a Report

DEMONETIZATIONExorcising the “Demon”

Bus inessman,

Faizabad · Man, Kanpur ·

Girl, 8, Mahua Mafi village ·

Teer thra j i , 60 , Kush inagar ·

Kandukuri Vinoda, 55, Mahabubabad ·

Madhu Tiwari, Burdwan · KK Unni, 45, Kerala ·

Karthikeyan, 75, Alappuzha · Vishwanath Vartak,

73, Mulund · Halke Lodhi, 70, Chhatarpur · Newborn

,Pali · Ram Awadh Sah, 45, Kaimur · Child, Bulandshahr ·

Sanno, Kanpur · Komali, 18 month, Vishakapatnam · Gopala

Shetty, 93, Ajekar village · Farmer, 47, Tarapur · Boy, 2, Sambalpur

· Ravi Pradhan, 45, Raigarh · Raghunath Verma, 70, Madhogarh ·

Farmer, Bulandshahr · Shabana, 20, Shamli ·Rizwana, 21, Khajoori Khas

· Vinay Kumar Pandey, 69, Makronia · Mansukh Darji, 69, Limbdi · K

Lakshminarayana, 70, West Marredpally · Kush, infant, Mainpuri · Sumit

Kumar, 18, Bulandshahr · Cashier, 45, Bhopal · Sukhdev Singh, 50, Tarn Taran ·

Sheikh Chanda Khatun, 50, Surat · Eshwaramma, 40, Chikballapur · Rajesh

Kumar, 56, Rohtak · Lal Muni Devi, Sapneri village · Aziz Ansari, 60, Meerut · Deshraj

Singh, 55, Muradpur village · Surendra Sharma, Aurangabad · Khaliq Hasan, 56,

Bareilly · Suresh Sonar, 40 Ballia · Tukaram Genu Tanpure, 54, Rajguru Nagar ·

Digambar Kasbe, 60, Belapur · Ishteyak Ahmad, 70, Azamgarh · Khaleek Hasan Khan, 45,

Bareilly · K Vijayalakshmi, 70, Krishna District · Abhijeet Paul, Tinsukia · Saud Ur Rehman,

48, Old Delhi · Siya Ram, 70, Hathras · Mohammed Idrees, 45, Aligarh · Rampantula

Venkatesh Rajesh, 51, Nagpur · Ratna Ram, 75, Pilani · SK Sherrif, 46, Nellore · Kamta Prasad,

75, Harodi · Babu Lal, 50, Aligarh · Kaushalya Devi, 80, Karnal · Boy, 8, Samba District · Haider

Ali, Shafichak village · Dinabandhu Das, 58,Assam · Girl, 3, Banda district · Suresh Prajapati, 19,

Mawai Buzurg village · Satish Sharma, 49, Najafgarh · Ramnath Kushwaha, 65, Gulriha village ·

Omanakuttan Pillai, 73, Kalaketty · Girl, Chaapar village · Piara Singh, 84, Ludhiana · Ravinder Singh,

42, Majitha · Manju Manjhi, Orma village · Jilubhai Khachar, 70, Ranpur · Indrasani Devi, 70, Ballia ·

Murti Devi, 85, Muzaffarnagar · Akbar, 27, Khujra · Chiranji Lal, 70, Jaipur · Pharmacist, Karnataka ·

Lucky, 19, Ludhiana · Prahalad Singh, 70, Nagaur · Darshan Singh, Gwalior · Prabhati, Rangipur village

· Dharani Kanti Bhowmick, 56, Kolkata · Cloth Trader, Baroda · Munna Alias Mohan Lal ,80, Rajgarh ·

Shibu Nandi, Behala · Girl, 32-day, Balrampur · Biswadeb Naskar, 80, South 24-Parganas · Rabin

Mukherjee ,72, Machlandapur · Kallol Roy Chowdhury, 45, Kolkata · Razia, 45, Aligarh · Modu Singh

Gurjar, 46, Chandwaji · Ibohanbi Akoijam, 70, Imphal · Woman, Ludhiana · Kamta Prasad , 75 , Harodi

Arun KumarProf. of Economics (Retd.), JNU

Gauhar RazaChief Scientists (Retd.) CSIR

Subodh MohantyDirector Vigyan Prasar (Retd.)

P V S KumarScientists (Retd.), CSIR

DEMONETIZATIONExorcising the “Demon”

Arun KumarProf. of Economics (Retd.), JNU

Gauhar RazaChief Scientists (Retd.) CSIR

Subodh MohantyDirector Vigyan Prasar (Retd.)

P V S KumarScientists (Retd.), CSIR

DEMONETIZATIONExorcising the “Demon”

©2017

ANHAD 8 NOVEMBER, 2017

Foreword v

Dedication vi

Executive Summary xii

1. The 'Demon' Who Ate Our Money

- PVS Kumar 19

2. Demonetization and Black Economy :

The Twain Does Not Meet - Arun Kumar 45

3.. Peoples' Opinion on Demonetization

- Gauhar Raza 58

4. Indian Media at its Worst

- Subodh Mohanty 108

contents

ForewordWhen most of the television channels were blowing the trumpet of PM Modi and calling demonetisation as a great

and bold step taken by him, when nationalism was being thrust down people's throats, when standing in serpentine

queues was being sold as a great sacrifice for the nation and it was being compared to the jawans standing on the

border, and when demonetisation was called the second surgical strike, some of us, termed 'anti-nationals' by the

present regime met at Anhad.

The common sense, which a lot of people had still not lost, told us that the second surgical strike will be a bigger farce

than the first one and we decided to study the actual impact of demonetisation. We felt very strongly that a survey

should be done to assess people's opinion about demonetisation at the national level. We had no money to conduct

it.

This report is a joint effort of a large number of organisations and individuals. Organisations and individuals

volunteered to collect the data and expert services were offered to design the questionnaire, analyse data and write

the report.

The data was collected during December 2016 and January 2017. People's perceptions were still highly influenced by

the narrative which was being pushed aggressively all around by the controlled media channels. Despite all efforts to

paralyse people's thought processes by bombarding them with emotive messages, the majority did not lose touch

with reality. Hardships faced by them shaped their opinion. The data collected even in those early days is quite

revealing. If the same exercise is to be repeated now the results would be damning for the present post GST regime.

It would not have been possible to do the survey and publish the report without active support from All India

Women Conference, Anhad, Ashray Adhikar Abhiyan, Asra Manch, B4 Foundation, Bihar Ambedkar Students'

Forum (BASF), BREADS, CECOEDECON, Centre for Social Equity and Inclusion (CSEI), Dr. Ambedkar Yuva Vikas

Kendra, Ideal Youth Club, Janvikas Sanstan, Labour Education and Development Society (LEADS INDIA), Majdur

Kisan Vikas Sansthan, Nai Umang Nai Soch, Nari Ekal, Nari-o-Sishu Kalyan Kendra Khaskhamar, Nazariya, NEM,

NUNSS, PARA, Pehchan, Rachna Manch, Sahulat Microfinance, Samudayik Kalyan Vikas Sansthan, Sathi UP, Siksha,

Tarun Chetan Sanstan, United Reformers Org (URO), Wada Na Todo Abhiyan (WNTA), YUVA, YUVA Rural

Association and a large number of individuals :Abdul Rauf, Anand Mishra, Annie Namala, Anshu Maliya, Dr. Arif,

Arshad Ajmal, Azhar Khan, Biju Mohan, Daiyan, Dev Desai, Dhirendra Panda, Faizan Alam, Farhat Khan, Farida Khan,

Father Ajay, Huda Zain, Ishrat Jahan, Jamser, K. Soloman Paul, Kashif, Manish Kumar, Nayeem, Nazneen Shaikh, Noor

Jahan, Ovais Sultan Khan, Pratap Singh Negi, Raza Haider, Rishi Srivastava, Rituparna Bohra, Sanjay Krishna, Satyendra

Kumar, Saud, Shahajahan, Suman Bhattacharya, Utpla Shukla, Zakir and experts : Prof Arun Kumar, Gauhar Raza and

PVS Kumar.

The printing of the report is supported by John Dayal and other friends.

The report is not copyrighted. We welcome you to reprint, translate and widely distribute.

Shabnam Hashmi

Nov 8, 2017

v

DedicationThis Report is dedicated to the memory of those who couldn't survive the wrath of demonetization:

We present here details of some of the victims.

1. A businessman in Faizabad, Uttar Pradesh, reportedly died of severe chest pains immediately after PM Modi's 8

November announcement. (Financial Express)

2. In a similar incident, a man died of a heart attack in Kanpur during the 8 November announcement. According to

reports, the man had received Rs 70 lakh in advance for selling his land on 7 November – after months of

attempting to do so. (APB Live) 9 November

3. An 8-year-old girl died in Uttar Pradesh's Mahua Mafi village after being allegedly deprived of timely medical

attention. According to reports, the minor's father was turned away from a petrol pump after he tried to pay

them with an old note of Rs 1,000 and was delayed while on his way to the hospital. (Hindustan Times)

4. Teerthraji, 60, died in Gorakhpur after she collapsed in front of the closed gates of a bank in Chandini Chowk

area of the Kushinagar disrtrict. The husband of the deceased, a washer man named Ram Prasad, said that she had

two notes of Rs 1,000 in savings and had died of shock. (Times of India) 10 November

5. Kandukuri Vinoda, 55, allegedly committed suicide in Telangana's Mahabubabad district because she was worried

about the Rs 54 lakh cash in her possession. The family of farmers had reportedly sold their land to meet medical

expenses of the husband of the deceased. (Times of India)

6. A woman, identified as Madhu Tiwari, was allegedly killed by her husband in Burdwan after she failed to withdraw

money from an ATM. (Catch News)11 November

7. KK Unni, 45, an employee of the Kerala state electricity board, fell to his death from the second floor while trying

to file a deposit slip for Rs 5 lakh. The incident occurred at a Thalassery building and is suspected to be accidental.

(The News Minute)

8. Karthikeyan, 75, died after he collapsed in front of the Danapadi SBT branch in Harippad, Alappuzha. (The New

Minute)

9. Vishwanath Vartak, 73, collapsed and died on the spot after having waited in a queue at a State Bank of India

branch at Navghar, Mulund for a few hours. (India Today)

10. Halke Lodhi, a 70-year-old farmer from Chhatarpur, Madhya Pradesh, allegedly committed suicide after failing to

exchange money so as to buy seeds and fertilisers. However, the police have blamed a family dispute for the

death. (Hindustan Times)

11. A newborn died in Rajasthan's Pali district after an ambulance refused to take the child to a hospital because the

parent, Champalal Meghwal, only had notes of Rs 500 and Rs 1,000. (Indian Express)

12. A 45-year-old man named Ram Awadh Sah reportedly died of a heart attack in Bihar's Kaimur district after he

heard about the demonetization announcement. According to reports, Sah was worried that the Rs 35,000 he

had saved, in old notes, as dowry for his daughter would not be accepted. (India Today)

13. A child died in a hospital in Uttar Pradesh's Bulandshahr after the minor's parents failed to deposit an advance

amount of Rs 10,000 in new currency notes for admission. Representatives of the hospital – a branch of the

Kailash group owned by Culture Minister Mahesh Sharma – have denied the allegations that they had refused to

accept old currency notes. (One India)

14. Sanno, an elderly woman, died of a heart attack in her house in Kanpur. According to reports, the woman died of

vi

a heart attack. An amount of Rs 2.69 lakh in demonetised notes of Rs 500 and Rs 1000 were found near her body.

(Dainik Bhaskar) 12 November

15. An 18-month-old girl, Komali, died in Vishakapatnam after a private hospital in Gajuwaka refused to accept old

notes her parents had offered to settle her bills. The toddler died of high fever. (Times of India)

16. Gopala Shetty, 93, died at Karnataka's Ajekar village in Udupi after collapsing while waiting in a queue at the state-

run Corporation Bank. (IANS)

17. A 47-year-old farmer died in a bank queue at Gujarat's Tarapur town, where he was waiting to withdraw money

to pay his workers. “Barkat Sheikh died due to a heart attack when he was standing in a queue at the Corporation

Bank branch to exchange his demonetised notes,” Tarapur police inspector KC Rathwa said. (PTI)

18. A two-year-old boy died in Odisha's Sambalpur after his father, Sudarin Surin, was denied transportation to the

hospital because of the invalid notes in his possession. Upon reaching the Meghapal hospital, he was advised to

take the child to another hospital 40km away. The child succumbed a few hours later. (Report Odisha)

19. Ravi Pradhan, 45, allegedly committed suicide in Raigarh after he failed to exchange notes to help his family in

Tamil Nadu. The deceased, a farmer, failed to exchange Rs 3000 despite standing in queues for two days at a bank

in Saraia. (Firstpost) 13 November

20. Raghunath Verma, 70, a retired school teacher died after waiting for eight hours at the State Bank of India's

Madhogarh branch to withdraw money for his daughter's wedding. He suffered a cardiac arrest and was rushed to

the hospital where he was declared brought dead on arrival. “My father went to the bank for three days. He had

spoken to the bank manager many times asking him to help with the withdrawal and exchange. The manager did

not listen to him. He even fell on the manager's feet on Saturday,” his son Ravi told HT. (Hindustan Times)

21. A farmer in UP's Bulandshahr allegedly committed suicide after he failed to exchange his old currency notes to

pay for his daughter's wedding. (IANS)

22. The family of Shabana, 20, a resident of Uttar Pradesh's Shamli, alleged that she committed suicide after she could

not get her hands on valid currency to pay for her treatment. (PTI)

23. Rizwana, 21, allegedly committed suicide in Delhi's Khajoori Khas area. While the kin of the deceased said that

she was upset because she could not exchange currency – despite having tried for three days – the police have

not been able to confirm the link. (Indian Express)

24. A former BSNL employee, Vinay Kumar Pandey, 69, died of a heart attack while waiting to exchange

demonetised currency at a bank in Makronia, Madhya Pradesh. (PTI)

25. Mansukh Darji, 69, died after he collapsed while standing in a queue outside Bank of India in Limbdi town of

Surendranagar district. (PTI)

26. A retired government employee, K Lakshminarayana, 70, collapsed and died while waiting in a queue at an

Andhra Bank branch at West Marredpally in Secunderabad. (Deccan Chronicle)

27. Kush, an infant, died in Mainpuri after being denied treatment. Parents of the one-year-old were turned away

from a private doctor on account of the demonetised notes in their possession. (Times of India)

28. Sumit Kumar, 18, allegedly killed himself in Bulandshahr because he was unable to get his hands on smaller notes.

The teen, the son of a BSF jawan, failed to get his notes exchanged on two days. (PTI)

29. A 45-year-old cashier at the Neelbad branch of the State Bank of India in Bhopal died of a heart attack. The

cashier collapsed at the bank at around 6pm after dealing with large crowds on Sunday. (Read full story here) 14

November

30. Sukhdev Singh, 50, died of a cardiac arrest in Punjab's Tarn Taran after he reportedly failed to use his demonetised

notes for his daughter's wedding. (Hindustan Times)

vii

31. Sheikh Chanda Khatun, a 50-year-old mother of three, allegedly committed suicide in Gujarat's Surat after she

failed to buy groceries for her family with the demonetised notes. While the woman's children claim she

consumed insecticide because of demonetization, the police have said that the death may have been brought

about by a family issue. (Times of India)

32. A 40-year-old woman named Eshwaramma allegedly committed suicide in Karnataka's Chikballapur district after

she lost Rs 15,000 while trying to deposit it at a bank in Gudibande. It is not clear if the woman – who had saved

the amount by hiding it from her alcoholic husband – lost the money or if it was stolen from her. (The New Indian

Express) 15 November

33. A bank manager at Rohtak Cooperative Bank died of a heart attack after three stressful days serving frantic

customers at the bank. Rajesh Kumar, 56, was found dead in his office. (Hindustan Times)

34. Lal Muni Devi, a resident of Sapneri village in Bihar, died while waiting in a queue at a Nai Bazar (Khizarsarai)

branch of the Punjab National Bank. (Times of India)

35. Aziz Ansari, 60, an employee at a power loom factory, died in Meerut after he fainted while standing in a queue at

a branch of a public sector bank in Gola Kuan. His family claimed that he suffered a heart attack after waiting to

exchange currency for three days. (Times of India)

36. Deshraj Singh, 55, a farmer, allegedly committed suicide in Bulandshahr's Muradpur village after he failed to

withdraw money in time for his daughter's wedding. (Times of India)

37. An elderly man named Surendra Sharma died of a heart attack while waiting in a bank queue at a State Bank of

India branch at Aurangabad, Bihar. (Daudnagar) 16 November

38. A 56-year-old, Khaliq Hasan, died after waiting in a queue in Uttar Pradesh's Bareilly. Hasan, an auto driver, died of

a heart attack. (The Hindu)

39. Suresh Sonar, a 40-year-old man died of a heart attack in Uttar Pradesh's Ballia after he failed to exchange old

currency notes at a State Bank of India branch in time for his daughter's 'tilak' ceremony. (PTI)

40. Tukaram Genu Tanpure, 54, a peon at the Rajgurunagar branch of State Bank of India on the Pune-Nashik

Highway, died after he complained of severe chest pains during a busy day at the bank. His colleagues said that he

was stressed out as a result of the heavy rush and was working close to 12 hours a day since the 8 November

announcement. (PTI)

41. Digambar Kasbe, 60, a resident of Belapur, died after he fainted while waiting in a bank queue in Marathwada's

Nanded. (Hindustan Times)

42. Ishteyak Ahmad, 70, a retired teacher, died in Uttar Pradesh's Azamgarh after he collapsed while in a bank queue.

(Times of India)

43. A tempo driver, Khaleek Hasan Khan, 45, died at a bank in Bareilly after waiting for three days. He collapsed after

he managed to exchange his older notes. (Times of India)

44. A 70-year-old woman named K Vijayalakshmi died in Andhra Pradesh's Krishna district while standing in a queue

at a State Bank of India branch. (Times of India)

45. Abhijeet Paul, the driver of a van carrying cash being transported from a bank to a tea garden estate in Assam,

was killed after the vehicle was attacked. An employee of the Pengeri Tea estate – in Tinsukia district – as well as a

security personnel were injured in the attack. (PTI)

46. Saud Ur Rehman, a resident of Old Delhi, allegedly fell ill after he stood in a queue outside a bank in Lal Kuan for

over eight hours. The 48-year-old was taken to a hospital where he died. According to reports, Rehman had been

visiting the bank for the last two days. He would reach the bank at around 5am but the cash would run out before

his turn. (PTI) 17 November

viii

47. Siya Ram, 70, a daily wage earner, died in UP's Hathras due to brain haemorrhage. His family has alleged that his

death was brought on because he had stood in long queues for three days to exchange currency at the Burz wala

Kuan Canara Bank branch. (ANI) 18 November

48. Mohammed Idrees, 45, died of a heart attack after he failed to exchange old notes. He had reportedly made the

rounds of a number of banks as he did not have a bank account. (PTI)

49. An employee of the Gandhi Nagar branch of State Bank India, Rampantula Venkatesh Rajesh, died of cardiac

arrest. The 51-year-old was rushed to the hospital where he was declared dead. (Nagpur Today) 19 November

50. Ratna Ram, a 75-year-old former serviceman, died in a bank queue at Rajasthan's Pilani. (The Tribune)

51. SK Sherrif, a 46-year-old deputy manager at a Nellore State Bank of India branch allegedly died of stress following

the cash rush. (The News Minute)

52. Kamta Prasad, 75, took ill and died while waiting in a queue before Dhikauuni branch of Bank of India in Harodi in

UP. (PTI)

53. Babu Lal, 50, died of a heart attack in Aligarh after he failed to exchange currency notes in time for a wedding in

the family. (PTI)

54. Kaushalya Devi, 80, a resident of Karnal, died after she collapsed while waiting in a queue at Central Bank of

India's branch at Chaura Bazaar. According to reports, she was at the bank to submit her pension certificate.

(Read full story here) 20 November

55. An 8-year-old boy died in Jammu province's Samba district after his father was unable to provide medical

treatment for a lack of valid currency. Greater Kashmir reported that the man had unsuccessfully tried to

exchange cash – Rs 29,000 in old notes – for three consecutive days before he carried his child on foot to a

hospital almost 50km away from his village, Doonga. (Greater Kashmir)

56. Haider Ali, a tailor and a resident of Shafichak village of Bihar's Sherghati area died after he suffered a heart attack

that had been reportedly brought about because he failed to withdraw money. (Times of India)

57. Dinabandhu Das, 58, allegedly died of shock when he heard that the huge sum of money he had withdrawn before

the announcement, for his daughter's wedding, was not invalid currency. (IANS)

58. A three-year-old girl died in a bank in Uttar Pradesh after her father failed to withdraw money from an Allahabad

UP Grameen Bank in Tindwari in Banda district. (Hindustan Times)

59. Suresh Prajapati, a 19-year-old youth allegedly killed himself in Mawai Buzurg village after he failed to withdraw

money to pay his college fees on time. (Hindustan Times)

60. Satish Sharma, 49, died in west Delhi's Najafgarh after he collapsed while waiting to deposit money in a branch of

the Oriental Bank of Commerce. 57. According to a reports, Kumar, a vegetable vendor, waited for almost six

hours in the bank queue. (Hindustan Times)

61. Ramnath Kushwaha, 65, a resident of Gulriha village, was trampled to death in a stampede at Tarkulwa, Deoria

branch of the State Bank of India in Uttar Pradesh while waiting to withdraw money to settle hospital bills. (Read

full story here)

62. Omanakuttan Pillai, 73, allegedly killed himself in his house in Kerala's Kalaketty after he failed to withdraw the Rs

5 lakh he had deposited from the Kanamala Service Co-operative Bank. (Times of India)

63. A minor girl from a Dalit family died in Chaapar village in Banda district after her parents failed to withdraw valid

currency to pay for her medical treatment. (Amar Ujala)

64. 23 November

65. Piara Singh, an 84-year-old man, died of a heart attack while waiting in line to withdraw money from a post office

in Jabalpur, Ludhiana. (The Quint)

ix

66. Ravinder Singh, a 42-year-old farmer of Majupura village in Punjab's Majitha, allegedly committed suicide after

failing to withdraw cash from a bank at Chetanpura village after several attempts. However, police have denied

that his death was caused due to the cash crunch. (The Tribune)

67. Manju Manjhi, a resident of Gaya's Orma village, died after being denied urgent dialysis. According to reports, the

dialysis wing of the Anugrah Narayan Memorial Magadh Medical College in Gaya refused to accept his

demonetised notes of Rs 500. (Times of India)

68. Jilubhai Khachar, 70, died after he suffered a heart attack outside a Bank of Baroda branch in Gujarat's Ranpur.

(PTI) 24 November

69. Indrasani Devi, 70, fell ill after waiting for three hours outside a Central Bank branch in Ratsad area of UP's Ballia

and later died of a cardiac arrest. According to reports, Devi's daughter-in-law was forced to queue up at the

same bank in order to withdraw cash for her cremation ceremonies. (PTI)

70. Murti Devi, 85, died while waiting to withdraw money from a Punjab National Bank in Muzaffarnagar's Hanuman

Chowk. (PTI)

71. Akbar, 27, a rickshaw-puller, allegedly committed suicide at Khujra, near Bulandhahr after he failed to exchange

four demonetised Rs 500 notes. (PTI) 25 November

72. Chiranji Lal, a 70-year-old man, died after he fell sick while waiting in a queue in Kaladera, Jaipur. He collapsed on

22 November and was rushed to a hospital. (PTI)

73. A pharmacist allegedly committed suicide in Karnataka after being accused of stealing. The brother of the 27-

year-old man told Bangalore Mirror that the manager of the pharmacy at Subbaiah Hospital on MS Ramaiah Road

in Mathikere had accused him of stealing after he refused to exchange demonetised currency. (Bangalore Mirror)

Also Read : “Plight of a banker : note ban has left us helpless to ease human misery

74. A 19-year-old youth allegedly committed suicide in Ludhiana after the note ban rendered his savings worthless.

The deceased, identified as 19-year-old Lucky, was into the rag-picking business. (Times of India) 28 November

75. A former serviceman died in a bank queue in Ladnu city of Nagaur in Rajasthan. Veteran Prahalad Singh, 70,

fainted while waiting at a branch of the State Bank of Bikaner and Jaipur. (The Tribune)

76. Congress leader Darshan Singh died of a cardiac arrest while taking part in a Gwalior Janakrosh rally to protest

demonetization. (PTI) 29 November

77. Prabhati, a newly-married woman, was allegedly killed by her in-laws in Rangipur village in Odisha's Ganjam

district after her family failed to pay them dowry of Rs 1.7 lakh in the new notes. The wedding took place on 9

November, a day after the announcement. (Financial Express)

78. Dharani Kanti Bhowmick, 56, a resident of Bhowanipore in Kolkata died while standing in the queue at an ATM in

Bhownipore for three consecutive days. (Catch News)30 November

79. An elderly man died after he collapsed while waiting in a queue at a Bank of Baroda Jalandhar branch in Bhagwan

Mahavir Marg. According to the Hindustan Times Reports, the deceased, a cloth trader, was withdrawing money

fo his son's wedding. The bank manager reportedly paid the man's relative's Rs 10,000 for treatment. (Hindustan

Times)

80. An 80-year-old man died while he was waiting to withdraw cash from the State Bank of Bikaner and Jaipur in

Rajasthan's Rajgarh town. The deceased – Munna alias Mohan Lal – collapsed after he took the cash from the

bank. (PTI)

81. A man named Shibu Nandi allegedly committed suicide in Behala after he failed to pay his labourers their wages

owing to demonetization. The exact date of the incident is unclear. (Catch News)

82. Payday blues: Many unable to access salary as ATMs, banks run dry; RBI maintains 'no cash crunch' stance

x

83. A 32-day-old girl died in the arms of her mother, Arguna Khatoon, while she was waiting in a crowded room at a

branch of the United Bank of India in Bihar's Balrampur. A mob vandalised the bank after news of the infant's

death spread. (The New Indian Express) 2 December

84. Biswadeb Naskar, an 80-year-old pensioner died after he took ill while in queue to draw his monthly pension in

front of the branch of the UBI Bank at Raidighi in South 24-Parganas district. A resident of Kankandighi in the

Raidighi police station area, Naskar was taken to a local hospital where he was declared 'brought dead'. His body

was taken to Diamond Harbour for post mortem. (PTI)

85. 72-year-old Rabin Mukherjee died just after withdrawing money from an SBI branch at Machlandapur town. His

body was taken to a hospital in Habra for post mortem. (PTI) 3 December

86. Kallol Roy Chowdhury, a 45-year-old succumbed to a heart attack while standing in a queue outside an ATM near

Kolkata. The deceased was a state government employee, who was posted in Cooch Behar district. The incident

took place near Bandel station, in Hooghly district. (India Today) 6 December

87. Razia, a 45-year-old mother of four, died days after she allegedly self-immolated on 20 November when she

“failed to exchange six demonetised notes of Rs 500 denomination after repeatedly standing in queues outside

banks”. Razia, a resident of Shahjamal area of Aligarh, was a mother of four. (The Hindu) 7 December

88. Modu Singh Gurjar, 46, an employee of Rajasthan Tourism Development Corporation (RTDC) died after he

suffered a cardiac arrest while standing in a bank queue to withdraw money. He was at a bank in Chandwaji town

when he complained of severe chest pain and fell unconscious. Gurjar was soon rushed to the nearby hospital but

was declared dead on arrival. (PTI)

89. Ibohanbi Akoijam, a 70-year-old pensioner died after fainting in a queue at the head post office in Imphal. Officials

at the post office said they gave the man first aid. Since there was no sign of improvement he was shifted to the

regional institute of medical sciences in Imphal. (IANS) 9 December

90. An elderly woman, who was standing in a queue outside a bank to withdraw money died in Ludhiana after she was

allegedly pushed by a bank guard. Her kin have accused the security person for pushing the woman which leads to

her injuries and death. (ANI)

Source : https://www.wefornews.com/demonetisation-death-toll-82-people-counting-as-note-ban-takes-tragic-

turn/, accessed on October 23, 2017

Note: This is an incomplete list.

xi

Executive SummaryDramatic Background

l On the 8th of November 2016, Prime Minister Narendra Modi announced that Rs 500 and Rs 1000 notes

would stand demonetised after 12 O' clock midnight.

l Petrol pumps were exempted and so within minutes, pumps were thronged and witnessed long queues.

There were panic purchasing at shops, especially jewellery and electronics good.

l ATMs stopped functioning even before the 12 O' clock deadline. Next day onward bank branches saw never

shortening lines of those who wanted to exchange the currency or draw money in valid notes.

l At many places across the country violent clashes took place, ATMs were attacked, and employees of bank

branches were beaten up.

l Media reports that new currency, instead of being distributed to those who were standing in queues, was

being siphoned off to the rich secretly, and angered people.

Anhad Study

l To study the effect of demonetization on people, Anhad carried out a survey of perceptions, attitudes,

opinions and experiences in collaboration with 32 fraternal organisations.

l A draft questionnaire for conducting interviews was prepared out of the debates that followed declaration of

demonetization.

l The questionnaire contained 18 socio-economic and demographic variables, such as age, gender, religion,

caste, occupation, access to media channels, etc. The total number of questions is 96. These included open-

ended questions and also statements which were closed-ended.

l The survey started in the first week of January 2017 and took about a month and a half to collect data

through interviews and filled-in questionnaires.

l Total number of valid questionnaires used for analysis is 3647.

l The data on demonetization was collected from 21 states and union territories of the country: Delhi,

Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka,

Kerala, Madhya Pradesh, Maharashtra, Nagaland, Odisha, Punjab, Rajasthan, Telangana, Tamil Nadu, Uttar

Pradesh, Uttrakhand, West Bengal

l The highest percentage of respondents (about 33 percent) belonged to various colonies of Delhi: Rohini,

Sultanpuri and Mangolpuri, in the North-West, Okhla, Badarpur, Shaheen Bagh, Jaitpur from South Delhi,

Seelampur and Shahadra from East Delhi, Old Delhi Central and West Delhi.

l About 21 percent respondents belonged to Maharashtra, which included Jalgaon, Sonari, Fakrabad, Nasik,

Nagpur and Akola Districts. About 7 percent respondents belonged to Patna, Nevada, Sasaram and Araria

districts of Bihar, another 6.3 percent were from Faridabad, Hodal, Palwal, Mewat, Kurukshetra regions of

Haryana state and NOIDA.

l Ghaziabad, Jhansi, Badaun, Sultanpur, Azamgarh, Faizabad, Jaunpur and Allahabad districts of Uttar Pradesh

constituted 4.5 percent. Other respondents are from Mehboobnagar and Hyderabad in Telangana (5.7

percent), Tonk and Jaipur in Rajasthan (2.2 percent), Bhubneshwar, Cuttack and Jatna in Odisha (2.0

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percent). Few respondents are from Karera in Madhya Pradesh, Kozikode in Kerala, Mysore and Yadagiri in

Karnataka, Solan and Una in Himachal Pradesh and Kanker in Chhattisgarh.

Profile of Respondents

l Average age of the respondents was 29.1 years – 3 percent were up to the age of 15 years; 45 percent from

16 to 25 years; 23 percent 26-35 years; 17 percent 36-45 years and 11 percent above 45 years. The sampled

population was predominantly between 16 to 35 years, which is the most productive age.

l Surveyed population was skewed towards male respondents as about 62 percent respondents were male

and about 38 percent female.

l Only 3.8 percent who responded had not received any formal education; 7 percent left formal education

system after 5th standard; 9 percent were 6th, 7th and 8th standard pass; 17 percent received formal

education till 9th or 10th standard; 30 percent passed 12th standard; 22 percent had attended college for

their bachelor's degree level (13-15 standard) and about 6 percent had attended post-graduation level

education.

l About 25 percent of all the respondents were students; 13.7 percent unemployed; 18 percent employed in

private sector; 10 percent working as 'labour'; 4.9 percent reported household work as their profession; 3.4

were in government job and 4.4 percent were involved in agriculture.

l The percentage of those who reported 'Hindu' was 65.0 and 'Muslims' were about 27.0 percent –

constituting together about 92 percent. There were about 3 percent of Christians and about 2 percent were

Sikh. About 3 percent said that they do not follow any religion or said humanity is their religion.

l Caste-wise distribution showed that about 37 percent belonged to general category, about 29 percent were

SC/ST and 30.7 percent belonged to OBC.

l As high as 80 percent of the total respondents said they have access to television, 29 percent listen to Radio,

about 50 percent read newspapers, 17 percent books/magazines and 33 percent had access to Internet as

source of information.

l About 41.5 percent said they are the only earning member in the family while about 58.2 percent said they

are not the only earning member in the family.

l Almost 77.8 percent of the respondents reported that they have a bank account in their names, while the

rest 22.0 percent said that they did not have any bank account. Almost 47.1 percent said that they have either

debit or credit card with them; however, only about 53 percent knew how to use a debit/credit card and 47

percent said that they didn't know how to operate such cards.

