As demonetisation process over, what has India gained?

Government maintains demonetisation has achieved its objectives

A-bank-employee-pti [File] Of the Rs 15.41 lakh crore worth Rs 500 and Rs 1,000 notes in circulation on November 8, 2016, when the note ban was announced, notes worth Rs 15.31 lakh crore have been returned

With the RBI Annual Report of August 29 concluding that the central bank had received back 99.3 per cent of the currency notes in circulation after the demonetisation exercise, the government, too, is quite eager to wash its hand off it. 

"This (RBI report) indicates that most of the notes have been counted and checked. About Rs 16,000 crore of SBNs (specified banknotes) have not been received. Rest of the received notes have been counted and disposed off," said Subhash Chandra Garg, secretary, department of economic affairs in the finance ministry.

"These are the final numbers. As far as we are concerned the process of demonetisation is now complete," Garg said about the one-time exercise which cost 1.5 million jobs and over 100 lives, and spelt months of gloom for the entire economy. 

At the time of the demonetisation on November 8, 2016, the RBI had estimated that currency of Rs 15.41 trillion were in circulation in the economy. These figures would suggest that Rs 15.25 trillion would have been returned to RBI by banks.

The finance ministry believes that it was a fruitful exercise. "We have introduced new notes with more security features, which has reduced the number of fake high-quality notes being detected anywhere," Garg told THE WEEK.

Further elaborating upon the benefits of note ban, which was conducted to detect black money in the economy, he said: "Compared to the currency flow we would have without demonetisation, we have Rs 3 - Rs 4 lakh less cash in the economy now."

However, he was unable to explain the impact of demonetisation on black money. Asked if only Rs 16,000 crore worth of black money existed in the economy, Garg said that black money existed in many forms like cash, property, jewellery and deposits elsewhere.

"Demonetisation has achieved its objective," Garg said. The economic affairs secretary pegged the cost of demonetisation at Rs 4,000 crore higher than the RBI's normal course expenditure in printing currencies, which is at Rs 4,000-Rs 4,500 crore.

The RBI report, however, had a different view. After reporting a profit curbed by Rs 35,000 cr in the fiscal following demonetisation, the central bank said its balance sheet took 'dynamic changes' to speed up the process of remonetisation.

The central bank said that the pace of remonetisation quickened within the first one month after demonetisation, and the Rs 15.41 pre-demonetisation cash-in-circulation figure was re-attained on March 2018.

The RBI report noted at least one advantage of the demonetisation exercise in its annual report this year. "Inflation eased on a year-on-year basis in an environment characterised by high variability," the Central bank said.  

As far as foreign missions in countries like Nepal, Bhutan and Bangladesh and others holding demonetised notes are concerned, the courts are yet to take a decision. But the Indian government is almost certain that those notes would not be accepted back.

“Those are no longer demonetised bank notes. After January this year, they have now become illegal notes,” said a finance ministry official, when asked on the fate of large numbers of earlier denomination currency held by the neighbouring governments.

Meanwhile, former finance minister P. Chidambaram said the country had paid a "huge price" for demonetisation. In a series of tweets, Chidambaram said: "Indian economy lost 1.5% of GDP in terms of growth."

"That alone was a loss of Rs 2.25 lakh crore a year. Over 100 lives were lost. 15 crore daily wage earners lost their livelihood for several weeks. Thousands of SME units were shut down. Lakhs of jobs were destroyed," the Congress leader tweeted.

"Advantages, like digital transactions making huge inroads are only the ancillary benefits. The main benefit remains in the fact that it is a more formal economy now where the black money will be more difficult to thrive," said Sanjeev Sanyal, the principal economic adviser to the finance minister.

But then, one could also tend to think that it was GST and not demonetisation, that could achieve more in terms of formalising the Indian economy.