November 8 marks the first anniversary of Indian government’s decision to demonetize high value currencies of Rs 500 (US$ 7.73) and Rs 1,000 (US$ 15.46) denomination to fight shadow economy and counterfeit currency and push for cashless transactions.
The ruling Bharatiya Janata Party (BJP) and the Congress-led opposition are locked in a political slanging match over demonetization with the former observing it as ‘anti-black money day’ and the latter as ’black day’ that led to the slowing down of the economy.
BJP leaders, including many Union Ministers, are fanning out across the country to highlight the “benefits” of demonetization while the Congress and several opposition parties are holding protests against note ban.
Although demonetization led to seizure of unaccounted cash in many parts of the country, the whole exercise was poorly managed. The tardy pace in the printing of new high security currency notes, which were meant to replace 86% of cash removed from circulation, led to cash rationing, dry ATMs and long queues in front of banks.
This struck a body blow on the informal economy which was heavily dependent on cash. It destroyed the livelihoods of millions of farmers, workers, small-time traders, women and the elderly.
However, the votaries of note ban argue that it led to greater tax compliance and an increase in cashless transactions. Digital wallet companies saw a spike in usage during the early days of demonetization. But once the cash availability improved, the number of cashless transactions ebbed away.
The ruling party’s much vaunted claim that those hoarding unaccounted cash would not dare to deposit them in banks turned out to be hollow after the central bank, Reserve Bank of India (RBI), released the data recently. According to RBI, nearly 99% of demonetized currency found its way back into banks.