Reactions to & Effects of Demonetization

l What was your first reaction just after the demonetization was announced’

Ø 22.3 percent said that it was 'bad news', 29.8 considered it as 'shocking', only 15.5 percent took it as

'ordinary news'. However, one in three of those who responded to the question (i.e. 32.2 percent)

received it as 'good news'.

l Demonetization has wiped out all the black money for ever'

Ø 55 percent disagreed and only 26.6 percent agreed, while more than 17 percent did not answer the

question. About 35.2 percent of the younger respondents agreed with the statement, as the age of the

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respondent increased the percentages dropped consistently. At the age 46 to 55 years these were as low

as 15.5 percent.

Ø Religion-wise distribution quite clearly showed that almost 50 percent among all four categories refused

to accept the claim. Of all, 49.6 percent Hindus, 70.1 percent Muslims, 50 percent Sikhs and 63 percent

Christians said that they did not believe that demonetization would eradicate the menace of black

money. Similarly, caste-wise distribution also showed that 56.1 percent of 'General', 49 percent SC/ST

and 60 percent of OBC ticked the option 'Incorrect'.

l Effect on terrorism & infiltration’

Ø Analysis of the data shows that 48.2 percent of the respondents did not believe that it would have any

impact on terror attacks. About 25 percent remained noncommittal

Ø Of all those who responded 45.4 percent said that they do not believe that demonetization has stopped

infiltration from Pakistan, and that it continues unabated. 22 percent were non-committal and 32

percent said they think that it has stopped cross-border infiltration.

l Why the government shifted the focus to building a cashless society’

Ø About 34 percent thought that creating a cashless society is a right step therefore government is trying

to convince people to switch to cashless transactions. About 17 percent believed that the entire

exercise of demonetization was done to push the society in that direction.

Ø Age had a strong positive correlation with the opinion that the entire exercise of demonetization was

undertaken with the aim of diverting attention from the real issues. The percentage of those

respondents who believed it was merely a diversion increased from 44.1 percent at 16-25 years to 58

percent at 46-55 years. The older respondents were more sceptical compared to the younger ones.

Ø Acceptability of cashless society was more among the young, 37.4 percent of the respondent among the

age group 16-25 said that a cashless society is good for the country, however as the age increased

percentage of those who agreed with the statement reduced progressively to a low of 24.9 percent at

46-55 years age group.

l Who benefited from cashless transactions?'

Ø About 36 percent believed that it would only benefit the corporate, 26 percent said government, about

20 percent said the public or the common man would benefit, rest 18 percent said 'don't know'.

Ø Of all the 'Professionals' 60 percent said that demonetization has benefitted the corporate sector, 26.7

percent held the opinion that government was the sole beneficiary and only 6.7 percent thought that

common citizens were benefitted.

Ø A fairly high percentage of Businessmen (47.7%), Agricultural Workers (46.2%), Government Servants

(42.4%), Labourers (40.4%), and Household Workers (46.1%) thought that demonetization has

benefitted the corporate sector.

Ø About 20 percent of the Drivers, Rickshaw Pullers and Skilled persons ticked the option Corporate

Sector, they in large numbers thought that 'Government' was the main beneficiary.

l When asked whether 'farmers, labourers, household workers, rickshaw pullers and vegetable

hawkers would be able to manage without cash', interestingly, the percentage of those who agreed with

the statement came down to 23 percent. An overwhelmingly high percentage of the respondents, (68%)

thought that it would not work.

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l On being asked whether 'cashless society would be corruption free', 47 percent did not believe in the

statement. However, 39.3 percent said that a cashless society would be free of corruption.

l On being asked whether they witnessed a marriage being postponed due to demonetization, more

than 65 percent of the sampled population said 'yes'. Most families were forced to postpone planned

marriages or faced serious hurdles.

l Even the very seriously sick patients were left unattended because they could not pay in new currency. 83.8

percent of respondents in the Northern Region reported that they witnessed people in serious problems

because of demonetization, followed by Delhi (71.8%), Eastern Region (68.7%), Central Region (54.2%),

Western Region (52%), and Southern Region (45.8%).

l About 50 percent of the respondents knew someone whose job was terminated due to demonetization.

The data shows that loss of jobs was particularly high in Delhi, Northern and Eastern regions.

l When asked whether they saw any politician standing in the queue for changing old notes or for

drawing money from ATM, the percentage of those who said 'yes' in answer to this question dropped to

about 28. More than 65 percent said they did not see any politician or a rich person standing in any bank or

ATM queue. About 65 percent felt that the rich did not face any problem due to demonetization.

l How much time did people spend in queues to withdraw money?

Ø About 15 percent of the respondents spent 2 hours, about 10 percent reported one hour and an equal

number reported three hours. The respondents who spent less than three hours constituted about one

third of the sampled population.

Ø About 30 percent of those who were interviewed reported that they had to stand in queues between 4-

8 hours. Rest, about 20 percent, reported that they spent more than 8 hours in the lines.

Ø Shockingly, about 6 percent reported that they had to stand in queues for more than 24 hours.

l An overwhelming majority of those who supported the move said that it lacked necessary preparations.

Majority of the respondents thought that it was an ill-conceived project.

l More than 60 percent disagreed with the statement that demonetization did not have any impact on

farmers. Only 27 percent agreed with it and 11.5 percent said 'don't know'.

l More than 44 percent were sceptical and did not think that demonetization would lead to betterment of

villages, 34 percent thought that it would, and about 21 percent ticked the option 'don't know'.

l Data analysis showed that 30 percent people were happy with demonetization, about 41 percent

categorically said that they were angry, 5 percent said they were laughing at the act of demonetization, 9

percent said that they still support demonetization and 14 percent said that people earlier supported the

move and now are angry.

l Loss of trust in government agencies

Ø 51 percent respondents agreed that now citizens would store small denominations, for fear that they

might not be able to take out their own money from the bank or ATM suddenly again in the future.

Ø While 47 percent of the respondents agreed that demonetization had resulted in loss of trust in banks,

about 50 percent felt that demonetization had resulted in loss of trust in the government.

Ø After demonetization all political parties were exempted from the limits of exchange prescribed for the

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public. This move further angered the public. About 70 percent of the respondents agreed that all

political parties should make their accounts public.

Outcomes of Demonetization

Fake Currency/Counterfeit Notes

l A study on Fake Indian Currency Notes (FICN) by the Indian Statistical Institute (ISI), Kolkata under the

overall supervision of the National Investigation Agency (NIA), commissioned by the Government of India in

February 2014, found fewer counterfeit Rs 1000 notes than Rs 500 ones in circulation, and an almost equal

number of fakes of Rs 500 and Rs 100. The government, however, decided against scrapping Rs 100 notes.

l The scale of counterfeiting of the Indian rupee is not out of line with what is seen in other countries. The

procedures adopted worldwide to address this problem, include investigative actions against counterfeiters,

phased replacement of old series of notes with new notes that have better security features, among other

such measures. Demonetization is generally not seen as a tool for dealing with counterfeiting.

l Counterfeiting of Rs. 500 and Rs 2000 notes has already started as per reports in the media. The Hindustan

Times of February 23, 2017, reported that a State Bank of India (SBI) ATM in South Delhi's Sangam Vihar

dispensed fake Rs 2,000 notes. (http://www.hindustantimes.com/delhi-news/fake-rs-2-000-notes-bearing-

churan-lable-dispensed-by-sbi-atm-in-delhi/story-8bsspBZ10wymlLb6JOwJWI.html)

Terrorism

l Demonetization has not deterred the insurgents. The Kashmir Valley has seen a sudden spurt in attacks on

banks. On 15 December 2016, militants looted more than Rs. 10 lakh from a branch of J&K Bank located in

South Kashmir's Pulwama district. Only a week before that, militants looted more than Rs.13 lakh from a

branch of the J&K Bank in Arihal village in Pulwama, over 30 km away from Srinagar.

l Demonetization cannot stop these activities, because there are state actors involved in counterfeiting. If

Indian mints can make them, so can Pakistani mints. They can counterfeit the new currency notes as well.

Black Money

l In its 1985 report on Aspects of Black Economy, the National Institute of Public Finance and Policy (NIPFP)

concluded that total black money income generation was Rs. 37,000 crore out of a total GDP of Rs. 1,73,420

crore in 1985. To treat black money as equivalent to cash stashed in the form of high denomination currency

which, in turn, can be unearthed by demonetization is the biggest fallacy made by this Government.

l In 1978, the Governor of RBI Dr I G Patel recalled in his book “Glimpses of Indian Economic Policy: An

Insider's View”, that 'the idea that black money or wealth is held in the form of notes tucked away in suitcases

or pillow cases is naïve'.

l Demonetization has the potential to permanently damage the informal economy, which comprises 50

percent of GDP and 90 percent of the workforce.

l Demonetization drive can only demobilise Rs 3 lakh crore at the most for one year but black income

generation will continue as before, by selling spurious drugs, narcotic drugs, charging capitation fee, under-

invoicing and over-invoicing in business and trade and so on.

l With the introduction of Rs 2,000 notes storage of black money will be even easier. Therefore,

Government's argument defies its own argument that large denomination currency is used to stash black

money so it needs to be demonetised.

l The cancellation of high-denomination notes is not expected to curtail black money or the black economy in

xvi

the long run,” says Dev Kar, chief economist at Global Financial Integrity, a Washington-based think tank

advocacy group.

Corruption

l Cash in circulation in an economy has little correlation with corruption, a comparative analysis of World

Bank and Transparency International data suggests, which suggests that those with black money prefer to

keep their ill-gotten wealth in other forms of assets.

l India holds 11.8% of its economy in cash and is ranked a poor 76th in the global corruption ranking. Germany,

at 9th in the graft ranking, has an 8.7% cash economy. Sweden, one of the world's top three least corrupt

countries, and Nigeria, one of the worst, have near similar proportion of cash in their economies.

l The logic seemed to be that once 'black money' (cash) is sucked out of the economy, the black economy

would collapse; as if, once oxygen is sucked out of a closed room, the bad guys sitting there would all die. But,

so would any good guys sitting there. Further, what if the bad guys had oxygen masks while the good guys did

not?

Outcomes of Demonetization – Perception Vs Reality

l Those who generated black money in the past did not have to sweat it out in queues while those who never

generated black money (the majority in the country) had to bear the hardship of standing in multiple queues.

l People with stacks of cash found many ingenious methods to dispose of their demonetised notes: (1)

investing in land and gold, (2) donations to Temples, (3) rerouting cash to Jan Dhan accounts – almost the

entire Rs 29,000 crore increased deposits in Jan Dhan accounts – meant for the very poor – have gone into

just 3 crore bank accounts out of the total of 25 crore Jan Dhan accounts.

l The government had hoped that the black funds would not come back into the banking system and would be

permanently banished. However, on 30 August 2017, Reserve Bank of India's 2016-2017 annual report

revealed that all but 1.4 per cent of the old Rs 1,000 notes have come back into the banking system. Even this

may be an overestimate, as the notes to be received from District Central Cooperative Banks and Nepalese

citizens and Financial Institutions are yet to be added to the total value of notes returned.

l Reserve Bank of India (RBI) told a parliamentary panel that it has “no information” on how much black

money has been extinguished as a result of demonetization of Rs 500 and Rs 1000 notes.

l According to a report by SBI Research Ecowrap, the demonetization exercise has resulted in a net loss to the

Reserve Bank of India's profit accruing from currency issuances and liquidity operations, or seigniorage.

Demonetization also pushed up the cost of printing notes, it added.

l According to reports quoting the Reserve Bank of India's Annual Report for 2016-17, post-demonetization,

the apex bank has spent Rs 7,965 crore on printing new Rs 500 and Rs 2,000 and other denomination notes,

more than double the Rs 3,421 crore spent in the previous year.

l New notes were the wrong size for existing ATMs. The cost for recalibration was estimated at Rs. 10,000

per ATM. According to a report in Business Standard on November 19, the cost of recalibrating ATMs

throughout the country works out to about Rs. 2 billion. If you include the wages and operational overheads,

additional security and re-calibration of ATMs, a total cost of Rs. 351.4 billion was borne by banks for the 50

days' of demonetization exercise.

l Demonetization served as a negative shock to the economy. Growth in the quarter following

demonetization slowed to 6.1%, and to 5.7% in the next quarter (April-June).

xvii

l In 2016, the bad loans – or gross non-performing assets – of state-owned banks surged by an incredible 56%

to Rs 614,872 crore. Many large lenders bore record losses, like SBI (Rs.1.6 trillion), PNB (Rs. 0.57 trillion),

and Bank of India (Rs. 0.52 trillion). Effectively, demonetization has ensured that the cash lying outside the

banking system is now within the banking system. The government campaign on digital payments is ensuring

that banks remain flushed with liquidity. Liquidity implies that banks can keep a small 'fraction' of the deposits

as reserve, and lend again to the rich. Thus, the unstated objective of the demonetization was to rob the

poor of their hard-earned cash to pay the rich, who defaulted in their loan repayments.

Who planned Demonetization?

In his blog, Norbert Haering reports USAID's announcement regarding the establishment of “Catalyst: Inclusive

Cashless Payment Partnership” with the goal of effecting a quantum leap in cashless payment in India. The USAID in

its press statement of October 14, 2016 says that Catalyst “marks the next phase of partnership between USAID

and Ministry of Finance to facilitate universal financial inclusion”. This announcement is backed by an extensive survey 1of the feasibility of cashless transactions across the country.

The goal of the Catalyst is to take one city and increase the digital payments ten times in six to 12 months, according

to its CEO Badal Malick less than four weeks before demonetization in the whole of India. Soon this idea of

experimentation expanded as the Beyond-Cash-report and Catalyst kept talking about a range of regions they were

examining, ostensibly in order to later decide which was the best city or region for the field experiment. And then in

November it became clear that the whole of India should be the guinea-pig-region for a global drive to end the

reliance on cash.

xviii

1. See the URL : http://www.sawitchallenge.org/resources/usaid-digital-payments-india-merchant-and-consumer-research-resources

2The 'Demon' Who Ate Our Moneyby PVS Kumar - Scientists (Retd.), CSIR

ACQUISITION and possession of money signify wealth and ease of market transactions. Currency or coins are

symbolic representations of money in a society, and they have three functions: as a means of exchange, unit of

account and store of value.

From the traditional coinage issued by sovereigns of various countries (Chartalism), the currencies in the modern-

day have evolved to those based on 'fiat money' – mostly in the form of paper currency notes. The fiat money does

not bear any relation to physical resources – such as gold or silver as commodities to back the value of the currency

notes. It is only the governments that issue notes which guarantee the values printed on the paper currency. Citizens

trust the government for the avowed values printed on these notes and exchange these notes for goods and services

that they need.

Today currency, apart from being the means of transaction represents the identity and independence of a country.

Universal acceptance of dollar/pound and euro as international currency shows the clout that these countries have

on businesses worldwide.

Money is the lifeblood of the economy of modern societies. Currency –whether it is in the form of paper or coins

denominating various values of money – is the 'legal tender' of money for all economic transactions

guaranteed/backed by the Governments (or its designated central bank, like Reserve Bank of India or RBI). When the

Government defenestrates some or all its currency – in notes and coins – the phenomenon of 'demonetization' is set

in. Usually modern day governments resort to 'demonetization' as a 'dire measure' to counter the (1) hyperinflation,

(2) black-marketeering of currency in the form of counterfeit notes, (3) tax evasion through hoarding of cash, and (4)

the latest in the arsenal of ruling elites, to counter terrorism.

Demonetization is an old-game resorted by the rulers since the time money in the form of coins/paper notes was 3

introduced. Every ruler – whether by succession or annexation of new territories – demonetised the existing

currency and introduced new currency – to put 'their stamp' of authority. This ancient/medieval practice continued

into the modern period – particularly in the post-World War II.

In the 20th Century, demonetization as a policy instrument was used in the Weimar Republic in Germany when on

November 20, 1923, they introduced a new currency, the Rentenmark and replaced all old Papiermark notes to be no

longer legal tender. This took place because domestic prices were already 14 times their 1913 levels in the mid-1921

1

2. Following the tradition of assigning the names to Hurricanes/Tropical Cyclones, we suggest that the latest 'tsunami' that affected large numbers of

Indian people, be named symbolically as 'Demon' – first part of the 'demonetization' of November 08, 2016. Demon is also used in the sense that

what started as 'Modi Wave' in 2014 has turned into a 'tsunami' – syncing with Arun Jaitley's description of demonetization as a 'tectonic shift' in

policy making. Tsunamis are tidal-waves resulting from tectonic shifts in the oceans. This word, Demon is used by many commentators to describe

this demonetization exercise, like P. Chidambaram and the Blogger, Amol Agrawal, who runs the Blog called 'Mostly Economics' – uses the moniker

Demon, to denote the November 08, 2016 demonetization.

3. For a brief history of paper currency – first introduced by the Tang Dynasty in China in the 7th Century. see A very short history of Chinese paper

money) – Dave Ramsden, June 17, 2004 (http://barrybeck.com/forms/paper_money.pdf)

and the inflation rose to 1,475 times towards end of 1922. The inflation reached its peak by November 1923 but

ended when a new currency (the Rentenmark) was introduced. In order to make way for the new currency, banks 4

"turned the marks over to junk dealers by the tonne" to be recycled as paper.

Other countries that demonetised their currencies are United States (in 1971 when President Nixon in 1969 banned

$10,000 and $1000 bills keeping $100 note as the highest value currency). In 1971, UK banned the existing currency

notes for 'decimalisation'. While the experiences of these countries with demonetization was quite smooth, those of

other countries led to massive upheavals in economy and society.

In all these countries, the primary motives behind demonetization were high inflation and to check counterfeiting.

Such was the experience of Ghana (in 1982), Nigeria (1984), Myanmar (1987), Soviet Union (1991) and Zaire (1993).

Zimbabwe demonetized its dollar from 15 June 2015 where any bank that would have held between Zeros to 175

Quadrillion Zimbabwe dollars got a flat amount of US $5. This was a case of Hyperinflation, where inflation rose to

231 million percent which caused Zimbabwe dollar to collapse in value.

Introduction of 'Euro' in place of national currencies in 1999 can also be termed as yet another 'demonetization' in

the history of demonetization. The Euro is the new 'single currency' of the European Monetary Union, adopted on

January 1, 1999 by 11 Member States. Greece became the 12th Member state to adopt the Euro on January 1, 2001.

On January 1, 2002, these 12 countries officially introduced the Euro banknotes and coins as legal tender. Slovenia

became the 13th member state to adopt the Euro on January 1, 2007. June 30, 2002 was the last day for changing old

currency to Euro at any bank for the original twelve member states. Thereafter, old currency could be exchanged at

national central banks and some specially designated banks. This process lasted till January 31, 2008 (in the case of

Malta).

Venezuela's present President, Nicolas Maduro's government tried to copy India's Demonetization drive of 8

November 2016. On November 12, 2016 the Government decided to scrap 100 Bolivar denomination from

currency. The Maduro government executed this to prevent its currency from smuggling and increase confidence in

currency. Venezuela, according to an IMF report, is experiencing world's highest inflation rate of more than 475%.

Within 10 days, Venezuela turned into chaos – every mall, every shop was looted by lynch mobs, serpentine queues

stood in front of banks to exchange their 100 Bolivar, resulting in life essential commodities like medicines and

important drugs becoming fewer, crimes started overnight. Due to unprecedented protest from its people, the

Maduro government reversed its demonetization policy on 2 January 2017.

Three Waves of Demonetization in India :

"Progress, far from consisting in change, depends on retentiveness. When change is absolute there

remains no being to improve and no direction is set for possible improvement: and when experience is

not retained, as among savages, infancy is perpetual. Those who cannot remember the past are

condemned to repeat it."

George Santayana(Vol 1, Chapter XII, Flux and Constancy in Human Nature, The Life of Reason, Dover Publication, Inc. New York, 1905)

Demonetization was attempted three times in the past in India – first in pre-Independent India of 1946, the second 5

time during the Janata Party Government in 1978 and the third time during the BJP Government in 2016.

DEMONETIZATION Exorcising the “Demon”20

4. See http://researchonline.jcu.edu.au/21599/3/21599.pdf - Hyperinflation in the Wiemar Republic

5. It is also noteworthy that both 1978 and 2016 demonetization drives were conducted during right wing governments – there seem to be some truth

that demonetization drives to unearth 'black money' is in the DNA of 'Hindutva ideology'. See 'Demonetization – Black Money and the Hindutva

Obsession' – TJ Blog, Nov 24, 2016 (https://tjayaraman.wordpress.com/2016/11/24/demonetization-black-money-and-the-hindutva-obsession/)

In terms of impact on ordinary citizens, demonetization can be compared to different categories (or intensities) of 6'cyclones'. The swirling maelstroms of tropical cyclones unleash on Indian sub-continent frequently and their

impacts on the economy and lives of the people vary – some have mild effect and some devastating effects.

Demonetization has been used largely where currency has totally lost its value, like in the Soviet Union or Weimar

Republic – where one had to carry sacks full of currency to buy daily supplies. During these demonetization drives,

the existing currency was abolished and new currency was distributed. But in India such a situation never arose,

either in 1946, or in 1978 and certainly not in 2016. In November 2016, the Indian macro-economic indicators were

reasonably good, with a GDP of about 7.3% and low, manageable inflation. Demonetization in these 'normal times' is 7like 'shooting at the tyres of a racing car' says Jean Dreze.

The First Wave

In the first demonetization exercise of 1946, Rs. 1,000, Rs. 5,000, and Rs. 10,000 notes were taken out of circulation 8on 12 January 1946, a year and a half before the country won its independence from the British. The reasons given

for this demonetization drive were to fight against black market money and tax evasions. The Rs. 10,000 notes were

the largest currency denomination ever printed by the Reserve Bank of India, introduced for the first time in 1938.

In the 1946 demonetization exercise, the government came out with two ordinances on 12 January 1946, which was

declared a holiday. The first ordinance asked banks to furnish information about currency holdings of various

denominations (Rs. 100, Rs. 500, Rs. 1,000 and Rs. 10,000). The second was about informing the public that

denominations of Rs. 500 and above were demonetised, while Rs. 100 was spared. Citizens were given ten days' time

to return the old notes – till January 23, 1946, which was later extended till February 09, 1946. The measure did not

succeed, as by the end of 1947, out of a total issue of Rs. 143.97 crores of the high denomination notes, notes of the

value of Rs. 134.9 crores were exchanged. Thus, notes worth only Rs. 9.07 crores were probably 'demonetised', not 9having been presented. It was more of “conversion”, than demonetization.

Second Wave

In the early '70s, the former Chief Justice K.N. Wanchoo committee, a direct tax inquiry committee set up by the

government, suggested demonetization as a measure to unearth and counter the spread of black money. However,

the public nature of the recommendation sparked black money hoarders to act fast and rid themselves of high

denominations before the government could clamp down on them.

Then, in 1977, the Janata Party coalition government came into power. A year into the government's term, Prime 10

Minister Morarji Desai was more confident about cracking down on counterfeits and black money. The High

Denomination Bank Notes (Demonetization) Act, was enacted by the Government on January 16, 1978, declaring

the Rs. 1,000, Rs. 5,000 and Rs. 10,000 notes illegal for the second time. During this second demonetization, the

public was given even lesser time of three days to exchange the notes. A rumour also went around that Rs. 100 notes

were being demonetised too, leading to panic and people discarding their Rs. 100 notes as well.

DEMONETIZATION Exorcising the “Demon”21

6. Henry Piddington termed the phenomenon of storm surges occurring in the sea - a cyclone, after the "coils of a snake." -see The Sailor's Horn-Book

for the Law of Storms, 3rd edition, 1860.

7. Demonetization in a booming economy is like shooting at the tyres of racing car: Jean Dreze - Vasudha Venugopal - Economic Times, Nov 22, 2016

8. See the History of RBI online (https://rbidocs.rbi.org.in/rdocs/content/PDFs/89654.pdf pp 706-709)

9. https://www.rbi.org.in/scripts/RHvol-1.aspx

10. Other than the publicly stated motives for demonetization, Mr. Desai's decision was meant to politically get back at Indira Gandhi, the leader of

the previous Government, who outplayed his candidature as a Prime Minister twice, dismissed him as the Finance Minister, and even put him in jail

during the time of Emergency.

At the time, then-RBI governor I.G. Patel disagreed with the measure and accused the Janata coalition government of

trying to cripple the economy instead of simply eradicating black money. The result of this second 'demonetization'

was that more money in old notes returned to the banks than those estimated to be in circulation! That is because

many people returned Rs. 100 and even lower denomination notes to banks/RBI due to rumours of these currencies

being demonetised.

As on January 16, 1978, a total value of Rs. 80.48 crores of high value demonetised notes were with public, of these

notes worth Rs. 59.51 crores were returned for conversion – about 74 % of the high demonetised notes. On April

25, 1978, the then minister of state for finance Zulfiquarullah told Parliament: “Notes of an approximate value of Rs.

16 crore have not been tendered. They have ceased to be legal tender and are therefore valueless. No follow-up 11

action is necessary.”

Third Wave of Demonetization

What started as the 'Modi Wave' in 2014 metamorphosed into a tsunami in late 2016 – precisely on November 08,

2016 with the announcement of demonetization on the TV. While the earlier two waves of demonetization had

limited impact on the economy, if any, this one had a devastating impact – it was like a 'tsunami' – it wiped away almost

all the liquidity of ordinary citizens, while no replacement of new notes was made available for a long time. In 1978,

when the government demonetised high denomination notes (Rs. 1000, Rs. 5000 and Rs. 10000), they were really

high denomination notes – the value of Rs. 1000 in 1978 is the same as Rs. 18000 today. They were a minuscule

portion of currency in circulation, and only a handful of people held those notes. In contrast, today the Rs. 500 is a 12small value note. This along with Rs. 1000 note make up 86 percent of currency notes in circulation in these

denominations. The action had immediate and dire consequences for almost all citizens who had cash in their wallets

and in their homes/offices.

For the most part, Modi's 2016 demonetization drive mirrors Desai's – except this time, he had the backing of his RBI

governor, Urjit Patel, who applauded Modi's “very bold step” addressing concerns about the “growing menace of fake

Indian currency notes.”

Like the second wave of demonetization, the third demonetization exercise was shrouded in secrecy and mystery.

The Government maintained that secrecy was important to prevent black money hoarders to circumvent the

announcement. This argument does not stand scrutiny for two reasons: (1) black money is not stored in sacks by the

hoarders (the hoard theory of black money) and (2) given the extensive electronic networking by the Income Tax and

Enforcement Directorate authorities, it is specious to say that what the authorities could not detect in the past 40

years or so (after the last demonetization in 1978) they could do so within the window of period given to

deposit/convert the old currency notes (i.e. till December 30, 2016).

There is one difference, however, in that while the previous demonetization was based on an 'ordinance' issued on

January 16, 1978, this time around, it was based on executive order (or at best oral orders of the PM Modi during a

televised broadcast). The suddenness and scale of the 'shock and awe tactics' have raised the issue of the powers

under which the government imposed hardship by depriving citizens access to their own monetary assets. The issue

reached the Supreme Court of India, on the basis of a petition filed by Supreme Court advocate V.K. Biju challenging

the Government's Notification of November 08, 2016 (No.2652). Supreme Court convened a Constitutional Bench

to examine the issue without imposing a stay on the government's actions. Terms of reference for this bench include

whether the government's decision was a violation of the RBI Act and various constitutional provisions; whether its

DEMONETIZATION Exorcising the “Demon”22

11. https://www.linkedin.com/pulse/why-1978-demonetization-didnt-hurt-india-abhilash-gaur

12. In a country where 'Arhar Dal' (Cajanus cajan) sells for Rs.200 / kg - declaring a Rs. 500 note as 'high denomination' note is ludicrous if not sadistic!

implementation suffers from procedural unreasonableness; and whether curbs on withdrawal of cash from bank

accounts have an appropriate legal foundation. Similar petitions in the Madras High Court and Karnataka High Court

were dismissed that the issue is of executive nature.

13An ordinance was issued on December 30, 2016 (after the specified period for returning of old notes expired). This

ordinance proclaimed ceasing the liability of the government for the banned bank notes, and also imposing a fine up to

Rs. 10,000 or five times the amount of the face value of the bank notes, whichever is higher, for people transacting

with them after 8 November 2016; or holding more than ten of them after 30 December 2016.

As the means of exchange, money is the lubricant of economic activity. Informal economy based on cash transactions

is still the predominant form of exchange in India. Electronic money transactions constitute only a small percentage in

the overall market exchanges. A sudden monetary shock disrupts the smooth working of the economy. This

announcement left the citizens surprised and perplexed as to the fate of their cash reserves – and the urgency to get

rid of these reserves (however small their quantity may be). Liquid cash disappeared from the market – whatever

little amount of small currencies that were in circulation 'disappeared' as they became the most prized currencies.

This led to loss of livelihoods of small vendors, daily wage earners and transport businesses.

The visible impact of demonetization was the long serpentine queues at the Banks to replace or remit their cash

reserves before the December 31, 2016 deadline. Many of the poor daily wage earners lost their livelihoods and

many more (salaried people) had their times wasted. The demonetization move came with strict limits on cash

withdrawals. People with bank accounts experienced withdrawals from their accounts restricted. Income, legally

earned, taxed, and deposited, was fenced out of reach. Even retrieving this money was laborious and, at times, fatal.

The banks and their employees bore the brunt of the anger and frustration of the clients as the rules were revised on 14

a daily basis by the Government. The normal banking operations like lending and money transfers/transactions were

put on hold while the employees were busy handling '(old) note exchange' or '(old) note remittances'.

While announcing the withdrawal of 'high denomination' currency notes of Rs. 1000/ and Rs. 500/- from the

economy (which together constitute about 86% of the total currency notes in circulation), the Government 15introduced Rs. 2000/- denomination notes into currency which baffled economists on the very purpose of the

demonetization – so-called “Specified Bank Notes” to avoid the route of legislation enacted by the Parliament or

through Ordinance (an Ordinance was issued on December 30, 2016).

In fact, printing of Rs. 2000/- notes goes against any logic or empirical evidence of RBI's own study entitled “Modelling

Currency Demand in India: An Empirical Study”, issued in February 2013. This study notes that usually high

denomination currency notes are used for hoarding and black marketing. It is ironical that a high value currency note

of Rs. 2000 was introduced at a time when demonetization was announced to control hoarding of black money, but

at the end of the day helped the hoarders in transporting and hoarding! The optimal spacing between adjacent values

of denomination of currency notes/coins is generally a factor of 3 [1, 3, 9 & so forth – so called Bachet problem

(Claude Gaspard Bachet de Méziriac (1581-1638)]. However, the powers of three are not compatible with the

decimal system, and can make calculations tedious. Instead, many countries have compromised to use the 1-2-5

DEMONETIZATION Exorcising the “Demon”23

13. See the Gazette Notification of November 08, 2016 entitled “Ministry Of Finance, (Department of Economic Affairs) – Extraordinary Notification -

New Delhi, the 8th November, 2016” and Gazette Notification of December 30, 206 entitled “ The Specified Bank Notes (Cessation of Liabilities)

Ordinance, 2016 No 10 of 2016” issued by the Ministry of Law and Justice, Government of India.

