that will be presented on 1 February to throw up some real and artificial clues, Modi must answer all the questions that he can right now — without delay, and without hysterics and histrionics.

The author tweets @sprasadindia