Despite efforts at purging high denomination bank notes last year, new reports indicate 99 percent of the forbidden currencies were actually deposited or exchanged for new currency.
This, it seems, is a major blow to the government’s efforts to bring an end to — or at least severely curtail — the large amounts of “black money” running through the system.
One of the goals of demonetization, according to Prime Minister Narendra Modi, was to leave corrupt officials, businessmen and criminals known for hoarding cash stuck with “worthless pieces of paper.” The thought was that wealthier citizens who had been hoarding cash would rather destroy or abandon it than admit to the fact that they were hoarding. The theory is that this would limit central bank liability and create a windfall for the government.
Not so much, as it turns out. Cash holders were not so worried to admit to hoarding and returned some 99 percent of those banned notes to the bank — though through somewhat complicated means. To avoid having to declare large sums of cash, wealthier cash holder simply sold their old notes — at less than face value — to brokers. Those brokers then paid other Indians to deposit or exchange those notes in smaller, less remarkable amounts.
This has, surprisingly, led to criticism.
“99 percent notes legally exchanged! Was demonetisation a scheme designed to convert black money into white?” former Finance Minister P. Chidambaram tweeted.
“A colossal failure which cost innocent lives and ruined the economy. Will the PM own up?” tweeted Rahul Gandhi, de facto leader of the opposition Congress.
The news will come as a hit for Prime Minister Modi, who sold the changes to the poor and working class — who were hit hardest by demonetization — on the idea that that the difficulty was in service of a greater good: punishing the rich and corrupt.
Arun Jaitley, finance minister, on Thursday defended the demonetization at a conference in New Delhi, noting that the process of cataloging and taxing all of the funds that entered the system is ongoing.
“The fact that money has got into the banking system does not mean that it is all now legitimate . . . The money got identified with the owner whom henceforth had been fixed with the liability of explaining that money and facing taxation on it. We are now involved in a large amount of data mining and a large number of people are being questioned.”
Demonetisation a disaster, PM must apologise: Opposition
Congress and the Left parties slammed Prime Minister Narendra Modi for the demonetization exercise and demanded an apology after RBI revealed on Wednesday that almost all the scrapped currency notes had returned to the banking system.
“99% notes legally exchanged! Was demonetization a scheme designed to convert black money into white,” senior Congress leader and former Finance Minister P Chidambaram said.
Congress' chief spokesman Randeep Singh Surjewala demanded an apology from the Prime Minister terming demonetization as a “scam” that not only dented the institutional sanctity of the RBI but also the credibility of India abroad.
Pouring scorn on the RBI, Chidambaram said the economists at the central bank “deserve a Nobel Prize” for “recommending” to the government to scrap currency notes of Rs 500 and Rs 1000.
“Utterly failed Demonetisation is nothing but a disaster in which 104 innocent people were killed while 'corrupt' made 'windfall gains',” Surjewala said.
In a surprise announcement on November 8 last year, Prime Minister Narendra Modi had scrapped high-value currency notes, a step that the government claimed was taken to fight terrorism, rein in black money and even increase the taxpayer base.
“Rs 16000 crore out of demonetized notes of Rs 1544,000 crore did not come back to RBI. That is 1%. Shame on RBI which 'recommended' demonetization. RBI 'gained' Rs 16000 crore, but 'lost' Rs 21000 crore in printing new notes! The economists deserve Nobel Prize,” Chidambaram said.
Trinamool Congress supremo and West Bengal Chief Minister Mamata Banerjee wondered whether there was a “hidden agenda” in the scrapping of high-value bank notes.
“Was the system deliberately set up by Government of India to facilitate dealers of black money to convert black money into white in lakhs of crores,” she asked in a Facebook post.
CPI(M) General Secretary Sitaram Yechury questioned the real intent for scrapping the high-value currency notes and termed the decision as an “anti-national act”.
“99.9% of the notes back in the banking system. 100s died in queues. The poor suffered the most. All this for what,” asked Yechury.
“Lives & livelihoods lost, the economy got a shock, workers lost their jobs. India can never forgive Modi government for this anti-national act,” he said.
Yechury said the boasts of black-money, terror & counterfeit currency ending, have all fallen flat.
CPI General Secretary S Sudhakar Reddy said demonetization was the “most unwise decision” of the Modi government and both the prime minister and finance minister should tender an apology to the country.