14. 54 demonetization changes in 42 days – Mahak Gupta – India Today, December 20, 2016 (http://indiatoday.intoday.in/story/demonetization-

changes-8-major-currency-announcements)

15. See the story in Hindustan Times Feb 17, 2017 (http://www.hindustantimes.com/india-news/demonetization-rs-2-000-notes-printed-with-patel-s-

signature-while-rajan-was-still-rbi-governor)

formula, using notes and coins proceed in multiples of 2 and 5.

India is no exception to this rule, having currency worth 1, 2, 5,10, 20, 50 and 100, and till recently, 500 and 1,000. By

this logic introduction of Rs. 2000/- in the absence of any replacement of the new Rs. 500/- note or total abolition of

Rs. 1000/- in the days following 'demonetization' was totally insane! As such when the Rs. 1000/- note was in

circulation, its acceptability by vendors and getting change for this value was a difficult proposition. In such a scenario

introducing Rs. 2000/- note or public use during the demonetization is cynical. It can only help the hoarders to

'convert' their demonetised Rs. 1000/- and Rs. 500/- notes easily – a fact evidenced by many occasions by people

caught with loads of Rs. 2000/- notes while the common man could not get any cash either from the bank or the

ATMs (wherever they existed).

Purpose of Demonetization

PM Narendra Modi in his televised address to the nation on Tuesday November 08, 2016 at 8 pm announced the

demonetization of Rs. 500 and Rs. 1000 'high denomination' currency notes and said the move was aimed at curbing

the negative impact of fake currency, black money, corruption and terrorism on the nation's economy. This

controversial move in November 2016 to scrap high-denomination currency notes was dubbed locally as

"notebandi". Reports may be privy to this decision floated around in the media – based on rumours and heresy – 16some even calling it as one man's decision – Modi's autocratic decision.

Fake Currency / Counterfeit Notes

A study on Fake Indian Currency Notes (FICN) issues, including estimation of FICN in circulation, undertaken by

Indian Statistical Institute (ISI), Kolkata under the overall supervision of the National Investigation Agency (NIA) was

commissioned by the Government of India in February 2014. This study found that the face value of FICN in

circulation was about Rs. 400 crores. It was found that the value remained constant for the last four years. The study

found fewer counterfeit Rs. 1000 notes than Rs. 500 ones in circulation, but there were almost an equal number of

fakes of Rs. 500 and Rs. 100. The government, however, decided against scrapping Rs. 100 notes. The study, which

had the National Investigation Agency partnering ISI, by itself never suggested any radical demonetization.

The Reserve Bank of India's annual report of 2015 had detected 5.9 lakh counterfeit notes which made up 0.0007 per 17cent of the total 8,357.9 crore currency notes in circulation. The value of these fake notes in 2015-16 was Rs. 29.64

crore, which is 0.0018% of the Rs. 16.41 lakh crore worth of currency in circulation. This scale of counterfeiting of the

Indian rupee is not out of line with what is seen in other countries, and the procedures adopted worldwide to

address this problem include investigative actions against counterfeiters, phased replacement of old series of notes

with new notes that have better security features, among other such measures.

Demonetization is generally not seen as a tool for dealing with counterfeiting. The counterfeiters have already 18started their work on the new 500/2000 rupee notes as a few such cases were reported in the media. In another

bizarre news, which appeared in the Hindustan Times of February 23, 2017, a State Bank of India (SBI) ATM in South

Delhi's Sangam Vihar dispensed fake Rs. 2,000 notes. The notes, which could be passed off as genuine at first glance,

DEMONETIZATION Exorcising the “Demon”24

16. P. Chidambaram in Business Standard, January 11, 2017 said that it was one man's decision pointing to the fact that Cabinet ministers were

virtually kept prisoner when the decision was taken, no records were kept and the central bank was ordered to take the decision. He said:

“Demonetization was the decision of one person. I am the Führer. I am the leader. I must decide.” Rahul Gandhi in the same meeting said that Modi

“broke the backbone of the Indian economy (through demonetization)” see also the Frontline dated January 20, 2017 entitled “Emperor Modi”

17. See the Questions and Answers in Lok Sabha, August 05, 2016 on Security Features of Currency Notes (http://164.100.47.190/

loksabhaquestions/annex/9/AU3285.pdf)

18. See the story on Demonetization 100 days: Fake Rs 2000 banknotes entering India through Bangladesh (http://www.hindustantimes.com/india-

news/demonetization-100-days-fake-currency-entering-india-through-bangladesh/story)

were replete with errors and seem to be a prank at people's expense. The notes, dispensed on February 6, read

'Children Bank of India' in place of Reserve Bank of India (RBI) and 'Guaranteed by the Children's Government' in

place of Guaranteed by the Central Government. 'Churan lable' (sic) in place of the latent image and a fake 'PK' logo 19instead of the bank's seal, were among some of the other obvious deviations on the note. The ease with which these

fake currencies were in circulation, soon after the demonetization (the very same exercise to drive out counterfeit

currency) led to loss of trust of people in the government, the RBI and also acted as fodder for rumour mills.

Prime Minister Narendra Modi had cited the proliferation of counterfeit currency notes as one of the primary

reasons for scrapping the legal tender nature of the old Rs. 500 and Rs. 1,000 notes on November 8, 2016. The total

value of the withdrawn high-value currency notes that were in circulation on the day the demonetization was

announced was Rs. 15.44 lakh crore (with more than Rs. 8.58 lakh crore of this in Rs. 500 notes and the Rs. 1,000

notes amounting to about Rs. 6.86 lakh crore). According to Minister of State for Finance Arjun Ram Meghwal, as of

December 10, 2016, a total of Rs. 12.44 lakh crore of the withdrawn currency notes had been returned to the RBI

and currency chests. About Rs. 19.5 crore in fake currency had so far been detected during the exchange and deposit

of the scrapped Rs. 500 and Rs. 1,000 currency notes at banks following the November 8 decision to withdraw their

legal tender status, as per the Reserve Bank of India's provisional estimates. Mr Meghwal informed Parliament that

these fake notes included more than 1.44 lakh worth of Rs. 1,000 notes and just over 1.02 lakh pieces of the

withdrawn Rs. 500 currency notes. The specified bank notes of Rs. 500 and Rs. 1,000 were deposited at more than 1

lakh bank branches and were subsequently transferred to more than 4,000 currency chests and 19 issue offices of the

RBI. The detected counterfeit notes at Rs. 19.5 crore represent 0.0016% of this Rs. 12.44 lakh crore figure (The

Hindu, February 04, 2017, p 12).

Terrorism

Terrorists need financing. They either loot the banks or print fake notes and circulate it (in some cases, they even

resort to electronic transfer of money). According to Raghu Raman, the founding CEO of NATGRID, terror funding

can be divided into three categories – 'tactical terror financing' for specific operations, 'operational terror financing'

for running an entire campaign and 'economic warfare' whereby Pakistan floods the Indian market with counterfeit 20

currency. None of these will be affected by demonetization enough to deal a serious blow to terror funding.

Demonetization has not deterred the insurgents in their designs. They have already given enough hints of changing

their tactics. The Kashmir Valley has seen a sudden spurt in attacks on banks, coinciding with the move to 21

demonetise notes by the government. On 15 December 2016, militants looted more than Rs.10 lakh from a branch

of J&K Bank located in South Kashmir's Pulwama district. Only a week before that, militants looted more than Rs.13

lakh from a branch of the J&K Bank in Arihal village in Pulwama, over 30 km away from Srinagar. Earlier, on 21

November 2016, the Lashkar-e-Toiba (LeT) had robbed the J&K Bank's Malpora branch in central Kashmir's Budgam

district of Rs.14 lakh. An already thinly stretched police force will now have to ensure the security of banks to prevent

these kinds of incidents Demonetization cannot stop these activities, because there are state actors involved in

counterfeiting. If Indian mints can make them, so can Pakistani mints. They can counterfeit the new currency notes as

well.

DEMONETIZATION Exorcising the “Demon”25

19. Fake Rs 2000 notes of 'Children Bank of India' dispensed from SBI ATM in Delhi – Hindustan Times February 23, 2017 (see

http://www.hindustantimes.com/delhi/fake-rs-2-000-notes-bearing-churan-lable-dispensed-by-sbi-atm-in-delhi)

20. Why Demonetization Could Fail to Make a Dent on Terror Financing - Raghu Raman – The Wire, November 11, 2016 (see https://thewire.in/

79390/demonetization-fail-make-dent-terror-financing/)

21. Will demonetization overshadow the Kashmir challenge? - R.K. Arora and VIinay Kaura- Observer Research Foundation, Issue Briefs and Special

Reports December, 21 2016

Black Money

In its 1985 report on Aspects of Black Economy, the National Institute of Public Finance and Policy (NIPFP) defined 22'black income' as 'the aggregates of incomes that are taxable but not reported to the tax authorities'. The NIPF

study concluded that the total black money income generation of Rs. 36,784 crore is around Rs. 37,000 crore out of a

total GDP at factor cost of Rs. 1,73,420 crore in 1985. To treat black money as equivalent to cash stashed in the form

of high denomination currency which, in turn, can be unearthed by demonetization is the biggest fallacy of this

Government.

Demonetization attacks the stocks of cash hoardings, without touching the flow of black money. In making this

assumption – even the cornerstone – of present demonetization exercise, the present government has not learnt

any lessons from the previous two rounds of demonetization in India. In fact, the Governor of RBI at the time, in

1978, Dr. I.G. Patel recalled in his book “Glimpses of Indian Economic Policy: An Insider's View”, that when finance

minister H.M. Patel informed him about the decision to withdraw high-denomination notes, he had pointed out that

such exercises seldom produce striking results. Most people, Patel said, who accept illegal gratification or are

otherwise recipients of black money, rarely keep their ill-gotten earnings in the form of currency for long. The idea

that black money or wealth is held in the form of notes tucked away in suitcases or pillow cases is naive, Patel said. In

any case, even those who are caught napping or waiting will have a chance to convert notes through paid agents as

some provision must be made to convert at par notes tendered in small amounts for which explanation cannot be

reasonably sought, he added.

In other words, the Government should stop equating stores of piles of cash as black money; rather it is a process of

generating such tax evasive money. The move toward demonetization also confuses the black economy with the

informal economy by conflating cash with black money. Demonetization has the potential to permanently damage 23the informal economy, which comprises 50 percent of GDP and 90 percent of the workforce. Its main motor is the

desire to escape the crushing burden of state taxes, regulations and bureaucracy. India's formal and informal

economies are not fenced off from each other, but form a seamless value chain. For example, almost one-third of the

working capital of small businesses comes from the black economy – viz. the money that is not paid as taxes.

There are three different aspects to Black Economy – (1) Black Income - is the income that is not accounted for

anywhere. So, a person can evade tax on it since there is no formal record of the same. (2) Black Money - is the money

that is finally kept as black i.e. income on which a person does not pay any tax. (3) Black Wealth - this is what comes in

the end. Black money is generally used by people in day to day transactions viz., it is money in circulation. However,

some part of it is saved and accumulated in form of assets like gold, etc. This becomes black wealth.

The black economy, which, according to Prof. Arun Kumar is 62% of the GDP, for the current GDP of Rs. 150 lakh

crore, the Indian economy is generating Rs. 93 lakh crore this year as black income. Black wealth could be three times

more so about Rs. 300 lakh crore. Out of that, Rs. 3 lakh crore would be held as cash which we can call black money.

The demonetization drive can only demobilise Rs. 3 lakh crore at the most for one year but black income generation

will continue as before, by selling spurious drugs, narcotic drugs, charging capitation fee, under-invoicing and over-

invoicing in business and trade and so on. Therefore, cash will again be generated here. With the introduction of Rs.

2,000 notes storage of black will be even easier. Therefore, the Government's argument defies its own argument that

large denomination currency is used to stash black money so it needs to be demonetised.

“The cancellation of high-denomination notes is not expected to curtail black money or the black economy in the

DEMONETIZATION Exorcising the “Demon”26

22. Black Money - White Paper - Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi, May 2012

23. See Report of the Committee on Unorganised Sector Statistics - National Statistical Commission, Government of India, February 2012

long run,” says Dev Kar, chief economist at Global Financial Integrity, a Washington-based think tank advocacy group. 24Kar is the author of a report titled “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008”. The

report estimates India lost a total of $213 billion due to illicit flows in that period. “The total value of illicit assets held

abroad represents about 72% of the size of India's underground economy which has been estimated at 50% of India's

GDP (or about $640 billion at end 2008),” says the report.

Corruption

One of the reasons Modi attributed for the note ban was (high level) corruption in the country. Corruption occurs

where the private search for economic advantage and personal advancement clashes with laws and norms that

condemn such behaviour. A Hindustan Times analysis on the correlation between cash to GDP ratio in different

countries shows that there is no such relationship between the two. Cash in circulation in an economy has little

correlation with corruption, a comparative analysis of World Bank and Transparency International data suggests,

that those with black money prefer to keep their ill-gotten wealth in other forms of assets.

While figures show that India holds 11.8% of its economy in cash and is ranked a poor 76th in the global corruption

ranking, Germany, at 9th in the graft ranking has an 8.7% cash economy. Sweden, one of the world's top three least 25

corrupt countries, and Nigeria, one of the worst, has near similar proportion of cash in their economies.

Demonetization is certainly not a method to tackle corruption in the society or in an economy – it might provide

some political legitimacy, as is the present case of demonetization of 2016, but unless the deeper causes of 26corruption are tackled, corrupt practices remain and resurface after the drive.

Secrecy and Lack of Accountability :

The 2016 demonetization decision process was veiled in secrecy from the beginning. In this respect, this decision

mimics the earlier 1978 demonetization exercise – because, Mr Morarji Desai, like Mr Modi, thought that if secrecy is

not maintained, the hoarders of black money would resort to evasive tactics. This assumption that black money is

something stashed in cash and hoarded is so strong with this government too, despite the fact, that the earlier 1978

experience is well documented and its failure to unearth significant amount of black money is known to everybody.

The only other reason for the secrecy in announcement and the background processes is attributable to the

'election-stunts' rhetoric that Mr Modi resorts to often. Some have attributed to this secrecy to 'autocratic' style of

functioning of Mr Modi – in governance of this country. Many of the Cabinet Ministers were taken by surprise by this

announcement – perhaps a manifestation of 'groupthink' that is infecting the present government. Groupthink is a

social phenomenon within a group of people in which the desire for harmony or conformity in the group results in an 27

irrational or dysfunctional decision-making outcome.

Like Mr Morarji Desai earlier, Mr Modi's intention was to spring a surprise on the opposition leaders – particularly at

a time when elections in several states were called for. But, this surprise factor was dampened by the later decision

DEMONETIZATION Exorcising the “Demon”27

24. The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008 – Dev Kar - Global Financial Integrity, November 2010

25. There's little connection between cash in economy and corruption -Appu Esthose Suresh - Hindustan Times, November 16, 2016 (see

http://www.hindustantimes.com/business-news/little-connection-between-cash-in-economy-and-corruption)

26. Like the case of bureaucrats demanding their bribes be paid in the new Rs.2000 notes soon after the demonetization was announced – see

Gujarat: Govt staff caught taking Rs 4 lakh bribe in new Rs 2,000 notes – Hindustan Times, November 18, 2016 (http://www.hindustantimes.com/

india-news/gujarat-govt-staff-caught-taking-rs-4-lakh-bribe-in-new-2000-rupee-notes)

27. Groupthink is coined by Psychologist, Irving Janis, to describe the situation like Bay of Pigs during Kennedy era, (Groupthink – Irving L Janis –

Psychology Today, 1971) and is applied to many such situations where individual loyalty to 'leaders' render the colleagues' of their critical thinking

and contributions. See for a review of the applications and elaboration of this theory - Diverse Perspectives on the Groupthink Theory – A Literary

Review – James D Rose – Emerging Leadership Journeys, Vol 4, Issue 4, 2011, pp 37-57

during demonetization to exempt 'political parties' to make unlimited amounts of cash in demonetised notes in

banks. Many politicians used this loophole to evade detection.

“There was no need for secrecy,” counters Jayati Ghosh, a professor of social sciences at Jawaharlal Nehru 28

University. “All demonetizations through history have been done with some advance warning. This reduces the

damage to innocent people. The government could monitor suspicious transactions after the announcement, just as

it is doing now. In any case, I would not have demonetized Rs. 500 notes. If high-value notes like Rs. 1,000 are the

problem, why replace them with even higher value notes?” (A Rs. 2,000 note was introduced as part of the package.)

While announcing the demonetization, people were given 50 days' time till December 30, 2016 to change or deposit

their demonetised notes. To facilitate the cash transactions of the daily needs of people – at a time remonetisation

with new notes were trickling down – the government announced several goods/services that could be availed using

'old notes' – such as at hospitals/pharmacies, milk vends, petrol pumps, crematoria, railway and airline bookings, etc.

While there were no limits on amounts of money that could be deposited in bank accounts, account holders were

required to fill in a mandatory form regarding the amount of money and the different value of notes that were being

deposited. On December 16, finance secretary Ashok Lavasa said that the government will not examine

demonetised notes deposited in the bank accounts of political parties – a loophole that enabled many politicians

(one among the many categories of black money hoarders in this country) from scrutiny and hassles of unloading

their hoards of cash in old currency notes.

Similarly, there was a provision to exchange the old notes for new notes – but this exercise led to hardships due to

restrictions on the amount and sometimes even identity verification (indelible inking on fingers). Due to limited

availability of new notes, cash was trickling down to various banks/branches and these banks imposed their own

contingent rules on the amount of money to withdraw. A limit of Rs. 24,000/- per account per week was enforced by 29the RBI, which was then increased to Rs. 50,000 per week. Such a situation led to long queues at the banks for

several days all over the country.

People with stacks of cash found many ingenious methods to dispose of their demonetised notes: (1) investing in land 30and gold, (2) donations to Temples, (3) rerouting cash to Jan Dhan accounts – almost the entire Rs. 29,000 crore

increased deposits in Jan Dhan accounts – meant for the very poor – have gone into just 3 crore bank accounts out of

the total of 25 crore Jan Dhan accounts. This shows that a relatively smaller number of Jan Dhan accounts have been

used to launder large sums. If these were genuine deposits, they would have been spread across 25 crore accounts in a

more even manner. The tax department has no infrastructure or resource to investigate three crore Jan Dhan

accounts where all the fresh deposits have gone. One never thought that Modi's pet project of financial inclusion

would itself become such a robust platform for money laundering.

Other methods used included unscrupulous people making large scale railway/air bookings using demonetised notes

and thereafter cancelling those bookings. Payments to municipal and local tax also rose during this period, as they

were allowed to accept the payment in old currencies.

DEMONETIZATION Exorcising the “Demon”28

28. The Political Economy of Demonetising High Value Notes – Jayati Ghosh – The Hindu, November 15, 2016 (http://www.thehindu.com/

news/resources/The-Political-Economy-of-Demonetising-High-Value-Notes/)

29. Exemptions to this rule were in place from the beginning – the agricultural income, income of the tribals, to the diplomatic corps, candidates

contesting elections etc.

30. It would be interesting to know how much more money was deposited in various temples, at least big temples, in India. However, there is one media

report about Tirumala Tirupati Devasthanam (TTD), biggest earner among temples in India, in which TTD reported dip in the daily earnings from

Rs.5 crore to Rs.2 crore daily during demonetization. See (http://epaperbeta.timesofindia.com/Article.aspx?eid=31808&articlexml=Notebandi-

reduces-Tirupati-income-by-up-to-Rs-18022017001071)

Contrary to government's official spin that the demonetization policy was planned as early as June 2016, the

remonetisation plan of RBI failed to keep up with the 16.5 lakh crore worth currency that was demonetised, even

after three months. RBI officials admitted that the reasons for this failure were due to a six-year push towards greater

indigenisation, initial ill-planning and a handful of past, controversial outsourcing incidents, which caused these

failures.

Implementation of Demonetization

Demonetization has unleashed an elephant in the economy – so strange and powerful that politicians, economists,

media and every other stakeholder has since turned into a proverbial blind man trying to describe this elephant.

Former Finance Minister P. Chidambaram said that in practice it amounts more to demonization of cash than

demonetization of currency. It is shockingly callous in its indifference to the distributional consequences.

Consumer goods sales were reported to have dropped by one-third. Trucks were at a standstill. Farmers had

difficulty buying seeds and fertilizer and selling crops and perishable produce. The fishing industry was close to a

collapse. Few villages had ATMs and having to trek into cities and wait in line for hours meant loss of daily wages — as

it does for the rickshaw drivers, street vendors, domestic workers and daily labourers in the cities. The construction

industry has been badly hit with significant wage implications for its casual workforce, who have migrated back to

their villages due to lack of livelihoods.

It now becomes clear that the government was simply too cavalier in its planning. The RBI struggled to print

replacement currency, because the new Rs. 2000- notes were printed beginning in August 2016, while the new Rs.

500 notes were printed after the demonetization was announced – beginning in mid-November. On the day

demonetization was announced, apart from the newly printed Rs. 2000 notes, RBI had a total stock of Rs.

23,93,753.39 in its stock. 85.6% of these 'older' notes valued at Rs. 20,511,66.69 were of demonetised Rs. 500 and Rs.

1000. While Rs. 10, Rs 20, Rs 50 & Rs 100 stock available with RBI at Rs 34,25,86.86 was a mere 14.31% of the notes in

currency on that day. Of the Rs. 23 lakh crore shown by the RBI, a sum of Rs 17.97 lakh crore was in public circulation

and about Rs. 6 lakh crore with the banks and RBI. According to an RTI reply given by the RBI, the decision to

demonetise the Rs. 500 and Rs. 1000 notes was taken hours before Modi's announcement on November 08, 2016

and that too by eight of its existing 10 Directors on board (As per the law the RBI should have 21 members in its 31

Central Board, but has been operating with less than half its sanctioned strength.) The Reserve Bank of India (RBI)

replied to yet another RTI query on the reasons behind the sudden announcement of demonetization saying it

cannot be made public. The RBI also refused to give any details about the time it will take to replenish the currency 32notes.

While declaring the Rs. 500 and Rs. 1000 notes invalid for transactions with effect from November 09, 2016, the

government announced a list of 23 services which were exempt from this demonetization exercise. These 23 33services were allowed to accept banned notes till December 15, 2016. Although hospitals were exempted from the

note-ban, many patients suffered due to denial of services – particularly by the private sector hospitals, and to those 34

who have only cash reserves. Almost 90 deaths were reported among people either in the long lines at banks or due

DEMONETIZATION Exorcising the “Demon”29

31. RTI on demonetization: RBI says it proposed note ban hours before Modi's speech - Himanshu Mishra – India Today, December 24, 2016

(http://indiatoday.intoday.in/story/rti-demonetization-rbi-narendra-modi/1/842020.html)

32. RBI rejects RTI queries on reasons behind demonetization, notes replenishment – The Indian Express, December 29, 2016.

(http://indianexpress.com/article/business/banking-and-finance/rbi-refuses-to-answer-rti-queries-on-demonetization/)

33. The list of services which were allowed to accept the banned notes till December 15, 2016, are as follows;

34. India's demonetization drive is affecting access to medical care - Karikalan Nagarajan – The Lancet, Vol 389 January 7, 2017

35to lack/denial of medical facilities for want of new notes. Russian consul-general Irina K Bashkirova in Kolkata said,

“Demonetization took place in Russia also, but none died.” Irina narrated how she was stuck with Rs. 2000 notes as 36

none wanted to take them.

Not a single parliamentarian, let alone Cabinet minister, stood in a line to exchange currency notes. The rich have

engaged “mules” to line up and exchange their currency for them while the “common man” faces hardships in the

daily purchases of food, medicine, bus and rail tickets, and so forth. Forcing people to stand in line for unending hours

and answer humiliating questions is an attack on property rights that puts restrictions on the people's ability to earn, 37

access and use money.

A glaring example of bad planning was that the new notes were wrongly sized for existing ATMs. Only 22% of Indians

have debit cards. Before demonetization, people who had access to ATMs were content to withdraw their cash

requirements, rarely visiting their banks for withdrawal purposes. Due to bad planning and wrong size of new notes,

Rs. 2000 and Rs. 500 notes, re-calibration of the ATMs had to be done to facilitate the customers. Of the 2.05 lakh 38ATMs that exist in the country, the recalibration took a few months to complete, however, many of them were

39either not open or had the cash to dispense. The reason for this situation was that the low velocity of new currency

DEMONETIZATION Exorcising the “Demon”30

List of 23 Services

1) Payments towards pre-paid mobile top-up to a limit of Rs. 500 per top-up.

2) Purchase from Consumer Cooperative Stores will be limited to Rs. 5000 at a time.

3) Payment of fees in Central or State Government colleges.

4) Foreign citizens will be permitted to exchange foreign currency up to Rs. 5000 per week. Necessary entry to this effect will be made in

their passports.

5) Payment of current and arrear dues to utilities will be will be limited to only water and electricity. This facility will continue to be

available only for individuals and households.

6) It has been decided that toll payment at toll plazas to be made through old Rs. 500 notes from 3.12.2016 to 15.12.2016. The NHAI will

pay Rs.922 crores to the private toll booth operators for the revenues foregone during this period because of demonetization exercise.

7) Payment of School fees up to Rs. 2000 per student in Central Government, State Government, Municipality and local body schools.

8) Government hospitals 9) Railway tickets 10) Public transport

11) Airline tickets at airports 12) Milk booths 13) Crematoria/burial

14) Petrol pumps 15) Metro rail tickets 16) Medicine prescribed by a doctor

17) LPG gas cylinders 18) Railway catering 19) Power and water bills

20) Entry tickets of ASI monument 21) Consumer cooperative stores

22) Taxes and penalties to government bodies Court fees 23) Seeds at state-owned outlets

35. Demonetization death toll: 90 people & counting as note ban takes tragic turn – Nishant Saxena – Catch News, Feb 10, 2017

(http://www.catchnews.com/national-news/deaths-due-to-demonetization-since-8-nov-here-s-a-list-of-the-casualties-of-pm-modi-s-note-ban-

1480484645.html)

36. The Global War on Cash – India's Demonetization Debacle - Jerri-Lynn Scofield – naked capitalism, December 31, 2016 (see

http://www.nakedcapitalism.com/2016/12/the-global-war-on-cash-indias-demonetization-debacle.html)

37. Steve Forbes “What India Has Done To Its Money Is Sickening And Immoral – Forbes, Jan 24, 2017 http://www.forbes.com/sites/steveforbes/

2016/12/22/what-india-has-done-to-its-money-is-sickening-and-immoral

38. Of these 2.05 lakh ATMs (as of Oct 2016 RBI statistics), 52% are on-site (i.e. located within the premises of bank branches) and another 48 % are

off-site (away from bank branches). These Off-site ATMs are the one which are starving of cash and not regularly filled with cash till now. Among

these ATMs , there are 156 ATMs of SBI deployed overseas.

39. The cost for recalibration is estimated at Rs. 10,000 per ATM. The banks who own these ATMs are expected to bear the expenses of recalibration,

which puts an extra burden on these banks in addition to the loss of business due to demonetization. According to a report filed by Nupur Anand

and Anup Roy in Business Standard on November 19, the cost of recalibrating an ATM is Rs.10,000 and there are 202,801 ATMs to recalibrate.

This cost therefore works out to about Rs.2 billion. If you include the wages and operational overheads, additional security and re-calibration of

ATMs, a total cost of Rs.351.4 billion was borne by banks for the 50 days' of demonetization exercise. See (https://www.cmie.com)

was being diverted to the bank branches to fulfil their cash disbursal needs than the ATMs (many of which are

managed by third party firms, such as NCR Corporation India with about 47% share of the market). ATMs across the

country continued to battle the cash crunch even 100 days after the demonetization announcement with nearly 30%

of the 2.05 lakh machines across India ran dry. The Rs. 12,000 crore cash pumped into the economy, which was lower

than the Rs. 13,000 crore provided before the note ban, proved to be inadequate to meet the demand for liquid cash.

Most of the people with bank accounts managed the note-ban by using credit/debit cards for their daily needs or

other purchases – online or off-line – for the goods and services. According to RBI statistics, there are 2.73 lakh

credit cards issued by the various banks in India, while the debit cards issued as of October 2016, are 73.92 lakhs.

However, in terms of value of transactions, the credit cards are used more – about 58% of the total Rs.520 crores of

transactions done in the month of October 2016 (a month before demonetization was announced). For the three-

month period of October–December 2016 (for which RBI had data) the growth in total value of transactions

displayed a positive trend for all cash-less methods except debit cards. The negative growth in value of transactions

through debit cards is a reflection of ATMs running dry during that period, as ATM withdrawals accounted for more

than 90% of total value of Debit Card transactions before demonetization. Mobile wallets saw the highest percentage

increase in the value of transactions among these methods. Average value of transactions also declined except for the

transactions by mobile wallets, which showed an increase from the values of previous years – due to demonetization.

Post demonetization the usage of cards for low-value transactions dropped as people returned to cash, but debit

card transactions continued to be high.

40A survey, jointly undertaken by Deloitte and Confederation of Indian Industry, shows that there has been a two-fold

growth in the use of point of sales (PoS) terminals and mobile wallet transactions post-demonetization. This survey

was based on a sample of 255 merchants in eight cities across four regions of the country. This sample size was

designed to ensure appropriate representation across parameters, primarily education, age and social backgrounds.

This survey revealed that petrol pumps recorded 100% acceptance of digital payments. Grocery and kirana stores,

where only 20% and 15% of outlets were surveyed, accepted card payments. Acceptance of cards and m-wallet varies

with the merchant's annual turnover, location and nature of business. Digitally savvy merchants (e.g. use of

accounting software) show higher card and m-wallet acceptance.

Changing Narratives on Demonetization

By the end of November, the Modi government perceived that the demonetization decision had not gone as planned

and this led to change in the tactics in the stated goals of demonetization. The narrative was changed from 'black

money to cashless economy to less cash economy' – all in a span of 15 days. This spin-doctored rhetoric reveals the 41'post-truth' politics of India! Praveen Chakravarthy published an article in Business Standard on December 06,

2016, “The changing narrative (spin) of Modi”. Chakravarthy analysed the speeches of Modi, November 08 to 42November 27, 2016, and presented the key-words in these speeches in a graphical format.

In the November 08, 2016 speech in which demonetization was announced, Mr Modi mentioned 'black money' 18

times, and 'fake currency' (or counterfeit) only 5 times. By November 27, Modi used the phrase “digital/cashless”

DEMONETIZATION Exorcising the “Demon”31

40. Demonetization and merchants - The promise, potential, and practicality – Deloitte and CII, Jan 2017 (https://www2.deloitte.com/in/en/pages/

tax/articles/demonetization-and-merchants.html)

41. UP polls could change the future of India's post-truth era (and its leading light Narendra Modi) -Samar Halarnkar -Scroll.in, February 28, 2017 (see

https://scroll.in/article/830300/up-polls-could-change-the-future-of-indias-post-truth-era-and-its-leading-light-narendra-modi)

42. Cashless/digital: How Modi changed (and changed) demonetization narrative - A data analysis of the speeches reveals a shifting of the narrative of

the demonetization action and its objectives - Praveen Chakravarty – Business Standard, December 05, 2016 (see http://www.business-

standard.com/article/economy-policy/cashless-digital-how-modi-changed-and-changed-demonetization-narrative)

thrice as much as “black money” with no mention of “fake currency”, whereas there was zero mention of

“digital/cashless” in the initial November 8 speech. Therefore, between November 8 and November 27, the

objective for this massive demonetization exercise had swung from black money elimination to going cashless, as

evident in Modi's speeches.

Finance Minister Arun Jaitley said on December 8, in response to the criticism of poor planning, that the “RBI has

been releasing currency as per schedule. The aim of demonetization has been to move towards digital transactions.”

In addition, the government spent a massive Rs. 94 crore on advertisements toward popularising 'digital transactions' 43and cash-less economy.

In fact, this objective of 'cashless', however dormant, was presaged by an ominous full-page advertisement in English 44

dailies by Paytm – a private e-cash wallet provider – with Modi's photo.

