Show Me The Black Money

With RBI data showing that 99.3 per cent of banned currency is back in the banking system, the Modi government’s claim that demonetisation will stamp out black money has fallen flat. Was the note ban all pain and no gain?

- M.G. Arun and Shweta Punj

It was the evening of November 8, 2016. Sudden news of a televised address by Prime Minister Narendra Modi threw the nation into intense speculation. A few minutes into his speech, Modi announced his government’s historic decision to scrap Rs 500 and Rs 1,000 notes at midnight, eliminating at a stroke 86 per cent of India’s currency in circulation. “The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper,” Modi said. “The rights and interests of honest, hard-working people will be fully protected.”

The next morning, all hell broke loose. A mad scramble ensued at banks as people queued up to exchange demonetised notes for new currency. The enormity of the exercise swamped the Reserve Bank of India (RBI) and public/ private banks, with ATMs running dry and the central bank issuing one diktat after another in a bid to curtail withdrawals and maintain the cash flow. The government maintained that the ordeal was a one-time bitter pill the country needed to swallow to end the menace of black money.

In the immediate aftermath, many fell for this narrative, even those driven over the edge by the acute shortage of cash. ‘The big money hoarders will be punished as their ill-gotten piles will never find a way back into the banking system,’ surmised the man on the street. And many believed that the ‘extinguished currency’ would form a big dividend in the RBI’s books, to be transferred to the government for spending on infrastructure and social welfare. It all looked so well-conceived and result-oriented.