Sometimes being proven wrong brings more joy than proven right. People who had been reading posts since demonetisation would remember that worries had been expressed in this column.

Alas, all of those have turned out to be true.

Note-ban, or demonetisation, was a great turmoil. Its failure has shattered many aspects of the Indian economic reality, yet for no immediate good.

Let’s look into them one by one:

1) Ethical/economic dilemma:

The government had withdrawn Rs 15.44 lakh crore worth of Rs 500 and Rs 1,000 notes on November 8 of last year. The Reserve Bank of India (RBI)’s annual report, released on Wednesday, August 30, revealed that as much as Rs 15.28 lakh crore, that is, 98.96 per cent of demonetised currency has come back into the banks.

If indeed this is the case, either the entire black money has entered the banking system, or there was no parallel economy of black money in the first place that the government had claimed to crack.

2) What happened to RBI surplus?

Secondly, the huge windfall that the RBI was to earn on account of the extinguished Rs 500 and Rs 1,000 notes never happened. As against an expectation of nearly Rs 75,000 crore, the RBI could transfer just Rs 30,659 crore as dividend to the government for the year ended June 2017. This is less than half the previous year's dividend.

The RBI spent Rs 7,965 crore on printing and distributing currency notes this year (July 2016 – June 2017) as compared to Rs 3,420 crore the previous year. The upsurge in expenditure was on account of change in the production plan of printing presses and to ensure the timely availability of banknotes across the country via frequently air-lifting notes from the presses to the issue offices.

Banks had been flushed with deposits post demonetisation, which forced the RBI to offer a short-term money-parking window to the banks under reverse repo operation. This exercise to manage the excess liquidity resulted in RBI's surplus taking a setback of around Rs 20,000 crore during the note-ban.

Meanwhile, the government budget is estimated to have taken a hit of over Rs 11,200 crore on account of interest paid on the securities offered to banks under liquidity management system.

3) Growth slowdown

India’s economic growth rate fell to 6.1 per cent in the March quarter of 2017 as compared to 7 per cent recorded in the December quarter of same year. This was the first quarter after note-ban, which completely represented the impact of demonetisation.

For the entire financial year, the growth rate came down to 7.1 per cent with India losing its position of being the world’s fastest growing economy. When the organised and formal economy was impacted so hard, one can only imagine what would have happened to smaller units running on cash as well as small businesses and livelihoods.

4) Amnesty for Garib Kalyan

Remember the Garib Kalyan Yojna, launched during the note-ban, which stipulated 50 per cent tax on declaration of black money and the condition to put one-fourth of the declared wealth with the government for four months. Under this scheme, only Rs 5,000 crore has been recovered and the government itself has admitted of it being a flop.

5) Cash is still king

The cash once again became the king soon after the situation in ATMs improved. According to the Reserve Bank, money transaction through digital medium has once again reached the pre note-ban level, a few months after demonetisation.

6) Banks in greater trouble

Two months of note-ban corrupted the banking system. People’s deposits became an encumbrance on the balance sheets of banks. The relief from repayment of loans during the note-ban aggravated the problem of bad loans for banks. Banks, already debilitated, are now in greater trouble.

7) Loss of credibility

The credibility and autonomy of the Reserve Bank have been crushed under a heap of old notes.

We cannot be certain if indeed the note-ban troubled the black money riches against whom it was devised, but we know for sure that common people went through hell (sometimes, even death) and may still fall victim to the risk of “inspector raj” as government will try to push up its tax collections by all means.

We do not accept that the note-ban was driven solely to win the UP Assembly elections. How can politics be so irresponsible?

The note-ban shows that the Modi government is capable of taking “bold” decisions, but its spectacular failure also demonstrates that courage that ignores the ground reality can be suicidal.

I regret having been proven right.

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