The digital payments market is estimated to reach an annual size of roughly Rs. 35 lakh crore ($ 500 billion) by 2020 in

terms of volume of transactions and about Rs. 35,000 crore a year ($5 billion annually) in terms of revenue, calculated 45at 1% of all transactions made digitally. The current rate of smart phone penetration is only 30% – an impediment to

a shift to cashless transactions. An interesting point to note is that while the reasoning for the move towards cashless

economy in advanced economies is all around the necessity of going into negative interest rates in order to rev up

economies that are stuck in a low-growth mode, the reasoning for pushing the cashless economy idea in emerging

markets that do not have the problem of stagnation, is a different one: it is about financial inclusion, fighting

DEMONETIZATION Exorcising the “Demon”32

Progression of Keywords in The Prime Minister's Speeches

100.0%

75.0%

50.0%

25.0%

0.0%Nov. 8th Nov. 13th Nov. 20th Nov. 25th Nov. 27th

Date of Speech

Black money Fake currency Cashless / Digital

43. Demonetization: Govt spent Rs 94 cr on ads to popularise e-payments – Business Standard, Feb 02, 2017 (seehttp://www.business-standard.com/

article/economy-policy/demonetization-govt-spent-rs-94-cr-on-ads-to-popularise-e-payments)

44. After Kejriwal Asks Why's Modi in Paytm Ads, Company CEO Hits Back - Suhasini Krishnan – The Quint, Nov 11, 2016 (https://www.thequint.com/

politics/2016/11/10/whats-the-deal-mr-pm-arvind-kejriwal-asks-why-narendra-modi-is-paytm-ads-rs500-1000-notes-black-money-

demonetization)

45. This estimate was made by global consultancy firm BCG well before the demonetization – see Digital Payments 2020 – The making of a $500

billion ecosystem in India – Alpesh Shah, Prateek Roongta, Chillman Jain, Vibha Kaushik and Abhishek Awadhiya – Boston Consulting Group and

Google, July 2016

corruption and so on. This doesn't necessarily mean that all these arguments are wrong; some arguments could be

right. But this does show that the groups pushing forward the idea of cashless economy would drive out cash,

irrespective of the specific reason.

In August 2015, 11 new payments banks got their licences, of which three returned their licences, but the rest,

including Paytm, Aditya Birla's Nuvo and Vodafone's MPesa, are still in the fray. A few months after the payments bank

licences were given out, in February 2016, the Prime Minister chaired a Cabinet meeting that decided to promote

'payments through cards and digital means ', 'discourage transactions in cash', and 'shift the payments ecosystem from

cash-dominated to non-cash/less cash payments'.

The Cabinet decision was followed by the establishment of a task force in April this year, which was asked to

recommend short-term measures to promote payments through cards and digital means. The task force made its

recommendations within three months, in July this year. The very next month, August 2016, saw the creation of the

Committee on Digital Payments headed by former Finance Secretary Ratan P. Watal which submitted its report in

triple-quick time on December 09, 2016. With a momentum unheard of in the governmental system, within a

fortnight, many of its recommendations had already been acted upon – including a lottery scheme (which took

inspiration from a Mexican lottery-cum-game show called El Boletazo), removing customs duty on POS machines

that merchants need to swipe cards, and waiver of the convenience fee (called merchant discount rate) charged on

digital payments by government departments.

The obstacles to using credit/debit cards for payment are the lack of infrastructure – Point of sale terminals and more

importantly, the fee charged by banks for usage of cards – called Merchant Discount Rate (MDR), availability of power

supplies, reliable internet facilities for data back-haul, etc. Among these, the most important is the MDR, which most

of the vendors were unwilling to pay and wanted the customers to pay for it. During the 60 days of demonetization,

the government waived off most of these fees – but these have returned back post-demonetization.

According to the draft norms on MDR, the merchants have been categorised in four categories, small merchants with

turnover outside the ambit of GST (less than Rs20 lakh per annum), government transactions (railways, VISA fees,

etc.), special category of merchants (utilities, hospitals, Army canteen, etc.), and all other category of merchants with

turnover within the ambit of GST. For small and special category of merchants, the MDR has been capped at 0.4% of

the transaction value for physical point-of-sale (PoS) machines and 0.3% for digital PoS. For all other categories of

merchants, MDR is capped at 0.95% of transaction value for physical PoS and 0.85% for digital PoS. For government

transactions, a flat fee of Rs.5 has been proposed for transaction value up to Rs 1,000, Rs 10 for over Rs 1,000 to Rs

2,000 and up to 0.5% for Rs 2,000 with a cap of Rs 250 per transaction. Banks have been asked to ensure that no 46

convenience or service charge is paid by the customers. These new charges became effective from April 1, 2017.

Flowing along with this tide of cash-less economy, the then President Pranab Mukherjee approved the Payment of

Wages (Amendment) Ordinance, 2016, to enable industries to pay wages through cheque or by direct credit into

bank accounts of workers earning up to Rs. 18,000 a month without their permission. This ordinance, promulgated

on December 28, however, did not make payment of wages mandatory through the banking system and employers

can still pay salaries through cash. The ordinance empowers the Centre or State governments to specify industries or

establishments where wage payment can be made mandatory through the banking system. The ordinance of

December 28, 2016 seeks to annul the Payment of Wages Act of 1936 which requires employers to take permission

from employees before paying salaries through cheque or bank credit.

DEMONETIZATION Exorcising the “Demon”33

46. See RBI Circular of Feb 16, 2017 - Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions - (https://rbidocs.rbi.org.in/

rdocs/Content/PDFs/DCMDR16022017EB2751B46692463FA248FE42FB1DAB3C.PDF)

From Financial Capitalism to Surveillance Capitalism

Money is coined liberty.

Fyodor Dostoyevsky in his novel The House of the Dead (1861)

The big difference between cash payments and other 'digital /electronic' payments (the so-called cash-less payments)

is as a service-fee – paying by cash is free at the point of use. When I pay you in cash, neither of us incurs a fee for my

settling my account with you by handing over notes or coins.

For using e-payments, a fee needs to be paid for every transaction, over and above the cost of a good/service that we

wish to exchange. This fee is usually charged to the vendor, or sometimes the buyer (when insisted by the vendor).

The transaction charge is usually in the range of 2–2.5% of the cost of the good/service. Apart from an additional

source of revenue flow, the main reason the RBI wants to get rid of cash is the sense of anonymity cash transactions

provide. Where that anonymity is used by criminals and tax evaders, then the state should punish such actors, but

criminalising everyone because we use cash would be illegal and unethical. Government and RBI can act as a Big

Brother – a panopticon – recording everyone at every transaction, when these are done through electronic

payments – sometimes in real-time, when the credit/debit cards we use are also geo-tagged.

The Attorney General of India has even claimed before the Supreme Court that Indian citizens have no constitutional

right to privacy. Given the situation, the spectre of a cashless economy is scary indeed. Most of us do need the

comfort of anonymity that cash provides, even while carrying out legitimate and harmless businesses. It will require a

fair amount of informed debate before the privacy rights of citizens can be properly worked out, and it will definitely

be premature to consider going cashless before such a debate can happen. The government needs to clearly spell out

the technical standards and the legal measures required to ensure the protection of privacy of its citizens, even from

the government itself. The possibility of electronic mass surveillance on all monetary transactions does not augur

well for civil liberties and democracy Loss of privacy is the biggest threat, in addition to risks of loss of money due to

hacking/data-security, etc. India does not have effective regulatory mechanisms governing the use of electronic

payments/payment gateways, which can infuse trust among the consumers toward use of these mechanisms. In the

absence of these institutional mechanisms, coercing citizens to go cashless is taking away the freedom of the citizens.

Going 'cash-less' or changing into a digital economy has a long history in India. These efforts were billed as 'financial

inclusion' for those who do not have bank accounts or the accessibility of banks are either distant or difficult. The

main obstacle was the lack of citizen identity record for many people.

It started with the UPA government's massive Aadhar project – Unique Identification Authority of India (UIDAI) – 47which sought to provide every Indian citizen a biometrically validated Identification number – an Aadhar number.

Modi government had, misgivings on this scheme – initial reports suggesting that it had even scrapped this project.

But later this scheme was strengthened by joining mobile phone numbers – which had achieved high prevalence and

these two linked to opening of Pradhan Mantri Jan Dhan Yojana. Pradhan Mantri Jan-Dhan Yojana ((PMJDY) is the

Indian national mission for financial inclusion to ensure access to financial services in an affordable manner – launched

by the Prime Minister of India Narendra Modi on 28 August 2014.

The UID is a random number allotted to demographic and biometric data submitted by private parties. It has never

been verified or audited to confirm the identity, address or even existence of a real person associated with the

DEMONETIZATION Exorcising the “Demon”34

47. As of Jan 31, 2017, the UDAI claims to have 99 % of adult population living in India provided with an Aadhar Number (see “ State-wise / UT wise

Aadhar Saturation till Jan 31, 2017. Aadhar is still plagued by the lack of legal status - a major concern on grounds of privacy.

https://uidai.gov.in/new/images/news/state_wise_aadhaar_saturation_06022017.pdf

48number. In addition, Aadhar-based systems offer only a single factor authorisation – only a permanent login without

a changeable password – which is liable for abuse.

Seventy-six percent of Jan Dhan accounts were zero balance till one rupee was added to many accounts to bring

down zero balance accounts to 23% so that the concentration of money deposits would not be noticed. There was a

rise of Rs. 32,000 crore in Jan Dhan deposits in the two weeks since demonetization. Jan Dhan bank accounts are the

tip of the iceberg in terms of bank accounts opened with UID as the sole KYC and which have been used as 'mules' by

the hoarders of cash to avoid detection.

This 'trinity' of Jan Dhan, Aadhar and Mobile ( JAM) is the platform to achieve 'digitisation' or cash-less transactions.

An RBI report of December 2015, “Report of the Committee on Medium-term Path on Financial Inclusion”, laid the

plan for a “vision of financial inclusion as 'convenient' access to a set of basic formal financial products and services

that should include savings, remittance, credit, government-supported insurance and pension products to small and

marginal farmers and low-income households at reasonable cost with adequate protection progressively

supplemented by social cash transfer besides increasing the access for micro and small enterprises to formal finance

with greater reliance on technology to cut costs and improve service delivery, such that by 2021 over 90 per cent of

the hitherto underserved sections of society become active stakeholders in economic progress empowered by

formal finance”. The vehicle to achieve this vision was the 'JAM trinity'. The main obstacle for achieving this vision was

the pervasive presence of 'cash economy' particularly in the informal sector.

The Economic Survey of 2017 admits that JAM ( Jan Dhan Yojana, Aadhar and mobile) may have made significant

progress but still faces significant challenges. It elaborates on first-mile, middle-mile and last-mile issues that will need

to be addressed if the successful Direct Benefit Transfers (DBT) is to be scaled up in other areas.

l The first-mile is identification of beneficiaries – Aadhar is only an identity authenticating system; it is not an

eligibility authenticating system. There is a need for accurate and legitimate eligibility databases.

l The middle-mile is transfer of money to beneficiaries. The middle-mile challenge relates to coordination

among service delivery agencies – be they government or private.

l The last-mile is beneficiaries must be able to access their money from banking channel – the problem of

banking infrastructure in rural areas and the failure of the banking correspondent model to take off. The

Survey admits that “despite Jan Dhan Yojana's record breaking feats, basic savings account penetration in

most states is still relatively low” (46 per cent on average) and that mobile payments have not quite taken off 49

in the rural areas.

A Survey shows that only six states had preparedness index of above 60 per cent (Andhra Pradesh, Telangana,

Madhya Pradesh, Chhattisgarh, Rajasthan and Haryana). In the case of the rural preparedness index, the performance

of all states was abysmal – only Andhra Pradesh and Haryana notched more than 4 percent followed by Karnataka

with 3.5 percent. But the Biometrically Authenticated Physical Uptake (BAPU) preparedness index shows an

interesting picture. In this exercise, beneficiaries verify their identities through scanning their thumbprint on a POS

machine while buying the subsidised product—like kerosene or rations at the PDS shop. BAPU necessitates

automation of all PDS shops as well as installing Aadhar-enabled POS machines at these shops. In sparsely populated

DEMONETIZATION Exorcising the “Demon”35

48. Don't forget the danger of digital black money – Anupam Saraph - Sunday Guardian 10 December, 2016 (see http://www.sundayguardianlive.com/

opinion/7629-don-t-forget-danger-digital-black-money)

49. Spreading JAM across India's economy – Chapter 03, Economic Survey, 2017 – Ministry of Finance, Government of India (http://finmin.nic.in/

indiabudget2017-2018/es2016-17/echapter.pdf)

areas, such as in Rajasthan, the BAPU experiment has necessitated customers to climb up the trees or even trudge up

the hills, where the POS machines are located in order to get better connectivity to register their biometric data.

After having their biometric data verified, the villagers are asked to travel some more distance to get their rations 50from the PDS shops. The villagers are asked to get equipped to climb trees – arboreal skills to get their rations!

The National Payments Corporation of India (NPCI) is the umbrella organisation for all retail payment systems in

India, which aims to allow all Indian citizens to have unrestricted access to e-payment services. Founded in 2008,

NPCI is a not-for-profit organization registered under section 8 of the Companies Act 2013. The organization is

owned by a consortium of major banks and has been promoted by the Reserve Bank of India. In 2014 NCPI

developed Unified Payments Interface (UPI) to move India to a cashless society with only digital transactions.

The NPCI manages the domestic card payment network called RuPay, reducing the dependency on international card

schemes like Visa and MasterCard. The RuPay card is now accepted at all the ATMs, Point-of-Sale terminals and most

of the online merchants in the country. More than 300 cooperative banks and the Regional Rural Banks (RRBs) in the

country have also issued RuPay ATM cards. More than 250 million cards have been issued by various banks, and it is

growing at a rate of about 3 million per month. RuPay cards are also issued under the Jan Dhan Yojana scheme.

Bharat Interface for Money (BHIM)

Unified Payments Interface (UPI) is a payment system launched by National Payments Corporation of India and

regulated by Reserve Bank of India which facilitates the fund transfer between two bank accounts on the mobile

platform instantly. UPI (Unified Payments Interface) is an advanced version of Immediate Payment Service(IMPS)

platform designed for transferring funds using: Transfer through Virtual Payment Address (Unique ID provided by

bank) or Account Number + IFSC or Mobile Number + MMID(Mobile Money Identifier) or Aadhar Number or

Collect / Pull money basis Virtual ID. A MPIN (Mobile banking Personal Identification number) is given to the banking

customer once they register for UPI which is required to be entered while confirming a money transfer. An app based

product called BHIM (Bharat Interface for Money) was launched on 30 December 2016 by NCPI based on UPI.

Aadhar Pay

In a bid to increase digitisation and move to the next phase of 'cashless India', the government is preparing to launch

Aadhar Pay. The Aadhar Pay will replace the use credit cards, debit cards, smartphones and PINs to make payments

or transfer money. The proposed system of payments will use a person's biometric data and fingerprints to make

payments through Aadhar-linked bank accounts.

This initiative, which has been running as a pilot project in fair price shops in Andhra Pradesh, is expected to be scaled

up for a nationwide launch. In Aadhar Pay, a person needs to swipe fingerprints at a merchant establishment's

fingerprint scanner attached to a smartphone. This device will authenticate his or her identity through fingerprints,

which will give them access to a person's bank accounts linked with the account-holder's Aadhar number. The system

will work through an app in the merchant establishment's smartphone—with a fingerprint scanning

device—eliminating the requirement of a Point of Sale (POS) terminal, which is required for credit card and debit

card transactions. The scanner will be priced at around Rs. 2,000, much cheaper than POS terminals which cost

between Rs. 8,000-10,000.

The problem with this system is that unlike in the case of credit/debit cards, which can be replaced when their

integrity is compromised, the theft of biometric data can be lost irrevocably – a loss of virtual identity for the

user/citizen.

DEMONETIZATION Exorcising the “Demon”36

50. Need Internet to buy PDS rations? Go climb a tree – Times of India, March 03, 2017

War on Cash

Demonetization is part of the overall plan of the US strategy called 'war on cash'. There are reports that as a part of 51the 'global war' against cash economy, the US (through its agencies such as USAID) played an active role in the

52demonetization exercise.

In his blog, Norbert Haering reports USAID's announcement regarding the establishment of “Catalyst: Inclusive

Cashless Payment Partnership” with the goal of effecting a quantum leap in cashless payment in India. The USAID in

its press statement of October 14, 2016 says that Catalyst “marks the next phase of partnership between USAID

and Ministry of Finance to facilitate universal financial inclusion”. This announcement is backed by an extensive survey 53of the feasibility of cashless transactions across the country.

The goal of the Catalyst is to take one city and increase the digital payments ten times in six to 12 months, according

to its CEO Badal Malick less than four weeks before demonetization in the whole of India. Soon this idea of

experimentation expanded as the Beyond-Cash-report and Catalyst kept talking about a range of regions they were

examining, ostensibly in order to later decide which was the best city or region for the field experiment. And then in

November it became clear that the whole of India should be the guinea-pig-region for a global drive to end the

reliance on cash. Similarly, in a report published in June 2016, on the digitalization of the Indian payment system,

Boston Consulting Group and Google urged payment providers to “Mine customer data to build additional revenue

streams.” The promise of mining customer data will help payment system providers to manipulate consumers into 54buying more. “Payments will drive consumption – and not the other way around.” On the steering board of this

study were Visa and Vodafone (M-Pesa).

The omnipresent desire of the "financial inclusion" community is to eliminate cash, even if it is by means of coercion.

This is a clear case where the interests of the poor diverge from the interests of the payment providers. If the option

of using cash – a very accessible, reliable and cheap technology for them – is taken away from them, they will be worse

off. The payment providers will benefit 'at poor peoples' expense'. Since it helps the business of payment providers

and furthers the security interests of the US, the various groups and panels advocating “financial inclusion” support

financial exclusion of poor people by preventing them from using their preferred and often only means of payment –

cash.

A tidal shift from hard currency to digital money will need to be accompanied by an equally massive effort on securing

the systems, educating millions of technology-challenged users and setting up of cyber defence capabilities. Recent

hacking effects into the debit card details of some of the Indian banks in June–August 2016 resulted in losses of data 55

relating to about 3.2 million customers, show the vulnerabilities of our banking systems.

In a country where there is no regulatory framework on digital transactions and violations against individual privacy,

digitisation is a dream of the political and bureaucratic class and bane of the poor and deprived classes. The digital

DEMONETIZATION Exorcising the “Demon”37

51. Clive - The Global War on Cash – Lessons from History, December 22, 2016, (http://www.nakedcapitalism.com/2016/12/the-global-war-on-cash-

lessons-from-history.html)

52. A well-kept open secret: Washington is behind India's brutal experiment of abolishing most cash - Norbert Haering ( see http://norberthaering.de/

en/home/32-english/news/745-washington-s-role-in-india, Jan 01, 2017) see also More evidence of early US involvement in Indian demonetization

– Norbert Haering, 07 January 2017 (http://norberthaering.de/en/home/32-english/news/749-modi-2)

53. See the URL : http://www.sawitchallenge.org/resources/usaid-digital-payments-india-merchant-and-consumer-research-resources

54. Digital Payments 2020 – The making of a $500 billion ecosystem in India – Alpesh Shah, Prateek Roongta, Chillman Jain, Vibha Kaushik and

Abhishek Awadhiya – Boston Consulting Group and Google, July 2016

55. Debit Card Breach: India's Banking System Has Been Caught With Its Pants Down - Anuj Srivas – The Wire, October 21, 2016 (see

https://thewire.in/75018/debit-card-breach-india-banking)

payment systems typically work on un-interrupted power supplies, reliable telecommunication systems for back-

haul of the data and more importantly the trust of the consumer-citizens.

Going digital should be a choice of the citizen, the consumer and not the government's dictate. Eliminating this

choice is excluding those who cannot or do not wish to go digital. In a country with 70% people living in rural India,

95% of who are unbanked, and less than 9% of who have access to internet, digital banking is exclusion of the people.

Even in urban India, mobiles experience call drops, their bandwidths don't work all the time, the complaints don't get

addressed. Furthermore, there is no inherent virtue in going digital, nor a constitutional requirement to become a

digital republic.

Impacts of Demonetization

Gandhi's Talisman:

“I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you,

apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may

have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he

[she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In

other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions? Then you

will find your doubts and yourself melt away."

Source : Mahatma Gandhi [Last Phase, Vol. II (1958), P. 65].

When Mr Modi donned the mantle of Gandhi in the Khadi Calendar, he seemed to have forgotten to wear this

talisman prescribed by Gandhi. In fact, he maintained that his demonetization drive is a 'Yagna' and if some 'collateral

damages' happened it would be for the good of the entire society. He also used the analogy of 'surgery' on a healthy

baby for the good health of the Indian economy. Modi and his supporters did not acknowledge that they have bled the

Indian economy by draining out 86% of the blood and putting it on 'dialysis' for a long time to come.

Minister of State for Finance Arjun Ram Meghwal said in a written reply in Rajya Sabha that “Remonetisation is taking

place ceaselessly at a fast pace. Between November 10, 2016 and January 13, 2017, the notes in circulation have

increased by Rs. 6.78 lakh crore, thereby taking the total notes in circulation to Rs. 9.1 lakh crore”. It is also

impossible to predict whether currency demand will revert to its previous level or will be structurally lower, with

consequent fiscal implications for government revenues from seignorage. This potential loss of seignorage needs to

be offset against any higher tax compliance as was announced by the Finance Minister. The effects of the Goods and

Service Tax (GST) (a comprehensive indirect tax on manufacture, sale and consumption of goods and services

throughout India) launched in October 2017, also needs to be factored in calculating the future revenue streams.

Cash is the preferred mode of transaction globally, accounting on average for 85% of all transactions. In some of the

developed countries, transactions carried out through cash are less than 50% of total transactions. In India, this ratio

is at around 95%. Easy accessibility, its certainty of acceptance, efficiency for the settlement, no dependency on any

additional infrastructure, and no additional charges make cash universally the most preferred mode. The only

problem of cash transactions is the anonymity and difficulty of establishing expenditure trail which make it an ideal

mode for unreported transactions as well.

The ratio of currency to GDP (gross domestic product) in India, which averaged 8.4% during 1975-2000, crossed 10%

for the first time in 2002-03 and has remained above this level since then. This ratio has averaged 10.8% in the last

decade. The increase in this ratio could have persisted through the current year as well before the demonetization of

higher denomination notes announced on 8 November.

The existence of a large informal sector has been the single most important factor in this dominance of a cash-based

DEMONETIZATION Exorcising the “Demon”38

economy. On an average 45% of gross value added (GVA) in the economy was generated in the informal sector. The

informal sector's growth has been mostly based on cash transactions. The informal sector contributed to around

40% of capital formation and two-thirds of investible funds in 2015-16. Demonetization has taken over 85% of

currency out of circulation. This has resulted in short-term disruptions in transactions in agriculture and related

sectors, small establishments, households and among professionals. Since injection of liquidity is slow, incomes in

both formal and informal sectors have been affected – adverse impacts felt in the informal sector. Since self-employed

and casual workers dominate in the overall economy, their incomes suffered a lot – for many people, it may actually

represent revenue and incomes forgone forever. According to the National Commission for Enterprises in the

Unorganised Sector (NCEUS), 2009 Report, majority of the people (78.7 percent) belonging to the informal sector 56are poor, or constituting 90 percent of casual workers and 75 percent are self-employed people. Thus, these are the

ones who bear the major brunt of the demonetization drive.

57The RBI conducts a monthly survey among consumers – in what is called the Consumer Confidence Survey – which

measures a variety of parameters such as, households' assessment of general economic conditions, the employment

scenario, the price situation in the country and their own income and spending. For the month of December 2016,

this survey based on 4,752 responses in four metropolitan cities, showed that the Current Situation Index (CSI)

declined sharply to 102.0 in December 2016 from 108.7 in November 2016 – largely due to the impacts of

demonetization. The current perception on all parameters worsened except on the price level and inflation.

However, the Future Expectations Index (FEI) reached an all-time high in the history of the survey, largely due to a

significant improvement in the outlook for prices. Households' current perceptions on economic conditions

worsened in the December 2016 round of the survey.

Admission of these devastating impacts has been either missing or mute among the leaders of NDA government –

both in their speeches as well as in the important documents (budget and economic survey 2017). The Economic

Survey of 2016-17 tabled before the Budget for 2017-18 was presented in January 2017. This document has one

complete chapter (Chapter 03) devoted to demonetization of 2016 – euphemistically entitled “Demonetization: To

Deify or Demonise?” but the Survey has neither deified nor demonised demonetization. The survey projected

growth for FY18 in the range of 6.75-7.5%. The survey has said that the demonetization can serve to be a risk to the

growth forecast. Prof. Arvind Subramanian, the main author of this report, observed that it was hard to estimate the

impact of demonetization as "currency declined sharply but deposits increased sharply".

As per the report by the Central Statistics Office, the Gross Domestic Product (GDP) is likely to achieve annual

growth of 7.1 per cent in the fiscal year 2016-17, which is slower than a provisional figure of 7.6 percent the past year.

This data has not factored in the post-November 8 demonetization impacts. The update to the IMF's World

Economic Outlook projected Indian GDP to slow down to 6.6% for 2016-17 – a whole percentage point lower than 58its earlier estimate of 7.6%. Indian economic growth may slow to 6.1% in the fiscal third quarter due to the

government's demonetization move, according to the median of five estimates by economists. Economists surveyed

by Mint expect growth in gross domestic product (GDP) in the three months ended 31 December to be in the range 59

of 5.5% to 6.5%. That compares with the 7.2% growth recorded in the year-ago quarter. The latest data from CSO

DEMONETIZATION Exorcising the “Demon”39

56. The Challenge of Employment in India - An Informal Economy Perspective - National Commission for Enterprises in the Unorganised Sector

(NCEUS) - Volume I - Main Report, April 2009

57. C on s ume r C on f i d e n c e S u r v e y , De c embe r 2016 , RB I – ( h t t p s : / / r b i d o c s . r b i . o r g . i n / r d o c s / P ub l i c a t i o n s / PDF s /

CCSDBAAD08B6E6A4105956733778EE3F88F.PDF)

58. World Economic Outlook Update – IMF, January 16, 2017

59. Demonetization effect: economic growth seen slowing to 6.1% in December quarter - Prerna Kapoor – Live Mint, Feb 27, 2017 (see

http://www.livemint.com/Politics/kQglM1kU5LSoF3IXZPImvO/Demonetization-effect-economic-growth-seen-slowing-to-61.html)

for the third quarter GDP show it as 7.1 percent which is touted as vindication of government's argument that

demonetization did not affect the economy. But what needs to be borne in mind is that the informal sector, which

took most of the impact of demonetization, is not measured for GDP – only the Gross Value Added (GVA) and that

too from the survey data, not the real-time data that CSO generates. Our GDP methodology simply doesn't capture

the informal sector. This news item of 7.1 GDP growth for the third quarter of 2016 is best seen as 'propaganda value' 60or as fudged data. At some point, as happened with Brazil and Greece, the fudging will be discovered, and things will

get bad very fast and India would lose its credibility in the eyes of the international community.

Finance Minister Arun Jaitley's Budget speech expected that those who suffered during demonetization would find

solace in the new income tax slabs to soften the blow. But any question of “windfall gains” to the government, as the

Economic Survey suggested, have been put off to next year.

Mr. Jaitley brought up demonetization on 13 occasions in the speech while presenting the Budget for 2017-18. He

described the demonetization as one of the two “tectonic policy initiatives”, along with the Goods and Services Tax,

which the country witnessed over the past year. He also claimed that the government had put in a number of

initiatives to attack black money and so people trust the government with their money. He said, “Demonetization

seeks to create a new 'normal' wherein the GDP would be bigger, cleaner and real. This exercise is part of our

Government's resolve to eliminate corruption, black money, counterfeit currency and terror funding. Like all

reforms, this measure is obviously disruptive, as it seeks to change the retrograde status quo. Drop in economic

activity, if any, on account of the currency squeeze during the remonetisation period is expected to have only a

transient impact on the economy.”

In terms of the actual achievements of demonetization, Mr. Jaitley mostly spoke of its “potential” to create long-term

benefits of “reduced corruption, greater digitisation of the economy, increased flow of financial savings and greater

formalisation of the economy. All these measures are expected to lead to higher GDP growth and tax revenues –

although India is one of the few countries with higher income tax regimes, compared to even developed countries – 61on the basis of tax to per capita GDP ratios.” India taxes its citizens much lower in proportion to its GDP vis-à-vis

other comparator economies and a substantive portion of such taxes are collected through largely regressive and

distorting indirect rather than direct means. Direct taxes are taxes on income, wealth, property and capital gains.

Indirect taxes are taxes on goods, services and excise taxes. Indirect taxes are considered regressive since its marginal

impact on the economically weaker sections of society is far greater. India's direct to indirect tax ratio is roughly 35:65.

Mr. Jaitley said in his budget speech that, “Thanks to the surplus liquidity created by demonetization, the Banks have

already started reducing their lending rates, including those for housing.” The deconstruction of this statement

refers to huge debts to the banks (euphemistically called Non-Performing Assets (NPAs) in the banking lexicon). In

2016, the bad loans – or gross non-performing assets – of state-owned banks surged by an incredible 56% to Rs

614,872 crore. Many large lenders bore record losses, like SBI (Rs.1.6 trillion), PNB (Rs. 0.57 trillion), and Bank of

India (Rs. 0.52 trillion). The declining profits of the public-sector banks are indicative of the persistent irrecoverable

loans. Effectively, demonetization has ensured that the cash lying outside the banking system (given our predominant

cash economy) is now within the banking system. The government campaign on digital payments is ensuring that

banks remain flushed with liquidity. Liquidity implies that banks can keep a small 'fraction' of the deposits as reserve,

and lend again to the rich. Thus, the unstated objective of the demonetization was to rob the poor of their hard-

earned cash to pay the rich, who defaulted in their loan repayments.

DEMONETIZATION Exorcising the “Demon”40

60. Is Indian GDP data turning a little too Chinese? – Live Mint, March 02, 2017 (see http://www.livemint.com/Opinion/Is-Indian-GDP-data-turning-a-

little-too-Chinese.html)

61. Decoding India's Low Tax Base Conundrum – Praveen Chakravarthy – The Quint, February 21, 2017

Fall in New Investments

India has seen a steep decline in new investment proposals since demonetization was announced on November 8,

according to data by the Centre for Monitoring Indian Economy (CMIE). The October-December quarter saw Rs

1.25 trillion in new investment proposals, nearly half of what each quarter had seen in new investments in the last nine

quarters. Cement is one of the important inputs in the infrastructure projects, according to HDFC Securities Ltd,

cement production volume in January fell about 13% y-o-y, the first such decline since January 2001. The sector will

likely see a decline in volume this fiscal, which was last seen in fiscal 2001, its analysts Ankur Kulshrestha and Sarfaraz

Singh wrote in a March 02, 2017 report.

Fall in Industrial Output

Industrial production contracted 0.4% year-on-year in December 2016 due to a decline in capital and consumer

items output as well as impact of demonetization. According to the data released by Ministry of Statistics and 62

Programme Implementation (MOSPI), manufacturing output shrank 2% while mining and electricity registered

positive growth of 5.2% and 6.3% in December 2016. The data comes despite a low base in December 2015.

Although the usually-volatile capital goods segment - a gauge for investment - dropped just 3%, a sharp 10.3% plunge

in consumer durables and a 5% decline in non-durables output suggest the note ban dented demand, showed official

data released on Friday. However, the plunge in the consumer durables segment seems to have been aggravated

Impacts on Small and Medium Enterprises

The All India Manufacturers' Organisation (AIMO), representing over 300,000 micro, small scale, and medium and

large scale industries engaged in manufacturing and export activities, in a study on the first 34 days since

demonetization, found that micro-small scale industries (MSI) suffered 35% job losses and a 50% dip in revenue. This 63

study projected a drop in employment of 60% and loss in revenue of 55% before March 2017. A Punjab, Haryana,

Delhi Chamber of Commerce survey showed that 80% businesses were showing a decline in their sales. As MSI are

highly labour intensive, the loss of employment is bound to impact overall consumption in the economy.

