08 Nov 2018
Two years have passed since Prime Minister Narendra Modi, in an unprecedented move, announced a ban on high-denomination notes.
Much has happened since then - narratives have been changed, fingers have been pointed, claims have been made, and political banter has threatened to drown out the reality.
Yet, when it comes to data, one thing is clear - the demonetization was far from a success.
The original 'objectives' of the demonetization
On November 8, 2016, PM Modi announced the demonetization with a trifecta of objectives - to "break the back" of corruption and black money, to end fake currency circulation, and to end terrorist financing.
In late 2016, during the hearing of a petition challenging the demonetization, the Supreme Court had been told that the government expected a quarter to a third of high-denomination notes to not return to the banking system - this would be the amount of black money destroyed.
No perceivable change in money circulation after two years
Fast forward two years.
In its annual report for 2017-2018, the RBI noted that a whopping 99.3% of currency had come back into circulation.
This could be indicative of two things - either there was a lot less black money than the lakhs of crores the Modi government had predicted, or, the people with the black money had found ways to launder it.
Terrorism didn't decrease either, and counterfeiters shifted to counterfeiting smaller denomination notes.
The Modi government had been warned about failure
Yet, the fact that almost all the banned currency would come back into the banking system should not have surprised the Modi government.
Former RBI Director Raghuram Rajan had indeed warned the Modi government of the same, but the NDA government, headed by PM Modi went ahead with the policy anyway.
The result? Almost the entire stock of black money has now been successfully legalized.
How the narrative was changed to mask failure
The signs that the demonetization was failing to achieve its objective of curbing black money had started showing in 2016 itself.
Despite promises to track down economic offenders using money trails and "data analytics", no major arrests were made.
Left with no alternative, the Modi government then quickly changed the narrative of the demonetization from eliminating corruption and black money to formalizing the economy and promoting digital transactions.
Digital transactions have boomed, but formalization is far away
It's worth noting that digital transactions have indeed increased and the digital transactions market in India has a golden future according to business analysts.
However, when it comes to "formalization", large questions remain. The Indian informal economy exists as a result of a lack of a bigger formal job market, and the masses of informal workers who are engaged in low productivity labor do such jobs as they have no better alternative.
It's too early to credit the demonetization for tax collections
The demonetization was also credited for increases in direct tax collection.
Indeed, after 6.6% growth in tax collection in 2014-15, collections jumped to 14.5% in 2016-17, and to 18% (as yet un-audited) in 2017-18.
However, as Livemint notes, it's not uncommon for tax collection to jump by double figures - in 2010-11, collections had jumped by 18%.
Thus, it's unclear as of now whether the increase in tax collections is a miraculous result of the demonetization.
Let's look at the data and what it cost India
Now, let's look at the costs.
The demonetization led to the destruction of the livelihoods of 35 lakh people, and more than 100 people died.
It cost the RBI close to Rs. 13,000cr to print new notes in the two years following the demonetization.
India's GDP declined by 1.5%, while the labor force saw reduction of 150 lakh people.
Add to that, the controversial Finance Bill, 2017
Meanwhile, in 2017, the Modi government passed the controversial Finance Bill 2017, which made it possible for people and companies to anonymously donate to political parties through 'electoral bonds'.
It also removed caps on the amount of donations allowed.
In a way, this essentially allowed a channel for black money to be made clean, and arguably also paved way for corporate backing in return of business favours.
Did India benefit in the end?
While Narendra Modi had asked for 50 days for the policy to work, two years have passed, and India still bears the scars of the move.
None of the initially stated objectives have been achieved, the narrative has been twisted to suit the situation, and a channel for anonymous, uncapped political funding has been created.
Who benefited in the end? Well, you figure.