Demonetisation made Indian economy suffer. Will Modi government apologise?
As former RBI governor Raghuram Rajan pointed out, the central bank until the first week of September 2016, although consulted, was not asked to take a decision on demonetisation.
The RBI annual report 2016-17 shows that 98.96 per cent of the demonetised currency notes which were withdrawn from circulation returned to the banking system, which means only Rs 16,000 crore (1.04 per cent) did not return. In contrast, in the earlier demonetisation drives of 1946 and 1978, about 14 per cent and 16 per cent respectively, of high denomination currency notes did not return to the RBI.
Printing new notes to remonetise the economy cost the RBI Rs 7,965 crore, more than double its expenditure spent on printing notes the previous year. The surplus amount transferred to the government was only Rs 30,659 crore, less than half of what it was the previous year. This diminished transfer to the Union government was largely caused by the increased expenditure for the RBI due to demonetisation. The largely increased currency because of demonetisation led to banks having larger deposits with the RBI. This forced the central bank to pay more to these banks as interest payments.
The economy has also suffered. The recent RBI annual report 2016-17 was a clear indication that demonetisation had been undertaken without any understanding of economic indicators. A day after the report was released, the Central Statistics Office (CSO) revealed that the April-June 2017 quarter saw the GDP drop to 5.7 per cent, markedly lower than the 6.1 per cent growth estimated for the January-March 2017, the quarter just after demonetisation.
In sharp contrast, the April-June quarter of 2016, the previous year saw a high growth rate of 7.9 per cent.
These results were shocking and the Economic Survey 2016-17, Vol II noted in August that the decline in GDP growth rates "predated demonetisation but intensified in the post-demonetisation period".
Even official estimates sharply highlight the negative relationship between demonetisation and the GDP growth expectations. In sum, the secretly planned - which included the refusal to get the approval of the Central Board of the RBI, Section 24(2) - demonetisation far from being a “game-changer” has turned out to be a veritable disaster.
However, that has not deterred the official rhetoric despite the avalanche of data and inferences from official quarters. The talks of pushing the GDP growth beyond that of China has been given a quiet burial. The critical question that remains answered is: Will anyone or any office be held accountable for this ecomomic debacle?
Well, seems unlikely.