Retail and Wholesale Trade

Field reports suggested that the wholesale trade was down by 20% to 30% suggesting that retail demand was still

slack two and a half months after demonetization was announced. Immediately after the announcement, wholesale

trade was reported to have declined by anywhere between 60% to 80%. Such a sharp decline in trade and other

reports from the field from industry suggest that the economy is facing recessionary conditions. Output and

investment are reported to have contracted and unemployment has increased especially in the unorganised sector.

While the organised sector is less affected, the unorganised sector has been hit badly. The latter employs 94% of the 64workforce and produces about 45% of the output.

Consumer Price Index – Retail Inflation

Consumer Price Index (CPI), or retail inflation, for the month of January stood at 3.17% said Ministry of Statistics and 65

Programme Implementation (MOSPI). In the month of December, CPI had eased to 3.41%, which was below the

DEMONETIZATION Exorcising the “Demon”41

62. Quick Estimates Of Index Of Industrial Production And Use Based Index For The Month Of December, 2016 (Base 2004-05=100) Ministry of

Statistics and Programme Implementation, Central Statistics Office, New Delhi, February 10, 2017 http://www.mospi.gov.in/sites/default/

files/press_release/iip_PR_10feb17.pdf

63. Demonetization impact: AIMO report says note ban caused 35% job loss, 50% dip in revenue – The Financial Express, January 9, 2017

64. Economic Survey 2017: There Can Be No Solution Without Admitting the Problem – Arun Kumar – The Wire, Feb 01, 2017.

(https://thewire.in/104631/economic-survey-2017-there-can-be-no-solution-without-admitting-the-problem/)

65. Consumer Price Index Numbers on Base 2012=100 For Rural, Urban and Combined for The Month of January 2017 – MOSPI, 13 February 2017

DEMONETIZATION Exorcising the “Demon”42

Reserve Bank of India's March-end 2017 target of 5% and medium-term target of 4%. The Rural CPI for the month of

January stood at 3.36%, while the Urban CPI stood at 2.9%. The prices of vegetables and pulses declined the most

during the month of January from December, due to availability of liquidity in the economy, post-demonetization.

Drop in Digital Payments – Post Demonetization

As the paper currency was released by the RBI, however slowly, digital payments dipped by 10.2 per cent lower by

volume and 7 per cent lower by value in January 2017 against December 2016, according to representative data

released by the Reserve Bank of India (RBI). The number of digital transactions fell from 1,027.7 million in December

to 922.9 million in January. In value terms, the number declined from Rs. 105.4 lakh crore in December to Rs. 98 lakh

crore in January 2017. This data included transactions on credit and debit cards, electronic fund transfers, digital

wallets and mobile banking transactions. Within digital transactions, debit and credit transactions at point-of-sale

terminals declined 18.6 per cent month-on-month in January, indicating some people's faith/trust in cash. Mobile

banking transactions declined 7.6 per cent month-on-month.

However, there was an uptick in other modes of digital payment in January 2017. For example, the Immediate

Payment Service (IMPS), used to transfer money in an instant, saw 18 per cent increase in volumes in January.

Similarly, the Unified Payments Interface (UPI) of the National Payments Corporation of India was seen gaining

traction. In November, only 0.3 million transactions happened through UPI. In December, the number of transactions

rose to 2 million and in January, it was 4.2 million. The values transacted were Rs. 91 crore, Rs. 700 crore and Rs.

1,666 crore, respectively, said the NPCI data shared with RBI. Value and volume changes in pre-paid instruments,

which largely comprise mobile wallets, were flat.

Post-Truths about Demonetization

The great enemy of the truth is very often not the lie – deliberate, contrived and dishonest – but the

myth, persistent, persuasive and unrealistic. Belief in myths allows the comfort of opinion without the

discomfort of thought.

John F KennedyCommencement Address at Yale University, June 11, 1962

As the quotation from Kennedy shows, the Modi government relied on the myths relating to 'black money' to sell the

spin on demonetization. Like all myths, the myths relating to 'black money' are also stories told and re-told by 66

generations of people of this country – mostly through oral traditions. One of the myths is that black money is

stashed by corrupt people in sacks of cash hoarded at their homes (reinforced by Bollywood movie stereotypes).

And some of these corrupt people who move their money to foreign banks abroad, store their money in the same

cash – the very same 'banned notes' of Rs. 500 and Rs. 1000!

Yet another myth is that Modi is a strong leader without any corruption scandal attached to him. This myth makes his

narrative of ridding the Indian economy of black money and corruption, credible in the eyes of many people,

particularly the poor people of India. That such a 'strong leader' may undermine the 'freedom' or institutions of this 67

country is something not many people would readily agree.

The demonetization exercise is legitimised in the eyes of these poor people that this money stashed in the foreign

banks is extinguished by the tsunami of November 08, 2016! It's okay if they suffer for their loss of livelihoods and

their hard-earned money, if only because these black marketeers also lost more money by demonetization – a

66. See Myth - A Very Short Introduction - Robert A. Segal – Oxford University Press, 2004

67. See Want a 'Strong' Leader? – A G Noorani – The Frontline, January 20, 2017, pp 99 - 103

68 69Schadenfreude feeling (a sadistic/nihilistic glee) as psycho-analyst Anurag Mishra calls it. Demonetization aroused

'anti-social instincts all around' says Anurag Mishra, but because of “dissociation” they did not resort to mass

protests. Dissociation is a psychoanalytical term for a condition in which a person doesn't identify with what is

happening to them. They experience feelings like trauma due to demonetization, as if it were happening to another

person. “People suffered because of demonetization, but they didn't identify with it,” said Mishra. And because they

didn't identify with it, they were numbed into quiescence. Demonetization was a psychological insult. Like all insults,

demonetization too has left behind its imprint on the Indian psyche.

The preamble to the RBI Act 1934 defines its very purpose as being “to regulate the issue of Bank notes and the

keeping of reserves with a view to securing monetary stability in India”. Since time immemorial, a stable, widely

circulating coinage has been the symbol of steadfast state power. It remains to be seen how quickly confidence takes

to return, or whether money demand reacts in a different fashion due to this draconian exercise of government

powers. It goes far to prove the revolutionary axiom that if you wish to destroy a nation you must corrupt its

currency. Thus, sound money is the first bastion of a society's defence and a person's existential safety.

The agony of demonetization, however short-term, is perhaps somewhat similar to acute pain — totally absorbing,

demanding complete attention while it lasts; forgotten or ignorable when it has gone whatever mental or physical

scars it may leave behind.

It was also evident that once full and unrestricted withdrawal was allowed in a few months, a good chunk of these

deposits would have been withdrawn from the banks and people would revert to their earlier character of operating 70

in a cash economy. Model villages which were touted as 'cashless villages' are returning back to cash economy. The

complexity of demonetization on such a huge scale is clearly outside the grasp of the Modi government.

The pain related to cash shortage maybe getting less (although rural areas are still yet to recover) but the bigger

problem now is the recession. The public is curious to know how much black money demonetization unearthed but

the government is not providing any answer to this as yet – there is a vague reply to wait till when the RBI would

complete its counting of old notes. The irony is that those who never generated black incomes have faced all the pain

while those who generate black incomes and have black money have escaped through various devices. They have

largely managed to recycle their old notes into new notes in connivance with the corrupt in the system. No wonder

according to unofficial reports, most of the old notes have come back into the banking system. According to one

estimate, the amount of the old Rs. 500 and Rs. 1000 notes not returned to the RBI by December 23 was less than Rs.

1 lakh crore, the value of such currency would be below 6.5% of the value of these notes in circulation on November 718. The value of such notes with the public would be even less, as some part would be held by banks.

While we know the effects of demonetization on various sectors of economy and various sections of people, we still

do not have answers to the original objectives of Mr Modi, with which he started this tsunami – viz. (1) the amount of

black money that was unearthed during this drive, and from whom, (2) how much of counterfeit currency was

68. Schadenfreude is an English word borrowed from German, it is meant to convey pleasure derived from the misfortune of others. The philosopher

Arthur Schopenhauer says that "To feel envy is human, to savour Schadenfreude is diabolic."

69. Glee, denial, sadness: Mental health experts analyse India in the time of demonetization –Ajaz Ashraf - The Scroll, March 03, 2017 (see

https://scroll.in/article/830054/psychoanalysing-india-and-its-wounds-in-the-time-of-demonetization)

70. Why Haryana's 'cashless village' still swears by cash - Himanshi Dhawan – Times of India, Feb 19, 2017 (see http://timesofindia.indiatimes.com/

home/sunday-times/why-haryanas-cashless-village-still-swears-by-cash/articleshow/

71. While the RBI Is Silent, Its Numbers Tell Us Demonetization Has Failed - Surajit Mazumdar, The Wire, December 29, 2016

(https://thewire.in/90231/rbi-demonetization-currency/)

DEMONETIZATION Exorcising the “Demon”43

detected, over and above the normal seizures and (3) whether terrorism and terrorists' access to cash has been

curtailed and if so, where are the evidences.

72More importantly, Modi has not made any specific attempts to reform the political party funding (except the 73

announcement of a feeble 'electoral bonds' in the recent budget) and preventing the criminals entering into political

fray – the main fountainhead of corruption and black economy in India. The recent demonetization exercise certainly

did not affect these carcinogenic elements in the Indian political economy.

At the time of the last general elections, Modi and his team harped on three issues : (1) development, (2) job creation

and (3) eradicating black money. When the first two issues did not show any results, half way through this

government's term, Modi realised that something dramatic needed to be done, particularly in view of the elections in

the important states like UP, Uttarakhand and Punjab. Demonetization of November 2016 is a result of this

'dramatic' (in hindsight diabolical) move by Modi. Demonetization, in this sense, is more of 'Moditics' rather than 74

'Modinomics'. While the salaried and wealthy sections of people did not face much problems of demonstration, as

they had access to banks and digital payments route, it is the poorest sections which took the most impact of the

demonetization drive. In some of the surveys done on demonetization, overall, people seem to be supportive of this 75 76move – with some nuanced resistance. The effects of this economic tsunami we experienced on November 8 will

continue to haunt us for a long time in the future.

72. For an interesting study on the links between political party funding and real-estate owners, see Quid Pro Quo - Builders, Politicians, and Election

Finance in India - Devesh Kapur and Milan Vaishnav - Center for Global Development, December 2011

73. Crafty Indian Politicians Can Game the New Political Funding Rules Even in Their Sleep - Milan Vaishnav and Rebecca Brown – see

http://carnegieendowment.org/2017/02/01/crafty-indian-politicians-can-game-new-political-funding-rules-even-in-their-sleep-pub-67875

74. Notes ban: Modinomics vs. Moditics - Maitreesh Ghatak – Ideas for India, November 23, 2016

75. Survey of the Effects of Demonetization on 28 Slum Neighbourhoods in Mumbai - Deepa Krishnan and Stephan Siegel – EPW, Jan 21, 2017, Vol

52, No 3

76. What Explains the Popular Support for Demonetization? - Reetika Khera – The Wire, Feb 27, 2017 (seehttps://thewire.in/112263/what-explains-

the-popular-support-for-demonetization/)

DEMONETIZATION Exorcising the “Demon”44

Demonetization and Black Economy : The Twain Does

Not Meetby Arun Kumar - Prof. of Economics (Retd.), JNU

THE black economy undoubtedly needs to be tackled given its deleterious social, political and economic impact on

the country (Kumar, 2002 and 2017). The PM announcing demonetization of the high denomination currency notes

stated that was the main objective. But most analysts are of the opinion this is not the way to even dent (much less

eliminate) the black economy in India. The faulty notion is a result of the incorrect understanding that `black

economy is all cash'.

The logic seemed to be that once 'black money' (cash) is sucked out of the economy, the black economy would

collapse. It is as if, once oxygen is sucked out of a closed room, the bad guys sitting there would all die. But, so would

any good guys sitting there. Further, what if the bad guys had oxygen masks while the good guys did not? It is

something like this that happened post the demonetization announcement on November 8, 2016. Those who never

generated black incomes got adversely affected while most of those who have been generating black incomes have

largely escaped.

The Survey presented in this book, conducted post demonetization to gauge its impact on a cross section of the

people (not a representative sample though) supports the contention that the poor are adversely impacted. Yet, the

elections conducted after this move was announced have shown that the base of the ruling party has not been

affected. The political impact has not followed the economic impact and this disjuncture needs to be understood.

The impact of the demonetization was not just economic but also social and political. Victory in subsequent

elections is being read as a validation of the demonetization in the eyes of the public. Is this true? Poverty has

persisted in India for long and various parties have won elections but does that vindicate the idea that governments

can keep this issue on the back burner or that continuing poverty in the country does not matter. It matters but

people are helpless since they have no choice. Politics is about perceptions and the ruling party has won that battle

but that still does not mean that economically or socially demonetization was justified.

Working Out of Demonetization 2016

On November 8, 2016, the PM suddenly announced that notes of high denomination, namely, Rs. 1,000 and Rs. 500

will become worthless paper after midnight that day. The PM announced that he did not consult other departments

of the government. Reports indicate that even the cabinet was told of the step just a few hours before the

announcement. It appears that the Reserve bank of India also was barely consulted – more as form and less

substantially – even though it had the task of implementing the scheme along with the banks.

The result of the move was that of the Rs.17.5 lakh crore of currency in circulation, 86% was in high denomination

notes (Rs.1,000 and Rs.500), that is, Rs.15.44 lakh crores and this was withdrawn from circulation. This caused a huge

shortage of cash in the market for businesses and people to carry on their day to day activities.

There was utter chaos as a result of the announcement with banks not having adequate currency to replace the notes

2

DEMONETIZATION Exorcising the “Demon”46

that were being withdrawn. ATMs had to be recalibrated so the public could not withdraw their own money. Pictures

of huge lines in front of banks and empty ATMs appeared in the media for the next two months. Some died in the

queues, others lined up overnight with quilts and blankets, people trudged long distances to get money only to be

told that no money was available. Stories of distress all around became the daily fare in media. People who were ill had

difficulty continuing their treatment, workers were thrown out of work and it became difficult for many to get two

meals a day, marriages had to be postponed or conducted with difficulty, etc.

Simultaneously, there were reports of the wealthy getting rid of their hoards of black cash by purchasing real estate,

jewellery, depositing in the accounts of the poor or in Jan Dhan accounts or paying salaries to workers in old currency

or paying taxes in advance or buying petrol or diesel at petrol stations, etc. There was a discount on the old notes and

according to reports up to 30% was the going rate. So, a new black market emerged. There were reports of the well-

off converting their old notes into new notes in collusion with the authorities. This aggravated the shortage of new

currency for the public.

In fact, those who generated black money in the past did not have to sweat it out in queues while those who never

generated black money (the majority in the country) had to bear the hardship of standing in multiple queues. Initially

the move was welcomed by those in the queues believing that the rich also stood in queues – an equalization of the

rich and the poor.

The government had hoped that the black funds with the corrupt people would not come back into the banking

system and this way black would be permanently banished. However, more and more cash kept pouring into the

banks. Initially the government and the RBI announced how much currency had come back into the banks but later

they stopped giving the figures. From stray comments, it appears that 95% of the demonetized currency had come

back into the banks. More came back as NRIs and those abroad stood in long queues in front of the RBI offices to

deposit their old currency. Many who were sick or old and had forgotten that they had some old currency notes could

not manage to deposit their money into the banks and lost a part of their life savings. This was not black cash but

would be counted as black since it has not returned to the banking system.

Government issued notices to about 18 lakh entities to explain their large deposits in the banks. These entities could

be businesses or individuals. The underlying assumption in the tax department's action is that large deposits must

imply black funds held by these entities. But this is not necessarily correct since businesses keep cash as working

capital and the daily earnings are deposited in the banks. So, a petrol station selling Rs.10 lakh worth of petrol, etc.,

would have deposited Rs.5 crores in 50 days. This would be legitimate money and not black cash. A big hospital may

have a daily turnover of Rs.1 crore and could have deposited in tens of crores in the time allowed. Similarly, telephone

companies or airlines or others, who have huge daily turnover would have deposited very large sums in banks. So, a

distinction has to be made between legitimate deposits and illegitimate ones. A lot of investigation would be required

before any of the large funds deposited in the banks can be called black.

What is the Black Economy?

Crudely speaking when an illegality is committed in an economic activity, then the income generated in such activity

results in black income generation. So, a doctor charging Rs.500 as consultation and then only declaring Rs.50 as the

consultation or if he/she sees 50 patients in a day but claims to see only 20 a day then the income declared by him/her

is less than what is actually earned and the undeclared portion of the income is black income. Similar examples can be

given in the case of teachers doing tuition or lawyers or Chartered Accountants or other professionals.

Most businesses show a lower revenue and higher costs of business thereby suppressing a part of the income earned

and this becomes their black income. So, if I sell 100 kg of oil at Rs.100 per kg., I may say I have only sold 80 kg and

DEMONETIZATION Exorcising the “Demon”47

charged only Rs.90 per kg. Thus, even though the revenue is Rs.10,000/- I will show Rs.7,200/- and earn a black

income of Rs.2,800/-. This is called under invoicing of revenue.

Further, if I had bought the oil from the dealer at Rs.50 per kg, I can claim that I had paid Rs.60 per kg and I can siphon

out another Rs.800/-. Similarly, if my rent and other overheads were Rs.2 per kg, I would claim say Rs.5 per kg and I

would siphon out another Rs.240. This is referred to as over invoicing of costs.

Thus on sale of 100 kg of oil, I make a black profit of Rs.3,840/- while my declared profit or the white profit is only

Rs.960/-. I pay tax on the latter and not on the former. Most small businesses are known to load their entire family

expenditure on the company/firm/business. They may call their phone company phone, their servants as company

peons, their family vacation as company travel and their eating out as company entertainment, etc. So, often, while

businesses may appear to be sick, the managements may be prospering.

However, this was about the legitimate businesses, like, manufacturing, trade, finance, transportation and so on.

These are allowed by law. But the law does not allow me to indulge in sale of narcotic drugs or practice sex work or

smuggling and so on. The police collecting hafta or a politician and bureaucrat taking a cut on a contract or taking a

bribe for doing some work for the public is also illegal. These are called illegal activities. The entire income from these

activities is illegal and hence black income. These incomes cannot be declared while black incomes from legal

activities could be declared if the under and over invoicing is less.

Most people and businesses generating black incomes maintain dual books – one for themselves and another for the

tax authorities. That is why often when the patriarch of a business dies leaving it to the children, they quickly fall apart

because the real fight is over the black profit not the well defined, white profit. This is also the reason that

partnerships often dissolve; there is dispute over the share of the undeclared profits and often suspicion that one or

the other partner is cheating the others.

Having earned the black incomes what does one do with it? Like with the white incomes one consumes a part and the

rest is saved. One may indulge in luxury consumption with black funds like buying expensive watches, jewellery, etc.

or taking expensive vacations and so on. The bulk of the funds are actually saved and invested to earn more returns.

So, most of the black savings are put back into the business to make it grow. For instance, narcotic drug dealers would

invest to expand their business or a businessman would use the funds to expand capacity. They also hold a part of it as

cash but since that does not earn a return, it is a tiny part of the total investment.

In brief, the black economy consists of black income, black savings and black wealth but they are different things and

one needs to distinguish between them. Black savings result in accumulation of the black wealth, which grows over

time. Further, it is held as a portfolio of assets with the cash component only a tiny portion of the total assets. Thus, it

is fallacious to believe that black is all cash.

Demonetization Does Not Curb Black Economy

Black income generation is a process that may or may not depend on cash. So, if I do tuition and do not declare my

income I can continue doing that even if less cash is available in the system. If I am a businessman doing under and over

invoicing I can continue to do so, etc.

It must be remembered that currency is neither coloured black nor white and whatever cash is available is used to

circulate black and white economies. In India, the black and the white economy are interlinked. In real estate or in

business, black and white incomes are simultaneously generated. There are also mechanisms to convert white to

black and vice versa. Thus, as long as currency is available in the white economy it is also available to the black

economy.

DEMONETIZATION Exorcising the “Demon”48

In fact, now even cash may not be required to bribe since one can allot shares or property at lower than market price

to the person one wishes to give a bribe to. One can also pay abroad by transferring money through havala or under

or over invoicing in foreign trade. One can also use gold to do the transactions.

In brief, neither does squeezing out cash result in a stoppage of black income generation in the economy nor is the

black wealth dented significantly. Even if all the black cash is fully annulled by demonetization it would only reduce

black wealth by 1%. However, as argued earlier because the clever fellows converted their black cash into new cash

using various devices, not even 0.1% of the black cash was demobilized by the demonetization.

Black Economy's Adverse Impact on the Economy

Black economy results in policy failure and a setback to the economy. This is a paradox that needs to be understood.

Black economy implies that the production in the economy is more than that stated by official figures. It also provides

employment when black incomes are spent and consumption and production take place. Thus, it cannot be said that

the black economy is entirely unproductive. Yet, that is what happens. Black economy leads to inefficiency and

lowering the production below the potential that the economy could have achieved. Why does this happen?

Black economy leads to frittering away of the scarce resources of the economy. I have characterized a large part of the

black economy as 'digging holes and filling them'. What it means is that during the day one sets a person to dig a hole

and at night sets another person to fill it. Thus, next morning while two incomes are generated, no useful output has

been generated which could lead to greater prosperity. The investment in digging and filling the hole generates no

output and in a sense is wasted rather than building the capacity of the economy to produce more for its citizens

which would improve their welfare.

For example, school teachers who do not teach well so that the students come to them for tuition are wasting their

and the student's time. Worse, students get put off from learning since it appears difficult and/or boring. Later in the

day they have to take tuition which means that the time they could have used for other activities is reduced and their

intellectual growth is stunted. The child often gets permanently put off from education and learning. This lowers the

productivity of the economy and affects it for a long time.

Similarly, if doctors recommend tests that are not required because they get a cut from the laboratory, it adds to the

costs without any benefit and the investment is wasted. A road that is poorly laid out and gets pot holed in rains leads

to breakdown of vehicles and needs constant repairs thus wasting the investment made. These and many such

examples abound and point to the lower productivity in the economy.

In addition to this phenomenon of lower productivity of investments, there is the flight of capital which causes savings

of the economy to leak out and investments are made abroad rather than in India. Thus, the benefit of such

investment accrues abroad and not in India. The black economy leads to greater investments in real estate or in gold

and jewellery and so on. These are unproductive investments that divert investment from real activity.

All these activities lead to a lowering of the growth potential of the economy. Kumar (2005) shows that India has been

on an average losing 5% growth since the mid 1970s when the black economy size crossed 10% of GDP. The

implication is that if the black economy had not existed and the economy had achieved its full potential for growth,

today the economy would be seven times larger and each Indian would on an average be seven times richer. The

current economy of Rs.150 lakh crores would have become and economy of Rs.1,050 lakh crores, roughly the size of

the US economy. Each Indian would have been earning an average of Rs.8.5 lakh instead of Rs.1.2 lakh. India would

have been a middle income country and not one of the poorest 30 countries in the world.

No wonder development is set back and India has one of the worst living conditions in the world – whether it be

educational attainment, health status, sanitation, availability of toilets, clean drinking water and so on.

Black Economy and Shortage of Resources

India does not lack the resources for its development but it appears to be so. Hence we get foreign aid for our

primary education, health, sanitation, drinking water and so on. What resources do we need from abroad for

education? They will not send teachers for teaching or bricks for constructing schools, etc. All these resources are

present in the economy and the technology needed for these things of day to day use are so elementary that we do

not need to import it.

Yet, when we talk of education we have not spent more than 4% of GDP on public education whereas the target has

been 6%. We should spend 3% on public health but we barely spend 1%. These and other public expenditures suffer

from twin problems. First, there are inadequate allocations to these crucial requirements and even what is spent is

wasted in corruption. As Rajiv Gandhi popularized in 1988, when the Centre sends Rs.1 only 15 paisa reaches the

ground. Thus, ̀ Expenditures do not lead to outcomes' as the budget of 2005 stated.

Currently the black economy is estimated to be 62% of GDP. That is, on top of the white economy of Rs.150 lakh

crores there is an extra Rs.93 lakh crores of black income. Thus, the size of the economy is Rs.243 lakh crore. This is

much less than the potential size of the economy of Rs.1,050 lakh crores but significantly above the white economy

size declared by the government.

If the current Rs.93 lakh crores of the black incomes were white and not black then the government would have

collected about 40% of it as additional taxes and would have had Rs.37 lakh crores of taxes. This would have given

enough resources for education, health, power and so on. These points to the twin problem due to the black

economy, namely, shortage of resources for development and the poor utilization of what is spent. Concretely, if we

are today spending Rs.100 on sanitation, we could have spent Rs.250 on it. Today, when the Rs.100 is sent to the field

it is wasted and eaten away so that only Rs.15 reaches the ground. Thus, if the black economy was not there, today

the benefit would be 17 times more than it is. Similar would be the case with other public services. Imagine the

transformation in the country without any foreign aid.

Black economy is concentrated in the hands of 3% of the population. This is not to say that due to petty corruption

some others do not earn small sums of black incomes. But the vast bulk of the Rs.93 lakh crores are in the hands of the

top 3% who would be around 4 crore individuals. As it is these people have high white incomes and on top of that they

another 62% of GDP as black incomes. Those at the bottom do not have any source of earning black incomes. Thus,

the black economy aggravates the inequality in the economy between the top 3% and the rest. If we consider that

about 40% of the individuals in society are around the poverty line then the gap between the top 3% and the bottom

40% becomes huge. It can be said that the real inequality comes from black incomes and not the white incomes.

Further, the top 3% are very wealthy with extra incomes from which they can consume luxury goods and services. It

is like a European country (4 crores) in the midst of a vast poor country of 125 crores. So, there is the scenario of

many people buying luxury products like big TV, fancy cars, etc., when many cannot afford a roof over their head and

two square meals a day.

Poverty is also aggravated by the black economy. It leads to lower employment than the economy can generate

potentially so that many remain under employed with low incomes. Further, black economy aggravates inflation

which lowers the purchasing power of the common man. Finally, due to the black economy, environment is severely

damaged. Air, water, forests and so on are damaged/polluted due to corruption. The poor are forced to live in slums

in unhygienic conditions and work in unsafe conditions due to lack of civic amenities because the resources are

wasted and eaten up by the corrupt and also due to the rapaciousness of the producers who corrupt the officials.

This impacts the health of the poor and they have to bear increased expenditures on health and also lose daily

earnings. For example, children get asthma now while that was not the case in the 1980s. Intestinal disease is

DEMONETIZATION Exorcising the “Demon”49

widespread due to unsafe practices of growing food or living in unhygienic conditions. There is widespread anaemia

and malnourishment. Thus, even when incomes rise, net of health expenses and other essential costs, the net

income slips below the poverty line.

Some Misconceptions about Black Economy

People largely believe that black money is held abroad and needs to be brought back. According to my estimate, only

10 % of the annual generation of black income goes abroad and the rest stays within the country. Out of the sums

going abroad a large part is brought back by businessmen via 'round tripping' and invested in their businesses here. Of

the amount that is kept abroad, a part is consumed in vacations, children's education and so on or invested in

property, business or luxury products. Thus, what remains in liquid form in financial assets is a small part of what goes

abroad. Only this part is available, if at all, to be brought back.

Even this cannot usually be traced by the government. The reason is that people do not put the money in their names.

There are almost 90 tax havens in the world and money is usually routed through them via shell companies. The

process is called 'layering'. So, if the Indian government was to ask the Swiss authorities how much of Arun Kumar's

money is in Swiss banks, the Swiss government will reply saying that Arun Kumar does not have an account here. My

money may have gone there in the name of some shell company called 'Crocodile' registered in Jersey Island. So, it

would be treated as British money. The true beneficiary of these accounts is hard to track since the track is

obliterated.

Hence, it is futile to try to get back the black money lying abroad. Success has been there only when data are stolen

from banks like in the case of LGT Bank of Liechtenstein or HSBC bank in Switzerland or when data is hacked like in

the case of the company Mossack Fonseca of Panama Island. The Indian government has not been pro-active in

getting such data to prosecute Indians whose names have surfaced in these cases. It initially refused to take the LGT

or the HSBC data even when it was offered free. The data was only taken when the Supreme Court asked for it.

Another misconception is that the black economy is largely in the informal sectors. India's economy consists of the

formal and the informal sectors. The former is registered with the government agencies while the latter is not. The

former uses banks and so on for transactions while the latter is usually in the small and cottage sector which works

largely with cash and not formal banking. The informal sector largely generates small incomes which are below the

taxable limit. So, whether the incomes are declared or not, they are not black incomes.

Yes, there could be some incomes in the informal sector also which would be taxable but are not declared. These

would be black incomes. Examples of such cases could be owners of big dhabas, shops, transporters, financiers and

so on. However, most of such establishments would be earning incomes below the taxable limits. Most of the labour

in these units would have incomes below the taxable limits.

The problem is that our income taxation begins at a high multiple of the per capita income. On top of that there are

many concessions and deductions available to tax payers. So, effectively, income taxation begins at 3 to 4 times the

per capita income and legitimately, a vast number of people are outside the income tax net. Effectively only 1.4% of

the population pays income tax.

In brief, while the informal sector generates some black incomes a bulk of its incomes are below the taxable limits

hence not black. Most of the black incomes are generated in the formal sector.

Steps to Curb Black Economy

Demonetization is not the first time or the only step that the government has taken to check the growing black

economy. In the past 70 years, there have been dozens of Committees and Commissions that have gone into various

aspects of the black economy. There was the report by Prof. Kaldor in 1956, Santhanam Committee in 1964,

DEMONETIZATION Exorcising the “Demon”50

Wanchoo Committee Report in 1970, Dagli Committee Report on Subsidies and Controls in 1978 and so on. There

have been Parliamentary Committees as well. They have made thousands of suggestions and hundreds of them have

been implemented. There has been demonetization in 1978, Voluntary Disclosure Scheme six times, Reduction of

tax rates from a high of 97.5% in 1971 to the present 30%, removal of controls, like licensing, MRTP, FERA,

reservation for small scale sector, Phased Manufacturing Programme and Planning are gone and so on. In spite of all

these measures, the black economy has grown from 4% in 1955 to 62% in 2012.

The reason is that the black economy is 'systematic and systemic'. So, illegality is committed systematically. It is not

that a businessman commits under invoicing one day but not the next day or that the doctor states the correct fee

one day but not the next day. For illegality to be committed systematically, the state apparatus has to be involved.

Thus, a triad is formed between the corrupt businessman, the corrupt politician and the corrupt executive. The

executive consists of the bureaucracy, police and the judiciary.

In effect, the matter is political and the black economy can only be tackled if the triad is broken. The political class

needs to be made accountable to the public. The businessman and the board of directors of companies have to be

made accountable to the shareholders. The executive has to be made accountable to the public they are supposed to

serve. Today they act as the masters and not public servants.

In effect, the black economy represents the weakness of Indian democracy where various institutions and those

running them have been corrupted. So, there is need to strengthen the Right to Information, reform elections, bring

about inner party democracy and so on. These long term structural reforms are crucial for short term steps to

function. We have wonderful laws but they are hardly implemented. So, laws on paper are different from how they are

implemented. We have environmental laws, building bye laws, industrial laws, labour protection laws and so on but all

of them are breached. We have regulatory agencies like the CVC, CBI, ED and so on but all of them are ineffective due

to the political interference and the rule of money power. The Supreme Court has gone to the extent of calling the

CBI the caged parrot, implying that it is used as a political tool.

This is also the reason that demonetization does not help control the black economy. It is a technical step that does

not resolve the political problem of breaking the triad. As already pointed out, demonetization is based on the

incorrect premise that people hold large amounts of black cash. Even the public believes that. In the immediate

aftermath of demonetization many TV anchors were gloating that those with large black hoards will now be in

trouble. But how many people can hold large sums of black cash?

