RBI deserve Nobel prize for demonetisation, says Chidambaram

A customer hands over cash to a merchant at a wholesale trading shop in Bengaluru. Indian shares ended higher on August 31 pulling back from losses earlier in the session as investors awaited GDP data for the April June quarter

Electronic payments have risen 21% since November to Rs113.7 trillion in July, though they dipped from its peak of Rs150 trillion in March, central bank data show. Economic analyst Vivek Kaul looks at what went wrong.

The Reserve Bank of India's (RBI) annual report for 2016- 17 today revealed that all but 1.4 per cent of the scrapped Rs 1,000 notes have returned to the banking system.

While addressing the press, Jaitley said the aim of demonetisation was not to destroy wealth.

Finance Minister Arun Jaitley on Thursday that said the fallout of demonetisation is on predicted lines. RBI report says that the total amount of RS 1000 old notes in the market was worth Rs 15.44 lakh crore.

Former RBI Deputy Governor R Gandhi said demonetisation will have long-term impact. (This is obviously untrue, for when a black money operator buys an air-ticket for himself, he does not pay for it with a wad of currency notes; but let that pass).

If that is indeed the case, it means that people who had made money by evading tax on it simply succeeded in depositing that money into their bank accounts without it being detected and held accountable for tax-evasion. Demonetization according to him succeeded in "flushing out" currency from the black economy operators who were forced to deposit it with banks.

Sharma also said Modi made a false statement on August 15 that out of the money which has come back, Rs three lakh crore was black money.

The next few days had seen long queues at bank branches to deposit and exchange the demonetised bank notes.

Counterfeit currency that was found was very low. Taking into consideration, the value of SBNs now reported to have been counted, approximately 98.96% of SBNs in value terms have come back to the RBI after demonetization.

The total number of notes withdrawn stood at 24.02bn. It, however, did not give a specific number for the old 500 rupee notes.

Further, as the demonetisation process was violative of the RBI Act, it can not be considered to be based on an authoritative law.

The first condition requires that re-monetization should not have been complete, for if it is then everybody is back with the same of value of currency that he or she had deposited in the first place and there is no question of black economy operators being inconvenienced. The government admitted as much, after having announced the policy. The overall currency in circulation into the system had come down by 20.2 per cent on a year-on-year basis.

"India is a cash economy, and there was no law on keeping your savings as cash".

Agriculture, a sector which largely operates on cash, was hard hit too, with farmers not being paid enough for vegetables and pulses they had grown.

The party also demanded Modi's resignation over the demonetisation decision. Some even died in the process. The intent of the drive, he said, was "to break the grip of corruption and black money". Things will not change on that front. That was the highest in at least 17 years and compares with Rs3,421 crore and Rs3,760 crore for the previous two years. "All other sudden demonetisations have occurred in the context of hyperinflation, wars, political upheavals or other extreme circumstances".

Now it is not just visible in figures, but also in real life.

Vivek Kaul is the author of India's Big Government - The Intrusive State and How It is Hurting Us.

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