Demonetization Report Card: Success or Failure

It has been almost a year since the announcement of the demonetization by the Indian Prime Minister, but the argument did not really diminish if it was a success or a failure. The BJP faction is sharing the statistics to justify the decision and glorify the result, while the BJP faction is doing the opposite. To add, experts from many different routes around the world have shared their opinion that unfortunately has also been corrupted by partial fiction.

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It was created to capture Black Money and was a success – Partly true

This was, of course, the main reason cited when this drastic decision was announced. Yes, any cash transaction cannot be tracked by the taxi driver (unless the dealer actually handles a receipt and declares revenue) and with negligent enforcement by corrupt officials, the informal economy has been booming for years in India. By making the old banknotes invalid, people who cling to the stacks of money have no choice but to deposit them or change them into a bank, which means they will be captured.

Unfortunately, our citizens are smarter when it comes to money and they are hiding taxable income. People used their family accounts, hawala brokers who in turn used proxies to deposit large amounts as smaller values in different accounts, bank officials helped the rich and powerful and nearly 99% of the demonetized notes had found the way back to the banks.

The government did not publish accurate statistics on how many suspicious transactions were carried out for investigations or the amount of black money that was discovered. As long as these figures will not be made public, I would consider this argument to be only partially true.

It has prevented the growth of Black Money – Invalid

By deleting old denominations and reintroducing new ones, there was only a temporary shock to the growth of black money. Once people have new banknotes in their hands (the supply of new banknotes has normalized practically throughout the country) they will continue to resort to their old ways.

Demonetization

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Citing demonetization as something that would avoid the growth of black money is like giving Amrutanjan a man who has migraine headaches and tell him that this is the permanent cure for his disorder. It is simply a temporary relief and not a permanent cure.

In fact, I would call it an invalid argument that does not require a true or false comment.

It has expanded the taxpayers' base – Partly true

This is another legitimate explanation or argument. Cash, once deposited into a bank account, actually begins a paper follow-up for the taxpayer to start investigating. Anyone who can deposit 1 or 2 lakh in their bank account should have had some sources of income. By examining these suspicious transactions, the government would actually expand the taxpayer's base (if it did, of course).

As I mentioned in point 1 until the government publishes statistics on the exact number of new taxpayers identified, I would consider this argument partially true at best.

Note: circulating messages make statements about the value of 2.9 lakh crore money that the government investigates and hypothetically formulates, though 50% of this money is black, the government will get X crore as tax revenue. As long as the Indian government does not actually publish the statistics, I would take this shared news with a pinch of salt and consider them partially true.

 Reduced the volume of high-value denomination banknotes – False

Similar to topic 2, this is also an invalid topic. The government has introduced banknotes of 2000 rupees instead of the old 500 and 1000 denominations. Therefore, instead of carrying 1 lakh in your pocket with 100 1000-note banknotes, a man who wants to hide money can now load 2 lakhs with 100 banknotes of 2000 each. Until these years 2000 were eliminated (I'm not sure when) this argument is not true. So, I'm not going to the true or false point.

Money from the parallel economy to the banking system – True

This is really and truly a success for the demonization exercise. Because of the exercise, banks in India got a massive inflow of deposits that was very beneficial to them. Also in my previous article on the detailed impact of demonetization, I said that this move will result in a positive prospect for banks. So this is definitely a True one.

Interest rates declined – True

As in the case of cash flow for banks, in my previous article on the detailed impact of the demonetization, I said that this move will lead to lower interest rates, which is actually happening. So even this is definitely a True one.

Family savings increased – False

As in arguments 2 and 4, I would consider this argument to be invalid. This is simply a point of feeling well added to a message to give the reader a sense of satisfaction. The money was deposited in a bank account and then was withdrawn or spent. How does a move that invalidates a currency denomination generates an increase in household savings? This is definitely false.

The rise in land prices crashed and housing became accessible – False

The Indian real estate market had grown at an unsustainable pace since 2000 and had already reached a plateau at the beginning of 2016. An excess supply and the refusal of the manufacturer to cut its profits caused a slowdown in demand and prices climbed. It was more like a flat line, perhaps with a lower trend.

Demonetization did not lead to a drastic reduction in house prices and, in fact, prices were more or less where they were in 2016 before demolition. So this argument is false.

 Facilitated the growth of the real economy by incorporating the submerged economy into its fold – False

If the demonetization has actually led to the undercurrent economy, which is suspected to be a good percentage of our GDP, GDP growth in the last 3 quarters should have seen an upward trend. Unfortunately, the trend has been negative. 

So for now, this argument is very false. Until the GDP growth statistics show a positive move, believing that this argument is simply impossible.

Counterfeit currency has been eliminated and terrorist financing has stopped – False

Once again, this was a real point at a time, but not a permanent solution. False racketeers will continue to discover ways to produce counterfeit banknotes, no matter how many times the government demonetizes banknotes. So this argument is false because terrorist activities are still happening along our borders and in various parts of the country.

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Final Account:

The final account of the arguments is as follows:

False: 4
True: 2
Partially true: 2
Not valid: 2

Only 2 of the 10 topics are True and 2 others are Partially True. The rest is False or Invalid. Not to mention the months of uneasiness for the citizens or about 5 billion rupees that were actually spent on printing these new banknotes and putting them in circulation.

So for now, I would not consider demonetization a success. In fact, the decline in GDP growth, the reduction in industrial and agricultural production is a clear indication that decisions like this have had a significant impact on our economy.

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Post Author: Saurav Bhola

A law student from the Rajiv Gandhi National University of Law, who loves to interact and travel. I’m a part time writer and researcher. My love, only guitar. :)