Can one lakh people hold an average of Rs.20 crore? No. Because that would be Rs.20 lakh crores which would be

more than Rs.17.5 lakh crores which was the currency in circulation before demonetization was announced. If black

cash is only Rs.3 lakh crore as is likely, the average holding of black cash with people would be about Rs.75,000 per

person – not a huge sum of money. In that case, only a few thousand would have had an average of Rs.20 crore in cash

and the rest would have hardly Rs.50,000 each. The reason why these sums are so small is because black is in

circulation and not hoarded under mattresses, etc.

The politics of the country has got murkier over time with more and more scams being unearthed. Crony capitalism

has always existed but flourished post 1991 as restraint over businesses has declined. Expenditures on elections have

increased manifold due to a variety of reasons and politicians are in the grip of vested interests. They promise one

thing and do the opposite on coming to power. Thus, the public has become cynical and votes for its corrupt thereby

marginalizing the issue of corruption. More and more legislators have criminal records and more and more of them

are crorepatis who hardly represent the interest of the common people. Alienation of the public from politics is

widespread and there is growing cynicism. In such a situation, its attention can easily be diverted from real issues

(which those in power do not solve) to the emotional issues.

DEMONETIZATION Exorcising the “Demon”51

Working of Money and Demonetization 2016

To understand the nature of demonetization carried out by the government and its impact on the people, it is

necessary to understand what money is and what is its role in the economy? After all, it is money that was taken out

of circulation and was in short supply when demonetization was carried out. It is important to understand what the

link of shortage of money is with the crisis in the lives of the common people.

A modern day economy uses money to buy and sell goods and services, pay workers, accumulate wealth and so on.

This leads to people getting incomes with which they carry on their daily life and also when they save out of this

income they build their assets to secure their future. Money is not only cash available in the system which is issued by

the RBI but also bank deposits by people and businesses which can be used to make payments and accumulate

savings.

Money is not consumed by individuals; so its shortage should not have a direct effect on them. What it does is to

enable people to exchange goods and services which is required for production and generation of incomes. It

removes the need for a double coincidence that is essential in a barter economy. For instance, under barter, if I

produce shoes then I need to find someone who needs them and can offer in return something that I need, maybe

food. If I exchange shoes for cloth that is not good enough since I will still have to find someone who needs cloth and

has food spare to give to me. All this can become very circuitous and leads to a waste of an individual's time which

could be better used to produce more of the things that the person can produce. Hence, in a complex economy,

barter leads to inefficiency. Presence of money simplifies exchange (there may be other complications).

Money does not mean cash alone. Those who are better off use cheques, debit and credit cards, electronic money,

etc., to carry on transactions. But currency issued by the Central Bank (RBI, in our case) is the base on which the

other forms of money are created. So, a shortage of currency means that the medium of exchange is in short supply

and it affects production and distribution in the economy.

Money is a liability of the Central Bank. Look at a 100 rupee note, it says ̀ I promise to pay the bearer rupees hundred'

signed RBI Governor. That is why it is the liability of the RBI. Now, the liability implied by the demonetized notes has

been extinguished. Is such a step legal? Suppose I do not want to keep my money in banks and want to hold cash, can

the government force me not to do so? The government is reducing or narrowing my choice. If I had made a choice in

the past can the government force me to change that? In the future, it can say that only these choices are available and

now you choose out of them. Can it say that because some had committed illegality, we will now affect everyone's

choices? Why not catch those who had committed illegality rather than create problem for everyone? Does this

move imply helplessness on the part of government to tackle illegality? This has all round implications for the

legitimacy of the government.

There is an ongoing case in the Supreme Court challenging aspects of demonetization but a decision on this may not

come till the time is well over and then the Court may say that this is now a redundant issue. But what about the many

people who may have forgotten where they had kept some currency; this may be especially true for the elderly or

those who may be sick or infirm?

The law that one cannot hold old currency notes and if anyone is found with such currency they can be sent to jail or

have to pay a heavy fine is also draconian. The logic of this step is that those with large black cash hoards should not be

allowed to divide it into small parcels and deposit it into their accounts. Doing so may help them escape the tax net.

But there are other associated complications – like, proving that the money deposited by people was black cash and

not their legitimate savings.

These kinds of steps may reduce the credibility of banks and currency. If it can happen once it can happen again. If this

DEMONETIZATION Exorcising the “Demon”52

happens, people will hold more of gold and foreign currency rather than savings in the banks or in rupees. The result

of this would be that the country will lose savings and precious foreign exchange and that would weaken the balance

of payment situation in the long run.

In brief, while demonetization would not be able to tackle the black economy, it would affect the institution of money

and banks and over time create a more difficult foreign exchange situation.

Impact on Growth, Output and Employment

While money does not mean cash alone, the unorganised sectors of the economy are small and tiny units of

production which largely use cash. So, a shortage of cash for their transactions adversely affected their production

and incomes. Agriculture is a large component of this sector and there were reports of farmers suffering due to

shortage of cash in rural areas. There are few bank branches there so that exchanging old currency for new notes was

difficult. Further, bank branches did not have adequate supply of new notes so that rural households could not

acquire enough cash. This caused difficulties in payment of wages, purchase of inputs required for the crop, etc.

Reports are that the 'Arthiyas' could not make timely payment to farmers; so initially at least produce did not come

to the wholesale markets. For perishables like vegetables the crisis was deeper and prices crashed so that the farmers

suffered a big loss.

Cottage and small producers also pay wages in cash and buy their inputs in cash. They had a problem in continuing

production due to shortage of cash. Small traders were similarly adversely affected. Some credit was extended for

purchases but this has its limits. Shopkeepers gave some supplies to their known clients on credit for a limited time

since they also had to get supplies from the wholesale dealer. These people do not have the machines for swiping

cards or the smart phones to receive money transfers. Further, the workers in the unorganised sector who have bank

accounts had to spend much time trying to draw cash which meant a loss in wages. In brief, various components of

the unorganised sectors were hit adversely by demonetization.

The organised sector was also hit. While it can use cheques, plastic money and even electronic transfers, it faced a

demand shortage. People, even the well-off, facing a shortage of cash had postponed their discretionary demand.

The unorganised sectors also buy the product of the organised sectors; so that their loss of incomes also adversely

impacted the demand for the organised sectors.

As it is, major industries in India were working at about 75 per cent capacity utilization before demonetization was

announced. With decline in demand and reports of inventories building up, production was curtailed and capacity

utilisation would have dropped further. Workers were laid off and many were reported to have gone back to their

villages due to lack of work in urban areas. This aggravated the crisis in rural areas. Many rural families depend on cash

from their kin working in urban areas. Not only did these remittances decline, the returning workers added to the

family burden.

Profitability of many industries was hit, like transport, automobile, cycle, hotels, tourism, consumer durables, FMCG

and a variety of other services. Banking, which was already suffering due to the pile up of NPAs, will find recovery of

loans more difficult and that would only increase the NPAs. Demand for credit was already weak before November

2016 and this declined further. These effects turn the problem from a short run one to a more long term one which

goes beyond the immediate shortage of cash.

Investments have been hit adversely due to lower capacity utilisation and build-up of the NPAs. Banks also were too

busy dealing with circulation of cash and tackling cash shortage rather than making the effort to lend the money. They

have had little time to do the routine job of lending. Once investment is hit and it was already on the decline, the

DEMONETIZATION Exorcising the “Demon”53

effect becomes even more long lasting. No one is yet using the term recession but there is a distinct possibility that

this could happen if the above mentioned effects take hold in the coming months. Then economic recovery could

take a few years. Lakhs of crores of production would be set back.

Measuring Quarterly Rate of Growth of the Economy

The latest official data on GDP growth has shown that the economy grew at 7% in the quarter ending December

2016. It belies the argument that the economy was hit hard by demonetization. However, admitting lower growth

would have adversely impacted the stock markets, the international sentiment about India and business

environment. The data just released shows that investment has taken a hit of about 3% and this would have been

further impacted by adverse news making post demonetization recovery even more difficult.

Predicting GDP growth on a quarterly basis is no mean task. There are so many sectors and sub-sectors that make up

the economy and data has to be generated on all of them to give the overall figure of growth. Each sub-sector has its

own method for collection of data and calculating the growth rate. The methodology is time tested and, therefore,

not questioned by analysts. Further, the actual data comes with a time lag so that only estimates can be made and

these are periodically revised.

The moot point is whether the same methodology that applies in normal times is appropriate when there is a big

shock to the economy as was the case with demonetization. Surveys by manufacturers and business associations and

others indicate that over the period, employment, production and investment have been hit hard in many sectors –

construction, consumer goods and so on.

Crucially, with lack of data, 'benchmark-indicators' are used along with extrapolation of 'the value of output/value

added estimates of the previous year'. But when the economy is severely affected, can the benchmark indicators be

the same as earlier and further, how can the projection from the previous year be valid? What to talk of the previous

year, can even projection from before November 2016 be valid in post November 2016?

The key indicator used to calculate the activity in the unorganized manufacturing sector is the ratio with the

organized sector for which at least some data are available. Similar methodology is adopted in other sub-sectors of

the economy. Hence in the post demonetization regime when the growth of organized and the unorganized sectors

dramatically diverged, this kind of ratio is no more useful to calculate the contribution of the unorganized sector to

the GDP. In fact, it leads to an over estimation of the contribution of this sector. A sub-sector that was clearly

declining is taken to be growing at the same rate as the organized sector.

So, it may be asked, should the government put out figures which they feel cannot be calculated at present and,

therefore, are premature? The point is the economy (and the budget) is not governed by the official data but by what

is happening on the ground.

Moving Towards a 'Less Cash' Economy

The government, to divert attention from the ill-effects of demonetization, is arguing that its real goal was the

creation of a 'cashless society'. It feels that this will eliminate corruption. Unfortunately, two different things are being

mixed up.

While many businesses and the well-off and the middle classes may use cheques or plastic cards or electronic

transfers, the unorganised, small and cottage sectors, the poor and unbanked and illiterate people are not so

fortunate. They use cash for their transactions. A cash shortage hits them the most. For the more fortunate also, it is

a matter of habit whether they use cash or plastic money. No wonder, as more and more new currency is coming in

people are withdrawing more and more of currency. ATMs still run dry. These are not just the poor but also the

middle classes.

DEMONETIZATION Exorcising the “Demon”54

In the US where plastic money has been in wide use for many decades, use of cash continues. It is a question of habits.

Further, in spite of widespread use of plastic cards and electronic money in the US, the black economy flourishes. So,

a link between cash and 'black money' is weak. Given this situation in the US and the weak infrastructure (electricity,

connectivity, etc.), India cannot soon become cashless. But it may move towards a 'less cash' economy. Even that

would require more financial literacy, proper regulation and above all better cyber security. Hacking of information

has been widespread and this would increase if precaution is not taken in advance.

If money is in short supply and/or loses credibility, gold may be used or payment made abroad or in foreign exchange,

etc. Thus, the demand for gold and foreign exchange will rise in India. Under the gold monetisation scheme, the

government has issued gold coins that can be easily used. So, a 'less cash' economy does not imply that black income

generation will stop. Only the circulation of black incomes will take place differently.

Yes, the nation should move towards a 'less cash' economy so as to reap the benefits of efficiency but that should not

be confused with checking the growth of the black economy. That requires a wholly different approach. As stated

earlier, black economy does not mean cash. Further, new currency is being issued; so it is not as if cash will not be

available for circulation of the black economy. Even larger denomination currency (Rs.2000) than earlier is being

issued. If less cash is issued than existed earlier, it may cause problems for the white economy and especially the

unorganised sectors but the black economy, which is concentrated in the hands of the well-off, would not be dented.

In government departments, payments are made via cheques but bribes are extracted in a variety of ways. In private

institutions, salary maybe paid via cheque but only after cash is paid to the management. Post-demonetization, many

ways of converting the stashed black money in old currency into new currency were devised. The argument that

cashless transactions will mean that the poor will receive their correct salary will not hold since they can be coerced

in various ways to give back in cash. For instance, manipulation of the muster rolls is well known. Jan Dhan accounts

were widely used. If the unscrupulous deposit Rs 10,000 per account in 20 crore accounts, Rs.2 lakh crores would be

converted into new currency. And, black income circulation would continue as earlier.

Currency is neither coloured black nor white. So, whatever cash is available in the economy can be used to circulate

both the black and the white economies. The two economies are not parallel—where the twain does not meet—so

it is not that if the money is used in one component it cannot be used in the other. Thus, the idea of demonetization

and 'less cash' economy have little to do with the curbing of the black economy. The banking channels, share markets,

informal money markets, hawala, flight of capital and so on will continue to be available to circulate the black

economy. In fact, some of these ways of circulating the black incomes will become more active, leading to loss of

savings to the economy.

In brief, going less cash has little to do with demonetization. It requires considerable preparation just like

demonetization required. These two steps should not be confused with each other.

Taxes and Possibility of a Windfall Gain

Would the government get a windfall gain as a result of some of the Rs.15.44 lakh crores of notes not coming back

into the system? This could be used to argue that the black economy has been tamed. It may also enable the

government to increase pro-poor spending—a Robin Hood syndrome could politically help the government.

When cash is deposited in the bank by an individual it goes into that person's account as saving. The bank is obliged to

return that to the RBI so that the old notes may be destroyed. The banks' deposits will increase above what they are

required to keep with the RBI (called, CRR). The currency issued by the RBI was its liability; so, as soon as the

demonetization was announced, its liability decreased by the amount of demonetization. But its assets did not fall. So,

in its balance-sheet there was a huge surplus. Can this be used by the government for the pro-poor schemes?

DEMONETIZATION Exorcising the “Demon”55

However, the RBI is obliged to give new currency in lieu of the old extinguished currency. People are going to banks to

withdraw what they have deposited in their accounts so that they can carry on their transactions. The banks are

obliged to give people the money they ask from their accounts and they will have to get it from the RBI. But the

demand for cash will be higher than earlier since people may hoard currency and not circulate it. So, even if some of

the old money does not come back into the banking system, the RBI may have to issue more cash than earlier to

maintain the credibility of the system; otherwise the cash shortage will continue with all its adverse effects.

If the black economy could be checked, then it was possible that more tax collection would have taken place and this

would have helped the government to curtail its deficit and spend more on the schemes meant for the poor.

In fact, the problem will be that with a recessionary situation developing, tax collections would be less than what they

could be and that could lead to an enhancement of the deficit and a cut back in the expenditures on essential social

sectors and schemes meant for the poor.

Conclusion

It is a mistake to think that black means cash. So, squeezing out cash via demonetization, even if temporarily, will not

lead to a decline of the black economy. Cash is not coloured black or white so it is available to circulate both black and

white incomes. Even if cash is not available it can be replaced by gold, foreign exchange and so on.

The demonetization carried out was unplanned and corrections had to be carried out on a daily basis as more and

more problems were discovered. While the government gave it the spin that this was a responsive government the

fact is that the citizens had to bear enormous hardship due to the lack of planning. Those who never generated black

incomes had to face hardship of long queues, loss of jobs and so on while those who generate black incomes got away

scot free by converting.

It is no doubt true that black economy is the single biggest problem facing the nation because it has economic,

political and social aspects. It leads to policy failure and poor living conditions for the poor. It aggravates poverty,

inflation, inequality and so on.

It needs to be appreciated that demonetization is not the first step against the black economy in the last 70 years.

Even the current NDA government has taken several steps in the last three years of its rule but without an impact on

the black economy. A large number of steps have been taken during the period but they do not tackle the root cause

of the problem and that is why the black economy continued to grow. It must be understood that black income

generation is a process that needs to be tackled and it is not a stock that can be taken care of once for all by waving

some magic wand.

Creation of a cashless society is a distant dream and even a less cash society is far away and would require enormous

preparation. It would require financial literacy, cyber security, better infrastructure and so on. Above all, there is no

link between demonetization and a less cash economy. One can be done without the other.

Demonetization by impacting the economy and especially its unorganized component has led to a rapid slowdown

which is not visible in the data since the data are only available for a part of the organized sector. The problem has got

converted from note shortage to one of recessionary conditions deepening. To emerge from this would take several

years.

Demonetization has failed in economic terms but it has succeeded politically. Mr Modi was constantly being taunted

that he had promised to bring back black money held abroad and give Rs.15 lakh per family. This was his big step to

counter that. It was also a step to counter the accusation of an anti-poor and 'suit boot ki sarkar'. It was the big Indira

Gandhi 'Garibi hatao' moment for Mr. Modi. He was creating a Robin Hood image for himself. People believed the PM

DEMONETIZATION Exorcising the “Demon”56

when he said that this will get black money out because of the mistaken notion that black means cash. Thus, the step

should be seen as more of a political one than an economic step. No political party has mobilized the people

effectively against this misstep because they have been a part of the black economy and feel threatened by the

government.

The truth is that the black economy is a political issue and has to be tackled politically. There is no magic wand that

can be waived to solve the problem. A strong accountable system of politics and economics is needed to tackle

India's key problems which are linked to the black economy.

Two key articles that have been used in this paper are:

1. http://www.mainstreamweekly.net/article6926.html

2. http://indianexpress.com/article/opinion/columns/unusual-times-usual-ways-demonetization-gdp-growth-

economy-employment-4560881/

DEMONETIZATION Exorcising the “Demon”57

Peoples' Opinion on Demonetizationby Gauhar Raza - Chief Scientist (Retd.) CSIR

ON the 8th of November 2016, Prime Minister Narendra Modi delivered the most disruptive address to the nation,

creating panic among all sections of masses. It is repeatedly observed by scholars across the globe that any

information that has a direct impact on peoples' lives is received and absorbed with urgency. The disruption that

demonetization caused in citizens' life was unprecedented and had a direct impact on the daily life of citizens.

The unexpectedness accentuated the propagation and spread of news. As the Prime Mister's recorded speech was

telecast on various channels and as the drama unfolded, people rushed in panic to hear and watch what was being

said. The news went viral on social media further amplifying the panic. Since the address to the nation telecast at 8 pm

clearly said that the Rs. 500 and Rs. 1000 notes would stand demonetised after 12 O clock midnight, initially people

thought they were given just less than four hours, either to spend or exchange these notes. Petrol pumps were

exempted and therefore within minutes, pumps were thronged and witnessed long queues. The middle class rushed

to shops for panic purchase. ATMs stopped functioning even before the 12 O clock deadline. The next day onward

bank branches saw never shortening lines of those who wanted to exchange the currency or draw money in valid

notes. Soon the long queues became centres of debate, which further unsettled the political master of the project.

The nation for the next one-month or so did not discuss anything else but demonetization. Television, radio, social

media and interpersonal channels repeatedly commented on the prevalent or likely impact of demonetization. Over

the month the nature and focus of the discourse changed many times. The confusion and panic that the Government

showed in dealing with the aftermath of the Prime Minister's decision amplified the confusion, pain and anger among

the people.

Demonetization had impacted every citizen of the country and, therefore, after emergency imposed by Indira

Gandhi in the nineteen seventies; it was the most important national event, an event that evoked all shades of

individual and collective feelings. The disruption in common citizen's life, brought out best and the worst of human

behaviour, it was a war-like situation. People went through varied experiences, cooperation and conflict, hope and

despair, trust and mistrust. At many places across the country violent clashes took place and police had to be called

for restoring order. ATMs were attacked; employees of bank branches were beaten up. Media reports that new

currency, instead of being distributed to those who were standing in lines, was being siphoned off to the rich secretly,

angered the people. Concerted efforts were made to divert the anger towards bank employees instead of the

political masters.

In order to study how this wild dance of demonetization affected people, the team at Anhad decided to carry out a

survey of perceptions, attitudes, opinions and experiences. Since there were no funds to support an all-India level

study, fraternal organisations were approached to participate and gather data in areas wherever they were working.

Thirty-two organisations enthusiastically participated in the project. The draft questionnaire for conducting

interviews was prepared. Individual questions and statements were selected from the debate that followed

declaration of demonetization. A meeting of civil society leaders in Delhi was organised to discuss and finalise the

questionnaire. The modified questionnaire was also circulated among a few civil society activists, working in other

3

DEMONETIZATION Exorcising the “Demon”59

parts of the country, for comments. Subsequently, after taking into account the suggestions, it was printed in Hindi.

The questionnaire was also translated into English. Schedules printed in Hindi language were sent to organisations

working in northern part of India. The English version of interview schedules was sent to non-Hindi speaking areas

and was translated into regional languages at the local level. These questionnaires were administered by interviewers

in areas where these activists generally work – and therefore, they are trusted by the respondents.

There is no sampling done for the purpose of selecting the respondents, the strategy chosen largely relied on 'snow-

ball' sampling. The survey started in the first week of January 2017 and it took about a month and a half to collect data

through interviews and receive the filled-in questionnaires in Delhi. The data inputting was carried out as and when

the filled-in questionnaires were received, therefore by mid-February 2017 the database was ready for analysis.

Demographic Details

The questionnaire contained 18 socio-economic and demographic variables, such as age, gender, religion, caste,

occupation, access to media channels, etc. The total number of questions was 96. These included open-ended

questions and also statements that were closed-ended. Volunteers working in specific localities conducted the face-

to-face interviews. Filled-in questionnaire were analysed in Delhi. The data was cleaned and coded and database was

constructed to carry out statistical analysis. The total number of valid questionnaires used for the analysis was 3647.

P1a : State-wise distribution of respondents

States Percent

Andhra Pradesh 2.4

Bihar 7.0

Chhattisgarh 0.5

Gujarat 1.5

Haryana 6.3

Himachal Pradesh 0.4

Jharkhand 3.3

Karnataka 0.7

Kerala 1.5

Madhya Pradesh 0.9

Maharashtra 21.0

Nagaland 0.3

Delhi 33.6

Odisha 2.1

Punjab 1.1

Rajasthan 2.6

Tamil Nadu 0.1

Telangana 5.7

Uttar Pradesh 4.5

Uttrakhand 0.1

West Bengal 5.2

Total 100.0

Region-wise distribution of respondents N = 3647

Regions Percent

Southern Region 10.4

Central Region 1.3

Delhi 33.6

Western Region 24.6

Northern Region 12.3

Eastern Region 17.8

Total 100.0

The questionnaire was divided into two sections. The first section comprised of socio-economic and demographic

variables and the second section included questions that probed the impact of demonetization. In the following

paragraphs we have discussed the socio-economic and demographic variables that define the nature of respondents

who have been interviewed.

The data on demonetization was collected from 21 states and union territories of the country. These include Delhi,

Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Gujarat, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Madhya

Pradesh, Maharashtra, Nagaland, Odisha, Punjab, Rajasthan, Telangana, Tamil Nadu, Uttar Pradesh, Uttrakhand,

West Bengal, etc.

The highest percentage of respondents (about 33 percent) belonged to various colonies of Delhi, which included

Rohini, Sultanpuri and Mangolpuri, in the North-west, Okhla, Badarpur, Shaheen Bagh, Jaitpur from South Delhi,

Seelampur and Shahdra from East Delhi, Old Delhi Central and West Delhi.

About 21 percent respondents belonged to Maharashtra, which included Jalgaon, Sonari, Fakrabad, Nasik, Nagpur

and Akola Districts. About 7 percent respondents belonged to Patna, Nevada, Sasaram and Araria districts of Bihar,

another 6.3 percent were from Faridabad, Hodal, Palwal, Mewat. Kurukshetra regions of Haryana state and NOIDA.

Ghaziabad, Jhansi, Badaun, Sultanpur, Azamgarh, Faizabad, Jaunpur and Allahabad districts of Uttar Pradesh

constituted 4.5 percent. Other respondents are from Mehboobnagar and Hyderabad in Telangana (5.7 percent),

Tonk and Jaipur in Rajasthan (2.2 percent), Bhubaneshwar, Cuttack and Jatna in Odisha (2.0 percent). Few

respondents were from Karera in Madhya Pradesh, Kozhikode in Kerala, Mysore and Yadagir in Karnataka, Solan and

Una in Himachal Pradesh and Kanker in Chhattisgarh.

Age

P2 : Age-wise distribution of respondents

Age Groups Percent

Upto 15 yrs 3.0

16-25 yrs 45.8

26-35 yrs 23.1

36-45 yrs 17.0

46-55 yrs 6.7

Above 55 yrs 4.4

Total 3.0

N = 3647

DEMONETIZATION Exorcising the “Demon”60

The average age of the respondents was 29.1 years. Age-wise distribution of the respondents shows that about 3

percent were up to the age of 15 years. More than 45 percent belonged to the age group from 16 to 25 years, about

23 percent were in the age group of 26-35 years, about 17 percent in the age group 36 to 45 years and rest of the

respondents were above 45 years of age (about 11 percent). It is evident that the sampled population was

predominantly between 16 to 35 years, which is the most productive age.

Gender

P3 : Gender-wise distribution of respondents

Percent

Male 61.7

Female 38.3

Total 100.0

The surveyed population was skewed towards male respondents as about 62 percent respondents were male and

about 38 percent female.

Education

P4: Education-wise distribution of respondents

Education level Percent

No formal education 3.8

Pre-primary 2.1

Primary 4.9

Middle 9.4

Secondary 17.1

Sr Secondary 29.6

Graduate 21.8

Post-graduate 6.1

Others 5.3

Total 100.0

The education was also recorded for each respondent and it was then converted into number of years of formal

education. Education-wise distribution revealed that only 3.8 percent responded had not received any formal

education and about 7 percent reported that they left formal education system after 5th standard (1-5 years of

formal education). Put together about 9 percent were 6th, 7th and 8th standard pass, about 17 percent reported that

they had received formal education up till 9th or 10th standard which is generally designated as secondary education.

Those who reported that they have passed 12th standard of formal education scored the highest i.e., about 30

percent. The data analysis showed that about 22 percent of all the respondents had attended college for their

bachelor's degree level (13-15 standard) and about 6 percent had attended post-graduation level education.

Occupation

P5 : Occupation-wise distribution of respondents

Occupation Percent

No response 6.6

Govt service 3.4

DEMONETIZATION Exorcising the “Demon”61

Private service 18.5

Business 1.2

Petty traders 3.0

Skilled worker 1.5

Labour 10.3

Agriculture 4.4

Student 24.7

Household work 4.9

Self-employed .6

Professional .4

Driver .7

Rickshaw-puller .4

Unemployed 13.7

Others 5.8

Total 100.0

When asked to report their formal education level about 25 percent of all the respondents said that they are studying

and hence were categorised as students. Those who reported that they were unemployed were 13.7 percent. About

18 percent responded said that they are employed in private sector although it is difficult to assess their job profile.

About 10 percent said they are working as 'labour' and 4.9 percent reported household work as their profession. A

small 3.4 percent said that they are in government jobs and 4.4 percent were involved in agriculture. Though almost

all job categories like Business and petty-traders, self-employed, professionals, drivers, rickshaw-puller were

represented in the sampled population, the percentages of these categories were quite low.

Religion

Religion Percent

Hindu 65.0

Muslim 27.0

Sikh 1.8

Christian 3.0

Others 3.0

Total 100.0

All the four major religions professed by citizens in the country were represented in the sampled population. The

percentage of those who reported 'Hindu' was 65.0 and 'Muslims' were about 27.0 percent. Put together the two

constituted about 92 percent. There were about 3 percent of Christians and about 2 percent were Sikh. There were

respondents who said that they do not follow any of the religions or humanity is their religion. The total percentage

of such respondents was 3 percent.

P7 : Caste-wise distribution of respondents

Caste Percent

General 36.7

SC/ST 28.9

DEMONETIZATION Exorcising the “Demon”62

OBC 30.7

Others 2.9

Total 100.0

Caste-wise distribution showed that about 37 percent belonged to general category; about 29 percent were SC/ST

an equal number i.e. 30.7 percent said that they belonged to OBC. Curiously, 3.0 percent respondents identify

themselves by no caste.

P9 : Access to information sources

Access TV Radio Newspaper Internet Books/Magazine

No access 20.1 71.0 51.1 67.0 82.9

Access 79.9 29.0 48.9 33.0 17.1

As high as 79.9 percent of the total respondents said they have access to television, 29 percent listen to Radio, about

50 percent read newspapers, 17 percent books/magazine and 33 percent had access to Internet as source of

information.

P10 : Availability of Facilities at home

Electricity Water Toilet Car M/cycle Fridge Mobile Cycle

Not available 12.4 32.7 25.8 82.7 59.4 50.9 22.4 56.9

Available 87.6 67.3 74.2 17.3 40.6 49.1 77.6 43.1

The table above shows the percentages of facilities available at home of the respondents. Electricity is available to

87.6 percent while water connection is available to 67.3 percent respondents. 17.3 percent responded that they had

car at their places whereas 74.2 percent have toilet at home. As high as 77.6 percent were mobile phone owners and

49.1 percent have refrigerator in their homes, 40.6 percent were motorcycle owners and 43.1 percent owned a

bicycle.

P11 : Family size-wise distribution of respondents

Number of Family Members Percent

1 4.8

2 4.0

3 6.8

4 18.9

5 21.4

6 16.4

7 8.3

8 16.2

9 .8

10 2.4

Total 100.0

The average family size of the sampled population was 5.3 members per family. About 21 percent respondents

reported that there are 5 members in their family. Those who reported a four-member family size were 19 percent

and about 16 percent respondents said that they have 8 members in their family. 8.3 percent responded that they

DEMONETIZATION Exorcising the “Demon”63

have seven-member family. The percentage of those who reported 3 members as their family size were 6.8 percent.

Two members nuclear families scored about 4 percent and 4.8 percent said that they lived alone. There was very

small percentage of the respondents (3 percent) who reported more than eight members in their families.

P12 : Are you an earning member?

Status Percent

0 0.4

Earning Member 58.6

Nonearning member 40.9

Total 100.0

When the respondents were asked 'do you work for livelihood', among the total sampled population 58.6 percent

said yes and about 40.9 percent said that they do not earn any money.

P13 : Are you the only earning member

Status Percent

0 0.3

Yes 41.5

No 58.2

Total 100.0

In response to the next question, out of those who had responded that they earn money, about 41.5 percent said

they are the only earning member in the family while about 58.2 percent said they are not the only earning member in

the family. It is evident that after demonetization the responsibility of arranging for the cash would have fallen on the

shoulders of only one person in about 41 percent families, irrespective of its size. It should be noted that after

demonetization there was a cap on the amount of cash you could withdraw or deposit, from or in an account.

P14 : Do you have a bank account?

Satus Percent

0 0.2

Yes 77.8

No 22.0

Total 100.0

Ability to arrange amount of cash depended on the number of accounts a person had or number of persons who had

bank accounts and therefore we had asked every respondent to tell us if they had a bank account or not. As high as

77.8 percent of the respondents reported that they have a bank account in their names and the rest 22.0 percent said

that they do not have any bank account. It is not clear, however, that among these 78 percent how many had Jan Dhan

accounts and how many had other ordinary accounts in the banks. Of all 47.1 percent of the sampled population also

said that they have either debit or credit card with them. However, only about 53 percent knew how to use a

debit/credit card and 47 percent said that they don't know how to operate such cards. Interestingly, of all the

respondents, 48 percent reported that they have used a debit/credit card at some point of time. It the data analysis

also revealed that 63 percent responded that they had heard about Paytm.

DEMONETIZATION Exorcising the “Demon”64

Sources of information on demonetization

Q1 : On 8 November, Government announced demonetization, how did you come to know?

Source of Information Percent

No response 0.2

TV 63.4

Radio 6.7

Neighbour/Relative 18.9

Newspaper 10.8

Total 100.0

The first question that we posed to all the respondents was how they got the information about demonetization.

The analysis revealed that about 63 percent of the respondents watched the news on TV. Considering reach of TV as

a channel of communication and gravity of the news, it was not unexpected that people were glued to their sets while

the Prime Minister announced demonetization of currency first in Hindi and subsequently in English language.

In response to this question 19 per cent said that their neighbours or friends informed them about the

demonetization of currency. It is evident that by the time Prime Minister finished his speech the interpersonal

channels were already active and people had started passing on information to each other in panic. About 7 percent

received it through radio channels and one in ten (about 11%) of those who were interviewed reported that they

read the news in newspapers, which also means that they remained uninformed till the next day morning.

