November 8, 2020. Four years ago, when the clock struck eight, not just the clock had struck but kept struck millions of people of a developing country. Intending to counter black money, the Indian Prime Minister Narendra Modi declared the currency notes of Rs. 500 and Rs. 1000 invalid from midnight.
With a large chunk of people still divided on this decision, what led after the decision was a sudden unexpected jolting down of Indian Economy with GDP rates coming down, people standing in queue before the banks and ATMs, the whole night, and whatnot. India’s Economy largely came to a standstill.
Rs 500 and Rs 1000 notes comprised 86% of Indian currency. And with a country, mostly dealing in cash, declaring 86% of its cash invalid led to higher demand, supply, and liquidity shocks, as accepted by the Financial Reports of the Government of India itself.
Today, when we complete four years to demonetisation, the Indian Economy that slowly started recovering from its aftermath got crippled again by the lockdown because COVID-19 engulfed the world. The move by then Finance Minister Arun Jaitley was supported by many people, veteran journalists, and the members of the treasury in the Parliament.
The movement received criticism from many economists, former RBI Governor Raghuram Rajan, Dr. Manmohan Singh, the left, and parties at the opposition. Manmohan Singh, while addressing the Parliament told, “Those who say demonetisation is good in the long run should recall the quote: In the long run, we are all dead”. Prime Minister Modi added, “Give me 50 days, burn me alive if I am wrong.”
With India confused if demonetisation had checked the black money or not, the Reserve Bank of India (RBI)’s report in August 2018 made it clear that 99.3% of the total currency that was demonetized has returned to the bank. This came as an utter shock to the economy and the people who expected the decision to be the one to counter black money, fight corruption, and curb fake currency in circulation.
Finance Minister Piyush Goyal in 2019, however, made it clear that 1.3 lakh crore black money has been recovered through all anti-black money measures. Thought the same was expected to be Rs 3-4 lakh crore.
As per the RBI Data, demonetisation led to an increase in the digital banking sector with 3.4 lakh digital payments in 2020 in comparison to 70,000 in 2016.
The BJP Government, however, seems to have failed in one of the important dimensions, it expected demonetization to have checked; terrorism. According to South Asian Terrorism Portal (SATP) Data, post-demonetization, the number of such incidences rose in 2016, 2017, and 2018 in comparison to that of 2015.
With a pandemic affecting the economy after demonetisation, India’s GDP fell by 23.9 % in the quarter April-June. Both demonetisation and the pandemic created a large impact on MSME sectors and the informal unorganised sectors, which, as per the Supreme Court of India was a carpet bombing and not a surgical strike.
After four years of demonetisation, it has been receiving polarised opinions, with a class of people calling it a master-stroke while others, a fruitless decision. But what cannot be ignored is its significant effect on the Indian Economy, not just confined to the capitalist class, but felt and participated by the common masses.
Even today, different people reacted differently. While the BJP India shared posters in support of the move, the AAP and eminent economists like Arun Shourie has laid down the criticism of the same.
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