Demonetisation

“So, government and RBI actually demonetised only ₹13,000 crore and the country paid a huge price,” Chidambaram said in a Twitter post. “Over 100 lives were lost. 15 crore daily wage earners lost their livelihood for several weeks. Thousands of SME (small and medium enterprise) units were shut down. Lakhs of jobs were destroyed.”

The reference to lives lost was to the purported deaths of people who had to queue up at bank branches for hours together in the days following demonetisation. The central bank took nearly two years to calculate and destroy the banned notes. The tedious process included day and night shifts, working 6 days a week and using 15 note-counting machines. “The processing of SBNS (Specified Bank Notes) has since been completed at all centres of the Reserve Bank. The total SBNS returned from circulation is `15,310.73 billion,” the RBI declared in its report.

The banking regulator mentioned a silver lining to demonetisation, which the government later justified as a way of promoting cashless transactions.

“Monetary transmission from the policy rate to banks’ deposit and lending rates improved during 2017-18, facilitated by the demonetisation-induced slosh of liquidity,” RBI said. It added that the Indian economy remained resilient even “in the face of several shocks during the year – demonetisation’s after-effects; GST (goods and services tax) implementation; spillovers from global sell-offs in bonds and equities; bouts of capital outflows; frauds in domestic banking system amidst mounting loan delinquencies and capital constraints; and the ongoing terms of trade erosion.”

The government has steadfastly defended its decision to scrap high-value notes, saying data collected in the exercise would come in handy in tracking suspicious transactions and checking tax evasion. Demonetisation was followed up by a slew of measures including a law against benami property and steps to prevent generation of black money and its diversion to foreign accounts.

BJP spokesperson Sambit Patra on Wednesday said demonetisation had helped in the formalisation of the economy.

“In 2017-18, the net collection of direct taxes increased by 18%. Collection for 2016-17 was also higher than the previous year. More than 3 lakh shell companies have been closed. Another 50,000 are in the pipeline. This is a big step towards formalisation of Indian economy,” said Patra.