Region-wise distribution of percentages showed that the about seven among ten respondents in Delhi (70.8%) and

Western Region (68.8%) received the news through television. In the Central (35.4%), Southern (26.2) and Northern

(24.7%) Regions, very large numbers of respondent reported that they received the news of demonetization through

their neighbours. Of all the respondents who live in Northern region, 27.3 percent reported that they read the news

in newspapers. Similarly, among those who live in the central region 23 percent reported newspaper as their first

source of information.

Age-wise distribution of percentages did not show significant variation in the sources of information.

Education-wise distribution on of percentages revealed that, though most respondents received information

through TV, the number of those who reported that they received information through television increased as the

education level went up. The percentage of those who ticked radio or neighbours as their source of information

reduced substantially. Reportedly, newspaper as a source of information has a positive correlation with the level of

education. About 4 percent more men (12.4%) reported newspaper as their source of information compared to

women (8.3%).

The percentage distribution of responses based on the reported occupation showed interesting results. The

percentage of those who reported TV as their source of information was quite low among drivers (41%), petty

traders (46.8%), labourers (48.9%), businessmen (50%) and agricultural labour (50%). Among the agricultural

labourers about 26 percent said that they received information through the newspapers. All other categories which

scored low on TV, petty traders (30.6%), labour (28.9%), drivers (25%), and businessmen (22.8%) reported

neighbours as their source of information. Among the drivers (29.2%), agricultural labour (25.9%) and rickshaw

pullers (23.1%) a substantial percentage reported that they received information when they read the newspapers

next day. A relatively considerable percentage of Government Servants and Businessmen heard the news on radio.

Religion-wise distribution showed that 67.3 percent Hindus saw the news on TV, followed by 65.2 percent Sikhs. A

DEMONETIZATION Exorcising the “Demon”65

substantially low percentage of Christians (57.4%) and Muslims (55. 1%) reported that they saw it on television.

However, a substantially high percentage of the two minority community members came to know about the

demonetization through neighbours and newspapers. These percentages for Muslims were 26.5 percent

(neighbours) and 12.9 percent (newspapers) and for the Christian community these were 20.4 percent (neighbours)

and 12 percent (newspapers). About 15 percent of Hindus and Sikhs heard about demonetization from their

neighbours.

Caste-wise distribution also showed interesting results. Though, based on the analysis, it can be concluded that for all

categories of caste TV and neighbours were the main source of information, relatively lower percentages of those

who belonged to SC/ST (62.2%) and OBC (59.4%) category reported that they received information through

television. Compared to General category (6.7%) respondents relatively high percentage of SC/ST (12.3%) and OBC

(14.8%) said that they read it in the newspapers.

Comparatively, a substantially larger population of those who had a bank account (65.5%) reported that they had

seen the news on television compared to those who did not have the bank account (56.4%). Those who reported

that they do not have a bank account and did not see TV reported that they primarily got information through radio

and other channels of information.

Time lapse of Demonetization news spread

P7: On which date you came to know about demonetization?

Percent

No response 0.3

on 8th 60.3

9th morning 29.8

One week 7.3

After one week 2.4

Total 100.0

The next question in the schedule was, when you heard the news. The responses were to be recorded in number of

days. The reason for including this question is that we wanted to know how fast the news spread. The data analysis

shows that 60 percent of the respondents came to know about demonetization of Rs 500 and Rs.1000 on the same

day. The Prime Minister started what some scholars have termed as 'carpet bombing' around 8 O clock and the

address continued for about 1 hour in Hindi and English and the demonetization came into effect by 12 O clock

midnight. This means that more than 60 percent of citizens came to know about it in less than four hours, the news

spread like wild fire. By the second day more than 91 percent knew of what had happened and by third day, reportedly

97.8 percent were aware of demonetization of currency.

Region-wise distribution showed that those who reported that they came to know about the news, scored highest

among the Delhi sampled population (71.5%), Western Region Southern Region and Eastern Region closely followed

each other with about 58% who came to know about the demonetization on the 8th of November. On this count,

Northern (29.2%) and Central Region (40.9%) scored substantially low as compared to other regions. It is also

evident from the analysis of the data that barring Central Region where cumulatively 73% reported that they received

the information on 8th or 9th November, more than 80 percent of the population was aware of the news by the next

day, the news had gone viral. A substantial percentage of respondents from only Southern (12.2%), Central (18.8%)

and Eastern (12.7%) Regions reported that they came to know about demonetization of currency after one week.

However, a small percentage reported that they did not know about demonetization even after one week. Age did

DEMONETIZATION Exorcising the “Demon”66

not have any significant correlation with the respondent receiving the information. Percentages were almost evenly

distributed across all age groups.

It was interesting to note that the percentage of those who reported that they heard the news on the 8th rose

substantially from 49.7 percent at primary level to 71 percent at postgraduate level. Gender-wise distribution

showed that a higher percentage of women (62.5%) respondents had heard the news on the first day, that is, on 8th

November, compared to men (58.9%).

It is evident that most of the respondents who watched the news on television came to know of it on the 8th of

November. Therefore, a relatively lower percentage of Muslims (58.6%) and Christians (57.4%) reported that they

heard the news on the first day when compared to Hindu (67.3%) and Sikh (65.2%) population. A significant segment

of members of the two minority groups remained ignorant about the event even after one week; these percentages

were about 20 percent for Christians and 10 percent for Muslims.

Profession-wise distribution showed that Drivers were the least informed on 8th November, only 20.8 percent

reported that they heard it on the same day however by next day another 70.8 percent came to know about the

currency demonetization. Relatively, a substantial population of Rickshaw Pullers (38.5%), Agricultural Labour (42%)

and labourer (48.9%) also did not receive the information on the first day. Among those who reported in large

percentages that they received information on the first day were Self Employed (90.5%), Professional Workers

(73.3%), Businessmen (68.2%), Private Service (64.9%), Students (63.7%), Unemployed (63.7%), and Household

Workers (61.8%). A substantial segment of Rickshaw Pullers (23.1%), Skilled workers (17%), Petty Traders (10.8%),

Household Workers (9%), those who were in Private Service (8.6%), Labour (8.3%) and students (7.7%), did not

know about the demonetization even after one week.

Those respondents who operated a bank account (61.6%) reflected a larger percentage as compared to those who

did not have one (56.6%), about 12 percent of those who did not have a bank account remained ignorant about

demonetization for more than a week.

Personal Reactions to the News on Demonetization

Q2. When did you hear about demonetization, what was your first reaction?

Response Percent

No response 0.2

Common news 15.5

Good 32.2

Bad 22.3

Shocking 29.8

Total 100.0

In order to probe how this news was received by common citizens the next question included in the schedule was

'what was your first reaction just after the demonetization was announced'. In response to this question 22.3 percent

said that it was 'bad news' and 29.8 considered it as 'shocking'. The panic and shock wave is evident from the response

of 52.1 percent of those who were interviewed. Put together a majority of the population either considered it to be a

'bad' or'shocking' news. Only 15.5 percent took it as 'ordinary news'. However, one in three of those who responded

to the question (i.e. 32.2 percent) received it as 'good news'.

DEMONETIZATION Exorcising the “Demon”67

Black Money

Q3. Will demonetization eradicate black money forever?

Response Percent

0 .4

Correct 26.6

Incorrect 55.4

Don't know 17.5

Total 100.0

When asked if they agree with the statement that 'demonetization has wiped out all the black money for ever' 55

percent of the respondents disagreed with the statement. The percentage of those who agreed with it was only 26.6

percent and more than 17 percent did not answer the question. It is evident that the overwhelming percentage of the

respondents did not believe that the first stated objective of demonetization had been achieved by the

demonetization move.

Cross tabulation with the geographical location of the respondents in six regions showed that 69.6 percent of the

respondents who live in eastern parts of India rejected the idea that demonetization had helped in wiping out the

black money. This high percentage was closely followed by Central Region (66.7%), and Southern Region (60.1%).

Among all the regions, respondents from Western Region (33.2%), and Delhi (29.6%), scored highest percentage of

those who thought that demonetization would remove black money from Indian economy. Among the respondents

from Eastern states about 24 percent remained noncommittal on the issue, which was the highest percentage of

those who said 'Don't Know'.

Age-wise distribution showed a strong correlation with the perception. Though the percentages of those who

agreed with the statement remained below 35.2 percent, younger respondents agreed with the statement, as the age

of the respondent increased the percentages dropped consistently. At the age 46 to 55 years these were as low as

15.5 percent. Conversely, those who thought that the demonetization would not affect black money rose from 46.3

percent among the age group up to 15 years to about 60 percent among the above 55 years. Those who said 'Don't

know' were evenly distributed among all the age groups except among the 46-55 years band, where the percentage

was 25.3.

Education-wise distribution of those who agreed with the statement showed a bell shaped curve with its peak

around Sr Secondary level (30.3%). Similarly, there was a weak correlation with education variable and the

disagreement with the statement. About equal number of men (26.4%) and women (27.0%) thought that

demonetization will eradicate black money. However, a marginally higher percentage of men (56.7%) rejected the

proposition when compared to women (53.4%) respondents.

It is interesting to note that Drivers (83.3%) and Rickshaw Pullers (69.2%) rejected the preposition that

demonetization will wipe out black money in large numbers. The profession-wise distribution also showed that Petty

Traders (62.2%), Private Service (61.9%), Skilled Workers (60.4%), Agricultural Labour (63%), House Hold Workers

(61.2%) and Self Employed (61.9%) were not influenced by the campaign that demonetization will eradicate the black

money. It was the Government Servants (36.8%), those in Business (34.2%), Professionals (33.3%), and Unemployed

(31.7%) who scored low in ticking the option 'incorrect' when posed the statement that 'demonetization has

eradicated the black money', the percentage of those who ticked 'true' was relatively high among them.

Religion-wise distribution quite clearly showed that almost 50 percent among all four categories refused to accept

the claim. Of all, 49.6 percent Hindus, 70.1 percent Muslims, 50 percent Sikhs and 63 percent Christians said that

DEMONETIZATION Exorcising the “Demon”68

they do not believe that demonetization will eradicate the menace of black money. Similarly, caste-wise distribution

also showed that 56.1 percent of 'General', 49 percent SC/ST and 60 percent of OBC ticked the option 'Incorrect'.

Size of the family also showed positive correlation with the belief that demonetization would not remove black

money from Indian economy.

Demonetization to end terrorism

Q4. Government claims demonetization will wipe out terrorism, what is your opinion?

Response Percent

0 .2

Correct 26.3

Incorrect 48.2

Don't know 25.3

Total 100.0

Propaganda by the media channels, RSS workers and government agencies failed to convince the majority of citizens

that demonetization will have an adverse impact on terrorism. Analysis of the data shows that 48.2 percent of the

respondent did not believe that it will have any impact on terror attacks. Of all those who were interviewed 25

percent remained noncommittal.

More than 40 percent of respondents across all regions rejected the assertion that demonetization will restrict

terror attacks. The percentage of those who thought so was very high among the respondents from Northern

(67.8%) Region, it should be noted that this is the region which has been on the receiving-end of the terror attacks.

Almost 50 percent of those who answered the question and were from Delhi also rejected the assertion.

Across all age groups the percentage of those who thought that terrorism will stop after demonetization was less

than one third of the respondents. Those who thought that it will not stop, their percentage increased from 40.7

percent at less than 15 years to 45 percent at 16-26 years, 51.4 percent at 26-35 years, 53.3 percent at 36-45 years

and remained at almost 50 percent at above 46 years.

Q36. Demonetization has finished terrorism.

Response Percent

0 .5

Correct 24.5

Incorrect 55.5

Don't know 19.4

Total 100.0

We further followed this issue by asking the respondents to agree or disagree with the statement that

'demonetization has completely eradicated terrorism'. 55.5 percent of all the respondents confidently disagree with

the proposition. They said that demonetization has not eradicated terrorism. Curiously, almost 20 percent again

ticked don't know and only 24.5 percent said that it has had an impact on the terror attacks. Evidently an

overwhelming majority was not convinced that demonetization has had any impact of either Naxal activities or cross

border terrorism.

Region-wise spread of percentages showed that most respondents, over 50 percent did not believe that it will have

DEMONETIZATION Exorcising the “Demon”69

any adverse impact on terrorism. Percentage of those who believed that there is no relationship between

demonetization and terrorism was as high as 75 percent in Central and Northern Regions.

Age variable showed a strong relationship with the perception of the respondents. As the age of the respondents

increased the percentage of those who said 'incorrect' in response to this question also increased. In the age band

less than 15 years it was 38 percent, there was a steep rise to 52.3 in the age group which rose to 65,3 percent among

those respondents who reported their age between 46 and 55 years. Those who said 'incorrect', their percentage

increased from 40 percent at less than 15 years to 52.3 percent at 16-25 years, 57.8 at 26-35 years, 60 percent at 36-

45 year and 65.3 percent at 46-55 years.

Q37. Demonetization has stopped Pakistani infiltration.

Response Percent

0 .5

Correct 32.2

Incorrect 45.4

Don't know 22.0

Total 100.0

In order to elicit opinion of the respondents on cross-border infiltration from Pakistan the next question was

included in this section. The rumour that Pakistan was ready with huge amount of counterfeit currency in the form of

Rs. 500 and Rs. 1000 notes was quite rampant as one of the objectives of the declaration of demonetization. It seems

that the rumour was deliberately spread to divert the anger of the public. Therefore, we asked the respondents to

agree or disagree with the statement 'has demonetization stopped Pakistani infiltration'. Of all those who responded

45.4 percent said that they do not believe that demonetization has stopped infiltration from Pakistan, and that it

continues unabated. 22 percent were non-committal and said don't know and 32 percent said they think that it has

stopped cross-border infiltration.

Further analysis of above indicators clearly shows that less than one third of the population got influenced by the

argument that demonetization has had an impact on terrorism or cross-border infiltration of either money or

terrorists. More than half the population did not believe that the objectives that demonetization will stop terrorism

or infiltration, as stated by the Prime Minister were met. It should be noted that concerted campaign by the votaries

of demonetization was successful in confusing about 20-25 percent people, who said don't know.

Though the percentage of respondents who believed that demonetization will stop cross-border activities were

relatively higher compared to the previous question across all regions, yet the majority did not believe in this

assertion. Of all respondents from Central Region 58.3 percent rejected the claim, the percentage of those who did

not believe that demonetization will reduce cross boarder infiltration was 62.7 percent among the respondents of

Northern Region.

Age-wise distribution showed that there was a strong relationship between respondent's reported age and her/his

perception. As the age level went up the percentage of those who did not believe 'cross border infiltration from

Pakistan will be stopped and counterfeit currency will be eradicated', also rose. The percentage of those who not

believe in this assertion went up from 29.6 percent (less than 15 years) to 53.5 percent (in the age-group 46-55

years).

DEMONETIZATION Exorcising the “Demon”70

Banking, Cashless transactions

Q28. Government says demonetization will lead to cashless society, what is your opinion?

Response Percent

No response .3

Diversion 48.6

Cashless is good 34.2

Objective was always cashless 17.0

Total 100.0

It has been pointed out earlier that the second phase of the propaganda after demonetization shifted the focus to

creation of a cashless society. We included a question asking the respondents to express their opinion about why the

government has shifted the focus to building a cashless society. The analysis showed that about 49 percent of the

respondents thought that the government wanted to divert the attention of the public by talking about cashless

society. About 34 percent thought that creating a cashless society is the right step therefore government is trying to

convince people to switch to cashless transactions. About 17 percent believed that the entire exercise of

demonetization was done to push the society in that direction.

The region-wise distribution of people who expressed their opinion in response to this question revealed that more

than 50 percent of the respondents from Northern (68.9%), Central (56.2%), Delhi (50.8%) and Eastern (50%) parts

of the country believed it was only a diversionary political act.

Age had a strong positive correlation with the opinion that the entire exercise of demonetization was undertaken

with the aim of diverting attention from the real issues. The percentage of those respondents who believed it was

merely a diversion increased from 44.1 percent at 16-25 years to 58 percent at 46-55 years. The older respondents

were more sceptical compared to the younger ones. Conversely, acceptability of cashless society was more prevalent

among the young, 37.4 percent of the respondents among the age group 16-25 said that a cashless society is good for

the country, however as the age increased percentage of those who agreed with the statement reduced progressively

to a low of 24.9 percent at 46-55 years age group.

Education-wise distribution showed that as the education qualification of the respondents increased the percentage

of those who considered demonetization as a diversionary tactics decreased more than 60 percent of those who

reported their qualification as primary or secondary expressed that demonetization was used as a tool to divert

attention of the citizens from real issues in overwhelming numbers. Of course the previous indicator has shown that

those who reported lower levels of educational qualification could not take out the required amount of cash and

faced hardship in the months following demonetization. It is but natural that they will also be more angry and

suspicious of the likely objective of the project. About fifty percent of men and 46.6 percent of women held the

opinion that demonetization was done to divert people's attention from the real issues, however, interestingly the

percentage difference was reflected in about 4 percent of women holding the opinion that 'Notebandi' was directed

towards pushing people towards cashless society.

When asked that the government claims that the objective of the demonetization is to achieve a cashless society,

what is your opinion, Religion-wise distribution showed that 'Hindu' respondents were vertically divided on the

issue, 41.6 percent said that its objective was to divert attention of the public from basic issues, 40 percent believed it

will lead to a cashless society and 18.1 percent said that the real and hidden objective was to push the country

towards a cashless society.

Among the 'Sikhs' about 47 percent of those who said the government wanted to divert the attention, 36.4 percent

DEMONETIZATION Exorcising the “Demon”71

thought that cashless society is good for the country and 16 percent though that the country is being deliberately

being pushed towards a cashless society.

Of all the 'Muslims', a very large percentage i.e. 67 percent believed that it was done to divert the attention, and only

20 percent ticked the second option and 12 percent thought that government is forcing the society to become

cashless. Christian population was also vertically divided: 37 percent ticked the first option, 38 percent ticked the

second and 24 percent said that the objective of demonetization right from the beginning was to build a cashless

society.

More than half the population of those who reported 'General' (53%) as their cast category thought that

demonetization was done to divert attention of the public, however, among SC/ST (44.3%) and OBC (47.9%) those

who believed so scored comparatively low percentage. Caste-wise distribution did not show any strong variation in

percentage distribution among those who opted for the other two categories of answers.

Among those respondents who said that they use credit card, 45.9 percent thought that the demonetization was

done to divert public attention, among those who did not use plastic money this percentage was as high as 51

percent. Acceptability of a cashless society was sufficiently more rampant among the credit card users (38%)

compared to those (30.7%) who did not use these cards.

Benefit accrual by the cash-less economy

Q29. Who will get benefited by Paytm/cashless?

Response Percent

No response .1

Corporate 35.8

Government 25.9

Common man 20.0

Don't know 18.1

Total 100.0

Paytm – a company funded by Chinese-corporate asking people to pay and receive money through their cell phones –

unleashed an intense advertisement campaign. All the respondents were asked as to who was benefitted by this

mode of transaction. Of all, 36 percent of the respondents believed that it will only benefit the corporate, 26 percent

said government, about 20 percent said the public or the common man will benefit, rest about 18 said 'don't know'.

The region wise distribution showed that 46.9 percent respondents from Northern part and 40.2 percent from

Southern Region of the country believed that it has only benefitted the corporate sector. The percentage

distribution also revealed that about one fourth of the population in every region believed that the demonetization

has only benefited the government. However, a substantial segment of population of respondents from Delhi (24.8%)

and Western (22.3%) Regions thought that it has also benefited the common citizen.

Age-wise distribution of percentage response showed that those who thought 'demonetization has benefitted the

government' were evenly distributed across all age groups. It was quite interesting to note that those who were

above 26 years and less than 55 years old, around 40 percent of them, thought that the demonetization benefited the

corporate sector. Fairly large segment of young (in the age group less than 25) and those in the age group above 55

said that demonetization has benefited the common citizens.

Educational qualification did determine the perception of the respondents. A large segment of those who had

reported lower levels of education thought that demonetization benefited the corporate sector and as the

DEMONETIZATION Exorcising the “Demon”72

qualification of the respondents increased the percentage of those who held this opinion reduced.

A comparatively larger number of men (23.5%) said that demonetization has benefited the corporate sector

compared to women (21.7%). Equal number of men and women ticked the option 'Government', and 18.7 percent of

men and 22.2 percent of women thought that demonetization has benefited the common citizen.

Of all those who could be categorised as 'Professionals' 60 percent said that demonetization has benefitted the

corporate sector, 26.7 percent held the opinion that government was the sole beneficiary and only 6.7 percent

thought that common citizens were benefitted. A fairly high percentage of Businessmen (47.7%), Agricultural

Workers (46.2%), Government Servants (42.4%), Labourers (40.4%), Household Workers (46.1%) thought that

demonetization has benefitted the corporate sector. About 20 percent of the Drivers, Rickshaw Pullers and Skilled

persons ticked the option Corporate Sector, they in large numbers thought that 'Government' was the main

beneficiary, these percentage were 45.8, 30.8 and 30.2 respectively.

Religion-wise distribution of percentages revealed that 32.8 percent 'Hindus' thought that demonetization will

benefit the corporate sector, 25 percent ticked the option 'government' and 24.2 percent said 'people. Among the

'Muslims' these percentage were 41.7, 29.6 and 10.2 respectively. Of all the 'Sikhs' 36.4 percent thought that the

demonetization was done to benefit the corporate sector , 29.6 percent thought it will benefit the government and

18.2 percent said that it will benefit the common citizen. Among 'Christians these percentages were 43.5 (corporate

sector), 17.6 (Government) and 17.6 (common citizens).

One in three among all three caste categories believed that the demonetization will benefit the corporate sector. A

quarter of percentage of respondents thought it would benefit government and rest 20 percent believed it will

benefit the common citizens. On this issue the percentage variation among caste categories was insignificant.

Livelihoods without Cash

Q30. Can workers, rickshaw pullers, vegetable vendors operate without currency?

Response Percent

0 .6

Correct 22.8

Incorrect 68.5

Don't know 8.1

Total 100.0

When we further tried to probe the issue of a cashless society by asking 'if you think that farmers, labourers,

household workers, rickshaw pullers vegetable hawkers will be able to manage without cash', interestingly, the

percentage of those who agreed with the statement came down to 23 percent. An overwhelmingly high percentage

of the respondents, i.e. 68 percent thought that it will not work. Only 8 percent said 'don't know'.

It was interesting to note that an overwhelmingly high percentage of respondents from Southern, Central, Northern

and Eastern regions completely rejected the possibility of survival of those who stand at the lowest rung of the

economic pyramid in a cashless society. More than about 70 percent of the respondents from Central, 71.4 percent

from Southern, 85.1 percent from Northern, 70.8 percent from Eastern regions and 68.2 percent from Delhi

disagreed with the statement that 'farmers, labourers, household workers, rickshaw pullers vegetable hawkers will

be able to manage without cash'. Curiously, this percentage was low among the respondents from Western region,

which is where a substantial percentage of respondents thought that these sections will not be adversely affected by a

cashless environment.

DEMONETIZATION Exorcising the “Demon”73

Older respondents rejected this assertion in relatively large percentages. They did not agree with the assertion that

poorer sections of society will be able to cope up even in a cashless society. More than 65 percent irrespective of the

educational qualification thought that farmers, labourers, household workers, rickshaw pullers vegetable hawkers

will not be able to manage their lives without cash. The percentage of those who thought so, was very high among the

respondents who reported their education as Primary (78.2%), and Postgraduate (72.9%) levels, at intermediary

levels these percentages were marginally lower. Gender did not have any significant influence on the opinion.

Among all the categories of profession an overwhelmingly large percentage of respondents expressed their opinion

that the lower strata of the society cannot cope up in a cashless society. In terms of relative percentage, government

servants and businessmen, on the percentage scale lower than respondents in others categories, however, even

among these two categories, which rejected the idea of cashless society for economically weaker sections the

percentages were 63.2 percent and 71.7 percent.

Religion-wise distribution of percentages showed a substantial difference of percentage across religious categories.

Of all 64.8 percent 'Hindus' and 67.1 percent 'Sikhs' thought that the lower economic strata of the society will not be

able to survive in a cashless society. These percentages were substantially high among the 'Muslims' (78.1%) and

'Christians' (75%) when compared to other two categories.

There was a general consensus cutting across castes that demonetization is bad and cashless society will have adverse

impact on the poor. Of all 68.6 percent among general category, 67.4 percent among SC/ST and 70 percent OBC

disagree with the proposition that agricultural, household workers, labour, rickshaw pullers and vegetable vendors

will be able to survive in a cashless society.

The percentage of those who empathised with the poor and thought that they will not be able to survive in a cashless

environment was quite high among the respondents.

Corruption and cash-less economy

Q31. Cashless society will be free from corruption. Do you agree with this statement?

Response Percent

0 .4

Correct 39.3

Incorrect 46.9

Don't know 13.4

Total 100.0

We also asked the respondents if they think that 'cashless society will be corruption free'. About 47 percent of the

respondents did not believe that a cashless society is the correct way of achieving a non-corrupt society. However,

39.3 percent said that a cashless society will be free of corruption. About 13 percent said 'don't know'.

When we looked at the region-wise distribution of the percentage response Northern Region stood out with 70.7

percent of the respondents saying they disagree with the statement that cashless society will be corruption free,

Central Region scored the second position with 56.2 percent disagreed. However, in the Southern and Western

Regions and in Delhi the house was vertically divided, almost equal number of respondents voted in favour and

against the statement. Those who reported that they live in Eastern Region and disagreed with the statement were

about 45 percent and those who thought that the cashless society will be corruption free were about 34 percent.

Though the data establishes that the majority of the respondents did not favour the assertion, age-wise distribution

showed that older respondents disagreed in larger numbers as compared to the younger ones. It has been pointed

DEMONETIZATION Exorcising the “Demon”74

out that overwhelmingly large percentage of the respondents rejected the argument that 'cashless environment will

reduce corruption', however, there was a marginal reduction in percentage of those who thought so. Of all who were

primary pass about 53.6 percent said that they disagree with the statement whereas this percentage reduced to 46.7

percent at graduate level. About 37.4 percent men and 42.8 percent of women said that they think cashless society

will be corruption less as well. The number of men (48.8%) who rejected the idea was substantially high compared to

women (43.8%).

Of all the respondents Government Servants (48%), Students (45.6%) and Unemployed (47.1%) thought that the

cashless society will help eradicate the corruption. Rest of the respondents rejected the idea, among those who

disagreed with the statement Drivers (83.3%), Professionals (80%), Rickshaw Pullers (61.5%) scored the highest. It

again leads to the conclusion that very large percentage of the respondents have rejected the cashless society despite

all the advertising that the corporate sector and the government unleashed.

It was interesting to note that comparatively far more 'Hindus' (46.2%) and 'Sikhs' (40.5%) thought that it was correct

to assume that a cashless society will be corruption free. Among the 'Muslims' (22.8%) and 'Christians' (28.7%) these

percentages were substantially low. Overwhelming population of 'Muslims' and 'Christians' rejected the proposition

that switching over to cashless transactions will diminish corruption.

Those respondents who reported that they use credit card were equally divided on this issue, 43 percent said that

cashless society will be corruption free and an equal percentage believed that it will not have any impact on it.

However, half the population of those who had never used a credit card believed corruption cannot be eradicated by

switching over to a cashless society, only 35 percent thought that it will reduce corruption.

Perception about when the situation will become normal

Q40. Has everything come to normal after 50-days limit?

Response Percent

0 .7

Correct 28.5

Incorrect 55.6

Don't know 15.2

Total 100.0

Cashless ATMs and cash-starved banks mocked at ordinary citizens on a daily basis. The agony and hardship refused

to ease out even after the promised 50 days, and people were eagerly waiting for normalcy to return. To probe the

perception and expectation of the respondents on this issue a question 'have things become normal after 50 days?'

was posed to the respondents. In response to this question 55.6 percent said 'No'. About 28.5 percent said 'Yes' and a

substantial 15.2 percent said 'Don't Know'. The situation was particularly bad in Central (60.4%) and Northern

Regions (77.8%) from where a large percentage of respondents said things are still not normal.

In other words, a majority based on their experience clearly stated that things have not come to normal. It was

essential to follow up this question with another one: 'in your opinion how much time it will take for normalcy to be

restored?' Astonishingly, percentage distribution showed a very different picture. Only 0.4 percent did not answer

the question (as opposed to the previous question). Rest of the respondents answered that the normalcy would

return after three months. Even those who had said that normalcy has been restored within 50 days, in response to

this question said that it will take more than three months to come to normal.

About 21.7 percent of respondents said that it will take 3 months to restore normalcy while another 23.6 percent

DEMONETIZATION Exorcising the “Demon”75

said it will take 6 months. Put together those who estimated that normalcy will be restored within one year

amounted to 46 percent. About 55 percent of the respondents thought it will take more than one year. Those who

ticked one year scored the largest percentage which was 30.2 percent. Substantial percentage, i.e. 10.3 said that it

will take more than three years to come to normal. Surprisingly, the percentage of those who believed that normal

conditions will be restored in more than 5 years (8.5 percent) or 10 years (5.2 percent) was not insignificant. Large

percentage of the respondents was sceptical of the Prime Minister's or Government's claims that life has become

normal. An overwhelming majority of people believed that the shock waves of demonetization will affect their lives

for a long time.

Q41. In your opinion how much time it will take to restore normalcy in the country?

Response Percent

No response .4

3 months 21.7

6 months 23.6

Year 30.2

3 yrs 10.3

5 yrs 8.5

10 yrs 5.2

Total 100.0

Impact as felt by the citizens

Q3. Government claims demonetization will wipe out black money, what is your opinion?

ResponsePercent0.2Correct33.7Incorrect42.8Don't know23.3Total100.0

Response Percent

0 .2

Correct 33.7

Incorrect 42.8

Don't know 23.3

Total 100.0

When the respondents were asked that Government claims demonetization will eradicate black money, what is your

opinion, 33.7 percent of all the respondents agreed with the statement. About 43 percent thought that

demonetization cannot stop or unearth black money and about 23 percent said 'don't know'. It is evident from the

response to this question that an overwhelming population did not get influenced by the propaganda that was

unleashed just after the announcement. Majority was sceptical of the stated objective and did not believe in the

Prime Minister's claim that 'Notebandi' will help in fighting black money. It was evident that one in three believed that

demonetization will reduce flow of black money, but percentage further reduced to 26.3 when we asked if

demonetization will help in eradicating terrorism (one of the objectives stated by the Prime Minister). A series of

terror attacks and increased Naxalite activities in the days that followed demonetization demonstrated the

hollowness of the claim that it will help in fighting the terrorism.

The region-wise distribution of percentages showed that there was a large difference in percentage of those who

agree with the statement and those who disagreed with it. Among the respondents from the northern region only

9.3 percent agree with the statement and 70 percent thought that demonetization will have no impact on black

DEMONETIZATION Exorcising the “Demon”76

money. Among those who agreed with the Prime Minister's claim the percentages were higher among the

respondents from Western (34.8%), Southern (37%) and Eastern Regions (36%). If we add the percentage of those

who in response to this question said 'don't know' to those who said 'incorrect' then it can be concluded that more

than 60 percent of the respondents did not support the assertion that demonetization will have any impact on black

money. As the age of the respondents increased the self-reported belief that demonetization will eradicate black

money also reduced from 43.5 percent at less than 15 years to 26.9 percent at 46-55 years age bands.

Q5. Demonetization Rs 500 and 1000 and introduction of Rs 2000, what will be its impact on black

money. It will:

Response Percent

No response .2

Decrease 34.1

Increase 33.5

No effect 15.9

Don't know 16.4

Total 100.0

When the question 'what will be the impact of introduction of Rs 2000 instead of Rs 500 and Rs 1000 denomination'

was posed to the respondents, about 34 percent thought that it will reduce black money, and another 34 percent

thought it will increase flow of black money, 16 percent said 'it will have no impact' and another 16 percent said 'don't

know'. It is evident that about fifty percent did not believe that demonetization and at the same time introduction of a

higher denomination currency will reduce black money in the system.

