Demonetization as a means of tackling the black economy has miserably failed. Its failure proves that Modi Govt's premise of "black money means cash" is misnomer. Modi Govt misconceived that if cash was squeezed out, the black economy would be largely eliminated.
But ground reality is that cash is only fractional 1% component of black wealth. It has now been confirmed that 99.3% of demonetized currency has come back to the Reserve Bank of India. To be precise, , not even 0.01% of black money has been extinguished.
Any ill means like black money is least affected by the one-shot squeezing out of cash. Any black cash squeezed out by demonetization would then quickly get regenerated. So, there is little impact of demonetization on the black economy, on either wealth or incomes.
According to RBI report released on Wednesday, Over 99% of the withdrawn Rs 500 and Rs 1000 notes in November 2016 were returned. After verification and reconciliation, It has bee found that out of Rs 15,417.93 lakh crore in circulation the day before note ban came into effect, was Rs 15,310.73 lakh crore has come back. leaving Rs.10,270 crore of junked currency as un-returned.
Post demonetization , the RBI had spent Rs 7,965 crore in 2016-17 on printing of new Rs. 500 and Rs 2,000 and other denomination notes. In 2017-18 (July 2017 to June 2018), it spent another Rs.4,912 crore on printing of currency, the report said. Given. the situation , the net result of demonetization is almost zero. On the contrary, Indian GDP growth slumped by 1.6 percent following the notes ban.
Now Modi government argues that cash coming back to the banks will enable it to catch the generators of black income, and there will be formalization of the economy. But it does not hold convincing. Much of the cash in the system is held by the tens of millions of businesses as working capital and by the more than 25 crore households that need it for their day-to-day transactions.
The big failure of demonetization is that it was carried out without preparation and caused big losses to the unorganized sector. This has not been factored into the recent data on growth rate, so the loss to the economy would be in lakhs of crores of rupees. Farmers, traders and the youth are all agitating.
The black economy needs to be tackled, but demonetization is not the way. The brunt of this move has been borne by those who never had any black money.