Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 73
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 74
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Warning (512): Unable to emit headers. Headers sent in file=/home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php line=853 [CORE/src/Http/ResponseEmitter.php, line 48]
Warning (2): Cannot modify header information - headers already sent by (output started at /home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php:853) [CORE/src/Http/ResponseEmitter.php, line 148]
Warning (2): Cannot modify header information - headers already sent by (output started at /home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php:853) [CORE/src/Http/ResponseEmitter.php, line 181]
Notice (8): Undefined variable: urlPrefix [APP/Template/Layout/printlayout.ctp, line 8]latest-news-updates/demonetisation-is-a-clear-case-of-how-public-policy-should-not-be-made-arun-kumar-4682689.html"/> LATEST NEWS UPDATES | Demonetisation is a Clear Case of How Public Policy Should Not be Made -Arun Kumar | Im4change.org
Resource centre on India's rural distress
 
 

Demonetisation is a Clear Case of How Public Policy Should Not be Made -Arun Kumar
-TheWire.in

Demonetisation as a means of tackling the black economy was destined to fail. What’s worse is that its ripple effects are having severe adverse effects on India’s economy.

That 99% of the currency demonetised found its way back to the RBI has been known for some time. The surprise is why it took so long for the announcement to be made. An article in the Economic and Political Weekly in June showed, based on the RBI data, that 98.8% of Rs 15.44 lakh crore had come back by January 13, 2017. So it was difficult for the RBI to delay its announcement beyond its annual report.

Now, the government is putting the spin that almost all the currency coming back is a measure of the success of demonetisation. It is, however, embarrassing because in November 2016, it was expected that Rs 3-4 lakh crore of black cash would not come back into the banks and that black money would be wiped out. This expectation has been belied.

More money than printed

Worse, since Rs 8000 crore is known to have been with the cooperative banks, which were earlier not allowed to return to the RBI but are now allowed to deposit with it, only about Rs 8000 crore would be left. Even this is most likely to be accounted for by money in Nepal and other neighbouring countries. Some amount would have been left lying with those who did not remember where they had kept their savings. They may be the old, infirm or the sick. This money with people is likely to be legitimate. So, in a sense, the entire Rs 15.44 lakh crore may be accounted for.

If more money coming back to the RBI is a measure of success, then the government should welcome people (having old notes) depositing their money in the banks. Instead, the government is fighting tooth and nail against allowing one last chance to the old and the infirm to deposit the money they may have forgotten about.

The government has all along justified the sudden demonetisation which caused havoc in the economy on the plea that secrecy was essential to unearth or extinguish the black economy. It was defended on the ground that black money holders should not be given time to manipulate their holdings and convert them into white. For instance, it was said that they could divide it into small parcels and get the poor to deposit them in the banks, thereby converting it into legitimate money. The government, in fact, shortened the period over which people could exchange their old notes and changed rules repeatedly to make it difficult for people to deposit their old notes. The government cannot turn around now and say it actually wanted all the demonetised notes to come back into the banks. This is another shift of the goal post by the government since it faces an embarrassment of riches.

Further, there is likely to be more embarrassment if the returned cash counted by the RBI turns out to be more than Rs 15.44 lakh crore which was demonetised. That would be the case if counterfeit currency also got counted because either the notes were of high quality or the banks did not have the time to sort them out carefully because of the rush. It is also possible that corrupt bankers accepted the fake notes for a consideration. Since billions of notes returned to the banks went into the currency chests, fake currency could not be segregated and traced to its origin. To avoid further embarrassment of more money coming back, the government does not want to give another chance to return any old notes that may be lying with the old and the infirm.

Black economy not dented

Demonetisation as a means of tackling the black economy was destined to fail. As has been pointed out many times, it impacts no more than 1% of the black wealth which is held in a variety of forms. Further, it does not eliminate the mechanisms for generation of black incomes. So, the amount of black money demobilised would quickly get regenerated. Now that much new currency is back in the system, it can be used again in the white and the black components of the economy and black cash would be regenerated even if some of it was demobilised.

Please click here to read more.