Questions on cash goalposts - Govt's claims come under strain as Opposition and economists step up pressure

Jayanta Roy Chowdhury, TT, New Delhi, Dec. 8: The Narendra Modi government has started to fumble for explanations, with the original raison d'etre for the demonetisation drive coming under strain because of the high volume of cash deposits that have poured into bank accounts.

Almost 80 per cent of the Rs 500 and Rs 1,000 notes that were demonetised on November 9 has come straight back into the banking system, prompting the government to change the narrative and shift the goalposts.

One question being asked now is that if almost 80 per cent of the notes have come back to the banking system in any case, what the need was for the secrecy. Wouldn't it have been better if people were given a wider window - rather than the few hours allowed by the Prime Minister on November 8 night?

Former RBI governor Bimal Jalan told a television channel that there ought not to have been any cloak of secrecy around the demonetisation drive, arguing that the notes should have been phased out over a period of a few months. That would have ensured a greater level of preparedness and averted the cash crisis that has engulfed the country.

Prime Minister Modi had set three goals: hit black money hoarders, smash terrorist operations and stamp out the growing menace of fake notes.

As the weeks have rolled by and the RBI scrambled to find ways to soak up the cash deluge, the smiles have been replaced by frowns as the authorities have struggled to explain why none of the original goalposts is in sight.

"Just because the notes have come back into the banking system, we cannot say that the money has changed colour - from black to white," finance minister Arun Jaitley told a media conference where he announced a range of modest incentives to push for the adoption of digital modes of payment.

Jaitley hinted that the tax sleuths would trawl the data sourced from banks to ferret out the hoarders of black money - which could magnify problems for people who have stood in interminable lines to change the money they had socked away in vaults because of their fear and distrust of the banking system and its myriad fees.

Savage criticism

Bengal chief minister Mamata Banerjee tweeted after Jaitley's news conference: "The government is acting like a salesman. They have started selling products. They have started selling plastic cards... This is a desperate attempt to divert from the main issue. They are making more than a blunder a day."

Mamata asked the Prime Minister to accept responsibility for the disaster and step down. The chief minister, who criticised RBI chief Urjit Patel, went to the extent of offering "full support" to any move by bank employees tol hold a dharna in front of the RBI office in Calcutta. A significant section of the bank employees are Left supporters.

Left Front veteran and former Bengal finance minister Asim Dasgupta added his voice to the chorus: "I was surprised and totally disappointed with the news conference of finance minister Jaitley today... While announcing demonetisation, the Prime Minister spoke about unearthing black money. After a month, people want to know how much black money has been unearthed. But the finance minister didn't say anything."

Dasgupta added that Jaitley had made no attempt to clear the air on the date by when the acute cash shortage would blow over.

According to an update this evening, the RBI have been able to pump back just about Rs 4.28 lakh crore of new money into the system while Rs 11.5 lakh crore in the recalled notes hade been deposited.

Digital demons

Some economists have also been equally scathing in their criticism.

"This kind of unthought rushing into a digital economy is virtually transferring the right to intermediate in economic transactions from the State, which has the sovereign right to issue money, to a new breed of financial businesses, even before you have set the ground rules for their working," said Pronab Sen, former chairman of the National Statistical Commission.

The transaction costs for using credit, debit cards, and net-based transfers vary between 1 and 3 per cent. Sen calculates that if the economy were to reverse its method of transacting business and go in for an 80 per cent digital economy, 12 per cent of the GDP could end up being transferred in the form of charges to the new firms that enable digital transfer of money.

"At a conservative estimate, where far less of the real economy shifts to digital, we are talking about 3 per cent of GDP going to them as income... and this is being done before we have made regulations to govern them... we are forcing citizens to transfer this wealth to them," Sen said.

According to a Reserve Bank of India report on digital transactions, a typical debit card transaction in India was valued at Rs 1,485, while for a credit card, this amount was Rs 3,089. It indicated that around 60 per cent of the transactions were below a value of Rs 2,000.

"Why should we go to such lengths? Let us allow Bitcoins to replace a part of our currency," said Sen. Bitcoin is a form of digital currency, created and held electronically. No one controls it.