The latest revelation that the Reserve Bank of India had opposed the demonetisation move comes as a vindication of the widespread criticism against the disruptive decision of the NDA government. The central bank, in an RTI reply, disclosed that the RBI board, which included present Governor Shaktikanta Das as a director, had warned of the short-term negative impact of demonetisation on the country’s economic growth and observed that the unprecedented move will not have any material impact on tackling the black money menace. According to the now-revealed minutes of the meeting, the board had met just two-and-a-half hours before Prime Minister Narendra Modi in an address to the nation announced the demonetisation decision on November 8, 2016. It must be pointed out that fighting the menace of black money was touted as one of the key objectives of the note ban that saw 86% of high-value currency going out of circulation, dealing a severe blow to the informal economy. Of the Rs 15.41 lakh crore worth Rs 500 and Rs 1,000 notes in circulation on November 8, 2016, notes worth Rs 15.31 lakh crore, accounting for 99.9% of the total currency, came back to the banking system during the 50-day window for depositing the junk notes, raising questions over the efficacy of the shock move. Interestingly, the RBI board had flagged the issues concerning the short-term negative impact on the GDP while pointing out that the counterfeit currency of Rs 400 crore was very insignificant as a percentage of the total quantum of currency in circulation.
Since a major chunk of black money is not held in the form of cash but in the form of real estate assets and gold, the note ban would not have a material impact on those assets. An honest introspection of the demonetisation move should make it clear that the costs have far outweighed the benefits; the pain caused to the general public was far greater than the gain to the economy. Though the intent behind banning the high-value currency notes may be laudable, the consequences turned out to be an economic misadventure, evoking criticism that it ended up being a money laundering scheme. None of the objectives of the note ban –unearthing black money, eliminating counterfeit currency and choking terror funding — has been achieved. Even the staunch advocates of demonetisation cannot deny this reality. The initial expectation of the government that nearly Rs 3 lakh crore unaccounted money would be unearthed has proved to be wrong. There is no data to back the claim that the note ban has arrested terror funding. Many economists wonder whether demonetisation has turned out to be a case of all pains and no gains.