Very low percentage of respondents from Central (18.8%) and Northern Region (14%) agree with the statement that

introduction of Rs 2000 note will reduce black money. In other regions, these percentages were relatively high but

still remained below 40 percent. Substantially high percentage of those who were in higher bands of age believed that

introduction Rs 2000 note will result in increase in black money.

Q6. Who was affected by demonetization the most?

Response Percent

No response .2

Common man 64.8

Politician 14.8

Rich people 15.4

Don't know 4.7

Total 100.0

The next obvious question 'who was most intensely affected by demonetization?' was included in the scheduled

interview, for probing perception of the respondents about oft repeated assertion that 'middle classes were the

worst affected'. An overwhelming 65 percent of respondents expressed that 'notebandi' affected the poorer

sections of society most intensely. About 15 percent thought that 'politicians' were the worst affected and about an

equal number of respondents (15.4%) thought 'the rich' were most affected. It is evident that poorer sections of

society are the most adversely affected by demonetization is a wide-spread belief. This perception was based on the

personal experience of those who were interviewed. The propaganda that poor have welcomed the measure and

rich are worried because they will have to reveal their black money and therefore are against it, did not cut any ice.

The Prime Minister had made that statement in one of the public meetings.

DEMONETIZATION Exorcising the “Demon”77

Region-wise analysis showed that across all the regions overwhelmingly high percentage thought that

demonetization has adversely affected the poor. This percentage was more than 55 in Eastern Regions, being the

lowest. The percentage of respondents who thought that poor were badly hit was as high as 83.3 percent in Central,

82.2 percent in Northern, 69.6 in Southern and 65.2 in Delhi Regions. Through experience people knew that it has

not affected the politicians and the rich.

Q11A. Do you know someone whose savings were gone?

Response Percent

0 .9

Yes 47.9

No 51.2

Total 100.0

We also wanted to know what hardships people faced, and how widespread these experiences were. Therefore, in

the schedule we added a statement that 'All of us know that we, especially women, save and keep money for bad

times'. The statement was read before asking the questions that followed it. The first question in the series was, 'did

you witness someone's savings being rendered worthless?' We wanted to know as to what percentage of people had

direct experience of demonetization, which with just one stroke converted meagre savings of individuals into waste

paper. We, deliberately, did not ask a question that, 'was your saving wasted?' for a reason that a direct poser would

have put most people on defensive. It could have been misunderstood and construed as if we were asking if they had

black money. About half of those (47.9%), who were sampled during the survey, reported that they were witness to

people's savings getting converted into waste paper. About one percent did not answer the question and the rest 51

percent said that they did not experience it.

In Delhi (59%) and Northern (53%) Region a large percentage of respondents had experienced that they had

witnessed savings being wasted due to demonetization. The percentage of respondents who reported witnessing

such incidents was relatively low in Southern and Central Regions, yet one in four among these respondents

reported that they witnessed meagre savings of someone being rendered worthless. A substantially high percentage

of women (50.5%) compared to men (46.3%) respondents agreed with the statement.

A very high percentage of Rickshaw Pullers (69.2%) reported that they had witnessed saving of citizens getting wiped

out due to demonetization and the lowest among the Professionals (13.3%).

Q11B. Witnessed any family feud when saving was revealed?

Response Percent

0 .8

Yes 43.5

No 55.8

Total 100.0

The next in the series was a question, 'did you witness a discord in the family because the saving was revealed'. In

most cases, especially among the low-income groups, where husbands are nonearning, alcoholics and where women

face violence in the family, they secretly save and hide money from other family members. We are not suggesting that

this habit of secretly saving is restricted to lower economic sections of society. There were many reports that due to

sudden demonetization, the savings had to be revealed. In some families, it caused breach of trust and in many it led to

outright violence against women, for hiding the savings. Of all the respondents, a very high percentage reported

DEMONETIZATION Exorcising the “Demon”78

discords and fights in the families that erupted soon after demonetization. It was shocking to note that above 43

percent of the sampled population said that they had witnessed fights in the family due to demonetization.

Region–wise distribution of response percentages showed that barring Southern (26.2%) and Central (14.6%)

Region high percentages of people reported that they had witnessed mistrust and discord cause by the

demonetization of currency. These percentages were 50.9 among respondents of Northern, 48.5 percent among

Delhi respondents, 41.8 percent among Western and 43.4 percent among the respondents of Eastern Region.

Q11C. Did it cause problem in some one's marriage?

Response Percent

0 .5

Yes 65.2

No 34.3

Total 100.0

When demonetization was announced in November 2016, Most Indian families were preparing for holding marriage

functions of their sons, daughters, relatives or acquaintances. Marriage is an important social event and according to

Hindu calendar the marriage seasons were about to start. Importance of auspicious days and month can be judged by

the fact that in the year 2015, reportedly, about 35000 marriages were solemnised only in Delhi city on one day.

Paucity of available funds caused a serious social disruption. On being asked 'did you witness a marriage being

postponed due to demonetization?' more than 65 percent of the sampled population said 'yes'. Barring a few

Ministers who shamelessly wielded their wealth and publicised spending huge sums of money on their daughter's or

son's marriage, most families were forced to postpone a planned marriage or faced serious hurdles, because the old

currency could not be used and the new currency was in short supply.

As high as 83.3 percent respondents from Northern and 73.2 percent from Delhi Region reported postponement of

marriages of their family members and friends. The percentage of those who in answer to this question said 'yes' was

quite high among other regions, 47.9 percent being the lowest among the respondents of Central Region.

Q11D. Do you know if due to death in family someone faced problem?

Response Percent

0 .9

Yes 59.9

No 39.2

Total 100.0

Marriage can be postponed but death cannot be. About 60 percent of the respondents had also experienced

hardship due to death in families. People had no cash to pay for the last rites of their dead. Paying homage to the dead

is a social affair in almost all human societies and relatives and acquaintances come forward to help the families who

face such eventualities. However, demonetization left every one helpless.

Across all the regions, one in four respondents had witnessed harrowing experience of serious difficulty in

performing the last rites of someone who had died in their family or neighbourhood. Percentage of those who said

'yes' in answer to this question was very high among the respondents from Northern (82.7%), Delhi (69.7%) and

Eastern (59.6%) Regions.

DEMONETIZATION Exorcising the “Demon”79

Q11E. Do you know someone who fell sick and faced problems?

Response Percent

0 .7

Yes 64.9

No 34.4

Total 100.0

Though the government had during the first thirty days allowed exchange of old notes at the government run hospitals,

it was common experience that the hospitals refused to take the old currency. When asked 'if you have witnessed

someone facing problems because her/his family member fell ill', about 65 percent respondents reported 'yes'.

Region-wise data analysis showed a very high but uneven distribution of percentage response. Even the very

seriously sick patients were left unattended because they could not pay in new currency. Northern Region (83.8%)

scored a high percentage of respondents who reported that they witnessed people in serious problems because of

demonetization, followed by Delhi (71.8%), Eastern Region (68.7%), Central Region (54.2%), Western Region (52%),

and Southern Region (45.8%).

Q1F. Did someone lose his/her job?

Response Percent

0 .7

Yes 50.0

No 49.4

Total 100.0

It has been widely reported in the media that demonetization had resulted in loss of jobs in many sectors of the Indian

economy. Therefore, in order to probe, if loss of jobs was part of common experience across the country or was it a

problem of a few metropolitan towns, we also asked respondents 'if they knew someone whose job was terminated

due to demonetization?' In response to this question about 50 percent said 'yes'. It is evident that these horrifying

experiences were intense and widespread.

In response to this question respondents from Delhi (63.3%) and Northern (63.1%) Region scored very high

percentages. However, even in other regions more than one in four reported that they knew someone who had lost

his job due to demonetization. The data shows that loss of jobs was particularly high in Delhi, Northern and Eastern

regions.

Q11G. Did someone unexpectedly receive his/her dues in old notes?

Response Percent

0 .6

Yes 53.8

No 45.6

Total 100.0

It is evident from the self-reported profession and caste, most of the respondents belonged to lower economic

strata of the society. Just after the demonetization newspapers carried reports that economically well-off sections,

tried to shift the burden of demonetization on to the weaker sections by giving them salaries for months in advance

or by clearing the old dues in panic. These salaries were given or dues were cleared in old currency. It was a simple

DEMONETIZATION Exorcising the “Demon”80

method to launder the black money, bring it into circulation, at the cost of poorer sections of society. The data

analysis revealed that it was quite a common experience. About 54 percent respondents reported that they knew

people who received unexpected money, which was due to them for long, and about 53 percent also reported that

they know people who received 3-4 months' salary in advance. An equal percentage of respondents also reported

that they knew of incidents where the rich deposited their black money in the bank accounts of a poor person.

Region-wise distribution showed that the percentage of those who said 'yes' in answer to these three questions

varied between 34 to 67 percent, across six categories of regions.

Q11H. Did someone get 3-4 months' salary in old notes?

Response Percent

0 .8

Yes 52.8

No 46.4

Total 100.0

Q11I. Do you know a rich-man who deposited money in poor-man's account?

Response Percent

0 .7

Yes 51.1

No 48.1

Total 100.0

Q11J. Did you see any politician/rich man in ATM/bank line?

Response Percent

0 2.0

Yes 27.8

No 70.1

Total 100.0

We also asked a question 'did you see any politician standing in the queue' for changing old notes or for drawing

money from ATM, the percentage of those who said 'yes' in answer to this question dropped to about 28. It was also

a common experience that the rich and the politicians did not have to suffer the long queues that were witnessed in

the aftermath of demonetization. Bank managers and staff have been accused of helping the rich and politicians in

converting their black money into white.

Among the respondents from all different regions more than 65 percent said they did not see any politician or a rich

person standing in any bank or ATM queue.

Q26. Have you heard of any one dying while standing in the bank line?

Response Percent

0 .2

Yes 66.5

No 24.6

Don't know 8.7

Total 100.0

DEMONETIZATION Exorcising the “Demon”81

It is claimed that more than 100 people died while standing in bank or ATM queues. As the news of people getting

killed in queues spread on daily basis, the anger against demonetization increased. We included a question in the

schedule as to how many respondents knew that people especially the older ones died while standing in queues. The

data analysis showed that about 66 percent of the respondents knew about these incidents. About 25 percent said

that they did know and 8.7 percent did not respond to the query.

The percentage response 'yes' to this question across all regions was very high. Among respondents of Northern

(78.7%), Delhi (75.4%) and Western (59.8%) Regions the percentages were relatively high as compared to Southern

(57.4%) and Eastern (55.7%) Regions. The wasted lives, it was said, were insignificant sacrifices at the altar of

nationalism, people did not accept the propaganda, instead they were angry.

Q27. Who is responsible for these deaths?

Response Percent

No response .4

Government 56.1

Ourselves 15.2

Bank 28.4

Total 100.0

When we followed up this question with another question as to 'who do you think is responsible for these deaths'

56 percent held government responsible for the deaths. About 15 percent of the respondents thought that

people themselves are responsible, about 28 percent held banks responsible. Region-wise percentage distribution

showed that the more than 80 percent of the respondents across all regions held either the government or banks

responsible for the deaths of citizens. Anger against the Government, generated due to deaths reported by the

media, was particularly high in Northern Region, 75.8 percent of respondents held government responsible for these

deaths.

Q42. After 8 November the value of Rs 500 notes decreased, in your locality.

Value in Rs Percent

0 9.0

200 3.3

300 12.0

350 .0

400 51.3

500 24.3

Total 100.0

Q42. After 8 November the value of Rs 1000 notes decreased, in your locality.

Value in Rs Percent

0 9.5

500 4.8

600 4.0

700 9.2

800 40.7

DEMONETIZATION Exorcising the “Demon”82

900 14.3

1000 17.4

Total 100.0

Soon after demonetization there were reports that the old currency, that is, Rs 500 and Rs 1000 were being

exchanged for lesser amounts of valid notes, openly. Demonetization had unleashed a new channel of corruption. It

was said that any amount of money could be exchanged through the touts, who had mushroomed all over the

country. Ordinary citizens, especially those at the lower level of economic pyramid, could not afford to miss their

jobs, including daily wage labourers who were most susceptible. As they started losing hope and confidence in

banking system, for them to keep the family going, exchanging their demonetised money for lesser sums was the only

way out. Well off people could wait and survive but they could not. They were the natural prey for this organised

loot. When they were forced to sell their hard-earned money for lesser sums, in effect their labour was demonetised.

We asked the respondents to tell us if in their locality, old notes were sold for lower costs. Only 24.3 percent said

that they exchanged their Rs 500 notes for the same amount. Of all 75 percent reported that an old Rs 500 note was

sold for Rs 400 or less in valid currency. Those who did not answer the question were 9 percent of the total. Of all

51.3 percent reported that it was exchanged for Rs 400, about 12 percent said for Rs 300 and 3.3 percent reported

that the Rs 500 note was exchanged for as low as Rs 200.

Region-wise distribution showed that this form of corruption was rampant in all the regions. The industry to

exchange old notes cropped up overnight across the country. More than 60 percent of the respondents in all regions

reported that a Rs 500 note was exchanged for less than Rs 400. Except for Central Region respondents from all

other regions reported that the value of their Rs 500 note had reduced to Rs 200. From Northern (18%), Delhi

(15.6%), Central (12%) and Eastern (11.6%) Region a substantial population of those who answered this question said

that Rs 500 note was exchanged in their locality for Rs 300.

The fate of the Rs 1000 note was not very different, however it should be noted that percentage of those who said

that they exchanged their Rs 1000 note for the same amount without any reduction, reduced to only 17.4 percent.

More than 82 percent of the respondents reported that in their locality, a Rs 1000 note was sold for less than Rs 900.

Most of the respondents reported that the note was sold for Rs 800, their percentage was highest i.e. 40.7, those

who said they exchanged their note for Rs 700 were 9.2 percent, those who reported Rs 600 was the price of a Rs

1000 note were 4 percent. Of all 4.8 percent said that an old Rs 1000 note was sold at as low as Rs 500.

Region-wise distribution showed that more than 90 percent respondents witnessed reduction of cost of Rs 1000

note in Central (98%) and Northern (91.4%) Regions. We were astonished note that 10.4 percent of the

respondents said that in their locality a Rs 1000 note was sold for as low as Rs 100. Those who said a Rs 1000 note

was sold at a price of Rs 800 scored highest percentage in all the six regions.

It is quite evident that the claim made by the Prime Minister that the objective of demonetization was to clean Indian

economy of black money was hollow, instead a new channel for generating black money opened up. It can be

concluded that a very large amount of legitimately earned money by the poor citizens was converted into black

money. With one stroke the people's toil and labour was devalued.

Experience of respondents

Q9. What was your first reaction after the news reached you?

Response Percent

No response .2

How will I convert the notes which I have 37.5

DEMONETIZATION Exorcising the “Demon”83

Those who have black money are in Problem 25.9

PM is brave 11.4

Now black money will come out 5.2

It will end corruption 7.1

Now Mulayam and Mayawati are in problem 1.2

It is election stunt 8.2

Any other 3.2

Total 100.0

We also wanted to find out what were the first reactions of the people when they heard the news about

demonetization. Therefore, a question as to what was the first thought that came to your mind when you heard the

news was included in the schedule. In response to this question, 37.5 percent of all the respondents ticked the option

that 'how many demonetised notes I have and how will I exchange these'. It is evident that four out of ten were

worried about impact of demonetization on the immediate monetary loss and economic hardship. About 26 percent

reported that the first thought that came to their mind was that now 'black marketers' will be in trouble. Only 11.4

percent thought that it was a brave decision taken by the Prime Minister. About 5.2 percent thought that 'black

money will be unearthed' and only 7.1 percent reported that the first thought that crossed their mind was 'it will end

the corruption'. About 8.0 percent reported that 'this is a drama to influence the forthcoming elections in the state

of Uttar Pradesh' was their first reaction.

The Region-wise distribution of percentage response showed that 'how will I exchange my old notes' was the first

reaction of most of the respondents. These percentages were high particularly among the respondents from

Northern Region (53%) and Delhi (39.1%). The percentages from other regions were not as high but among all

regions this response scored the highest. Barring the Northern Region the second most reported first reaction was

'Now black marketers are trapped'. A substantial percentage of respondents from Central and Northern Region

reported that they thought it is a political stunt directed towards Uttar Pradesh elections.

Education-wise distribution did not show any correlation between level of education and percentage distribution of

a response. However, across all levels of education large percentage of respondents either reported that they were

worried about exchanging demonetised cash or thought that demonetization will hit black marketers badly.

It was quite clear that the percentage of those who said that their first reaction was 'how will I exchange the

demonetised notes progressively reduced' reduced as the level of education rose. The percentage of those who said

so reduced from 42.7 percent at 'Pre-primary' level to 33.9 percent at 'Graduate' level.

Q18. Was the amount withdrawn from bank/ATM sufficient?

Percent

0 2.5

Yes 39.6

No 57.9

Total 100.0

To those who have bank accounts, the question on how many times a respondent had to go to bank and how many

times s/he was able to successfully take out the money was further followed by asking 'was the money that you could

take out sufficient?' In response to this question about 57.9 percent said the money rationed by the bank was not

sufficient. This shows a large percentage did face problems due to the cash crunch, only about 39.6 percent ticked

DEMONETIZATION Exorcising the “Demon”84

'yes'. Considering the fact that the sample has been collected from localities where an overwhelming population is

living below poverty line, it is understandable that they do not maintain large sums in their account and take out

meagre sums from the bank. But it should also be noted that if the money is not accessible to this stratum when they

need it, the absence of cash could be life threatening. About six in ten must have faced this acute problem.

Q12. How many days after demonetization did you go to take out money from ATM/bank?

Response in days Percent

0 7.9

1 9.7

2 14.6

3 7.1

4 8.4

5 7.3

6 2.9

7 4.4

8 4.1

9 1.0

10 9.6

11 .4

12 1.1

13 .2

14 .7

15 6.1

16 .2

17 .2

18 .7

19 .1

20 3.7

21 .1

22 .1

23 .1

24 .7

25 1.2

26 .1

27 .0

28 .2

29 .1

30 6.7

Total 100.0

The respondents were asked 'after how many days of demonetization (8th November 2016) did you go to take out

money from bank or ATM?' and the answer was solicited in number of days. The frequency distribution of responses

DEMONETIZATION Exorcising the “Demon”85

showed that about 10 percent of those who were interviewed visited bank/ATM on 9th November 2016. As the

news spread 14.6 percent more rushed to the bank next day. The distribution also showed that more than 60 percent

had visited their banks within a week's time and the figure reached more than 90 percent in 20 days' time. About 20

percent had reported that they do not have a bank account, but about 92.3 percent have reported that they had gone

to the bank. This also shows that a number of those who did not have accounts or ATM cards had to go and stand in

queues for their friends and family members. This includes women of the family who were forced to go to banks along

with the male members.

Across all the regions between 40 to 50 percent of the respondents had visited their bank within a period of five days

and about 80 percent had visited the bank within fifteen days. Data analysis also revealed that those respondents who

were in productive age group of 26 to 45 years had to make relatively more frequent visits to the banks or ATMs.

It was evident from the distribution that percentage of respondents who reported lower levels of their formal

educational qualification and went to the banks within ten days was relatively more compared to relatively more

qualified respondents. Those who reported higher educational qualification and waited for about ten days to go to

the banks or ATM were relatively larger in percentage.

Except for the Rickshaw Pullers and Agriculture Workers, more than 10 percent of Government Servants, Labour,

Household Workers, Professionals and Unemployed rushed to the banks immediately after the announcement and

more than 50 percent of the respondents in all other categories reported that they visited the Banks or ATM within

first ten days. About 80 percent of respondents across all segments of profession had visited the banks. The panic

caused rush at the banks.

It is shocking to note that demonetization had affected both, those who had bank accounts and those who did not

have any. There was insignificant difference in percentages of respondents who wasted days and hours standing in

queues. Of course, large percentage of those who did not have an account in a bank must have gone to exchange their

demonetized notes or must have gone to stand in the queues in place of their relative who had a bank account. For

example, of those who had bank account 47 percent reported that they had gone to be bank about five times, this

percentage was 46 among those who did not have an account. Similarly, out of those who said that they had to stand

in a queue for ten hours, 22.8 percent had bank accounts and 22.6 percent did not have it.

Q13. For how many hours did you stand in the line?

Time in Hours Percent

0 7.5

1 9.3

2 14.9

3 9.8

4 11.2

5 11.3

6 7.2

7 2.7

8 6.6

9 1.9

10 4.2

11 .7

DEMONETIZATION Exorcising the “Demon”86

12 3.2

13 .3

14 .3

15 1.0

16 .3

17 .1

18 .2

19 .1

20 .9

21 .1

22 .1

23 .1

24 5.8

Total 100.0

The long unending queues at the banks and ATM could be seen across the country. On the one hand the cash crunch

had forced the public to stand in the queues and the media was showing the restlessness and hardship the people had

to undergo and on the other hand propaganda machinery of RSS was arguing that 'when we go to temples we stand

for longer periods of time' or 'for better future of the country this sacrifice is insignificant' or 'every day our jawans

(military men) have to face the enemy on borders, and they stand fearlessly for hours, we should learn from them and

stand peacefully in queues'. Despite all the illogical propaganda, suffering masses were every day becoming

increasingly restless. People lost jobs, took leave from their offices, paid money or requested family members to

stand in the queues. The queues could be seen in front of ATMs and banks round the clock. At many places when

hours of waiting for the cash did not yield any result people lost patience and resorted to violence, police had to be

called, which used force to restore the peace. These lines were fast turning into places of anti-demonetization

discussion. Panicked ruling party declared that they will distribute sweets among those who are standing in queues

but desisted from doing so because the call further aggravated the people's anger. While waiting in the queues people

collectively saw the futility of demonetization and experienced worthless wastage of man-hours that it had caused.

In order to probe the duration for which respondents had to stand in a line we included a question in the schedule. All

the respondents were asked to record as to how many hours they had to stand in a line when they went to withdraw

money (from bank or ATM). About 15 percent of the respondents spent 2 hours in the queue, about 10 percent

reported one hour and an equal number reported three hours. The respondents who spent less than three hours

constituted about one third of the sampled population. About 30 percent of those who were interviewed reported

that they had to stand in queues between 4-8 hours. Rest, about 20 percent, reported that they spent more than 8

hours in the lines. It was shocking to note that about 6 percent of the respondents reported that they had to stand in

queues for more than 24 hours. It is difficult to comprehend the extent of anger of a person who has stood in the

queue for taking out less than Rs 5000, that too his own money. Most respondents had stated that they use banks for

a monthly transaction of less than Rs 5000.

The harrowing experience of standing in queues was reported from all regions. More than eighty percent of sampled

population across the states stood in line for more than 5 hours. About 40 percent of the respondent across all the

regions stood in lines for more than 10 hours. It was particularly worst in Southern (14.6%) and Central regions

(18.8%) where substantial percentage said that they had to stand in queue for more than 20 hours.

DEMONETIZATION Exorcising the “Demon”87

From the data analysis, it was quite evident that cumulatively those who were in the age groups 26 to 55 years wasted

more time while standing in the queues. Curiously, those who reported that they had to stand between 5 to 10 hours

in bank or ATM queues, their percentage increased with the educational qualification. About 70 percent of

respondent across all categories of profession reported that they stoot in line for between 5 to 10 hours.

Q14. How far is the bank from your house?

Distance Percent

0 3.7

1km 27.9

2km 17.5

3km 7.8

4km 4.1

5km 6.5

6km 3.0

7km 1.9

8km 2.1

9km .8

10km or more 16.3

100m .1

200m .1

250m 1.2

300m .7

400m .0

500m 6.3

Total 100.0

When asked how far the bank from your house is, 28 percent reported that it is less than a kilometre, 17 percent said

it was between one and two kilometres. More than 30 percent respondents reported that their bank was located at a

distance of more than 3 kilometres. We can safely assume that the hardship and inconvenience people faced in

drawing money from their bank account or ATM is directly proportional to the distance of the bank from the

residence of a citizen. When we asked 'how far is the ATM from your residence?' of all those who were interviewed

about 33 percent reported that it was within one kilometre radius, 15 percent said within one and two kilometres

and for more than 36 percent reported that it was more than 3 kilometre.

Comparatively, a high percentage of respondents from Southern (58.4%) and Delhi (61.1%) Region reported that

their banks were located within four kilometres for other regions this percentage was substantially low. Region-wise

distribution also showed that a very high percentage of respondents from Northern (42.7%) and Western (25.3%)

Region had to travel more than 10 kilometres to reach their banks.

Q15. How far is ATM from your house?

Distance Percent

0 4.5

1km 32.7

2km 15.4

DEMONETIZATION Exorcising the “Demon”88

3km 5.4

4km 3.3

5km 5.0

6km 2.6

7km 2.2

8km 2.1

9km .6

10km or more 14.7

100m .1

200m .1

250m 2.7

300m .7

400m .0

500m 7.6

Total 100.0

Q16. How many times you went to withdraw money?

Number of Visits Percent

0 7.7

1 10.3

2 16.2

3 10.3

4 12.9

5 10.1

6 6.4

7 2.7

8 4.1

9 .9

10 7.2

11 .5

12 1.3

13 .4

14 .3

15 1.9

16 .4

17 .2

18 .3

19 .3

20 5.3

Total 100.0

DEMONETIZATION Exorcising the “Demon”89

Q17. How many times could you withdraw money?

Percent

0 9.3

1 20.0

2 27.3

3 12.7

4 10.1

5 6.7

6 3.0

7 1.4

8 2.2

9 .6

10 6.6

Total 100.0

As has been mentioned earlier, after the demonetization, cash crunch followed and it was a common experience that

people stood in long queues but came back empty handed because either there was no cash in the banks or ATMs or

the amount that came to the bank for disbursement was insufficient to satisfy the needs of all the customers. Most of

the citizens experienced utterly frustrating situations, when their turn was about to come, after a long waiting

period, the cash was finished. In response to the question as to how many times you or your family members went to

the bank to ATM and could take out cash, we had solicited the answers in numbers.

The response was spread over a scale of 1 to 20 times. About 10 percent said once, 16.2 percent said twice and 10.3

percent said three times and 12.9 percent reported that they had to go to the bank or ATM four times. Rest of the 50

percent sampled population was distributed on a scale of 4 to 20 days. This simply means that about 50 percent of the

population waited in these lines for more than four times. As expected the bell shaped curve showed frequency of

the reported visits reduced as the number of visits increased. However, there were significant peaks at 4 times

(12.9%), 5 times and 6 times (10.1% and 6.4%), at 10 times (7.2%), 15 times (about 2%) and the percentage of those

who went to the bank 20 times was 5.3%.

More than 50 percent of the respondents from Southern (53.2%), Delhi (58.6%) and Eastern (54.9%) Region

reported that the nearest ATMs were less than four kilometres, from rest of the regions more than 60 percent said

that the nearest ATM was more than 4 kilometres far from their house.

The previous question, 'how many times you or your family members went to the bank?' was followed by 'how many

times could you take out money?' The data analysis showed that the scale of successful visits, when the respondent

could withdraw money from the banks or ATM, reduced from 1 to 10 as opposed to 1 to 20 times which was

reported in answer to the previous question. This may lead to the conclusion that one out of two visits to the bank

was successful. However it we look at the frequencies keenly, the story is quite pathetic. More than 80 percent of the

sampled population was successful only five times. The wasted visits to the banks outnumber the successful visits by

more than 30 percent.

More than 80 percent of the respondents from across all the six regions reported that during this period they visited

the banks more than two times. More than 40 percent said they or their family member had to go to the bank for

more than 8 times to take out required amount of cash.

DEMONETIZATION Exorcising the “Demon”90

The Age-wise distribution showed that there was no correlation between the age variable and the number of times

one had to go to the banks or ATMs. Respondents from all age groups were subjected to the same inconvenience.

Of all about 20 percent said they could withdraw money once, 27 said twice, 13 percent said three times, 10 percent

said four times and 7 percent said five times. This cumulatively accounted for 86 percent of all the sampled

population. It is interesting to note that out of remaining 14 percent, 6.6 percent said that they could take out money

from the bank or ATM, ten or more times. The country had witnessed long queues and people accused that in their

dire need they often came back from the banks/ATMs empty handed. We therefore generated cross-tabulation of

reported number of visits and reported number of times a respondent could successfully take out money.

Out of those who reported that they could take out money once 55 percent reported 'they had to visit the bank

more than once. Among these there were respondents (1.3%) who said that they went to the bank 20 times and

were successful only once, the bank returned them empty-handed 19 times. The reported success rate per visit

drastically from 45% once to 21.2% reduced as the number of visits to the banks increased to ten successful visits. For

example, of all those who reported five successful visits about 65 percent had to go to the bank six more times. Of

these as high as 7.7 percent had to go to the bank 20 times and were only successful five times. Similarly, of all those

who said that they could take out money 10 times, about 80 percent reported that they went to the bank more than

10 times, the percentage of those who said out of 20 visits only 10 were successful was as high as 42 percent. Panic

stricken citizens when returned empty handed became disparate and made more and more visits to take out their

own money from the bank. The success rate reduced as they made more visits.

Q19. Did your family member stand in different Bank/ATM lines?

Response Percent

0 3.2

Yes 48.5

No 48.4

Total 100.0

In response to the question, 'if different family members had to stand in different queues at the banks and ATMs', 48.5

percent said 'yes' and an equal percentage said 'no'. It is quite disturbing that about half of the respondents reported

that more than one of their family members had to stand in queues for long hours to take out small amounts of their

own money from the banks or ATMs. Even if one is insensitive to the pain and agony these families were subjected to

it surely amounts to a huge national waste of time.

The education-wise distribution of respondents showed that as the educational qualification increased the

percentage of those who said that different members of their family stood in different queues to withdraw money

from the bank or ATM increased. It increased from 41.6 percent at pre-primary to 57.3 percent at postgraduate level.

Among those who reported Driver (83.3%), Self-employed (57.1%), Private Service (52%) and Unemployed (50.5%)

the percentage of those who said that more than one of their family members had to stand in queues, was more than

50 percent. Among other categories of professions, the percentages of such respondents was more than 40 percent,

in most categories quite close to fifty percent. The only exception was 'Business' category, where 34.1 percent said

that their family member had to try their luck in different queues.

Q20. How much cash could you withdraw in first month?

Value in Rs Percent

0 7.2

500 9.1

DEMONETIZATION Exorcising the “Demon”91

1000 6.6

2000 18.8

5000 24.0

10000 17.4

10001 16.9

Total 100.0

We further probed the issue by asking 'approximately how much money you took out from the bank in a month

before demonetization?' As expected, most of the respondents used banking facility for small transactions. Of all the

respondents, 24 percent said that in a month they took out Rs 5000, followed by 18.8 percent who reported that

they used banks for transacting Rs 2000 in a month. About 17 percent reported that they used banks for a transaction

of Rs 10000 per month. All those who reported that they withdrew a sum of more than Rs 10000 in month were

clubbed together and their percentage was only 17.4.

About 7 percent of the sample population used banking facility to draw just Rs 1000 and about 9.0 percent reported

that use it was only for Rs 500 or less. The cumulative percentages suggest more than 65 percent of the respondents

used banks for a transaction of less than Rs 5000 per month and 83 percent withdrew less than Rs 10000 per month.

Sudden demonetization made this money unavailable to them. Across all age groups largest percentage respondents

of reported that they took out about Rs 5000 before the demonetization was announced.

It was quite evident from the data analysis that after demonetization it did not matter if you had a bank account or

not, if you had a credit card or not, or else you had ever used a credit card or not. The percentage distribution almost

remained the same in all the categories when we looked at the number of visits to the bank, the money and individual

could take out or not, the number of hours one had to spend in a queue, or the amount of cash withdrawn was

sufficient or not.

In order to find out what was the experience of the respondents when they went to the bank or ATM, could they

take out the required amount of cash, we included a question on how many times they were able to successfully

withdraw the required amount.

Region-wise distribution of response showed that people in the Southern region faced acute problem, about 60

percent expressed their dissatisfaction over the amount of cash they could withdraw from the banks. Except for

Delhi and Western Region states the situation was bad all over the country. Of all the respondents of Delhi 76.5

percent said that they could take out the required amount of money from the banks/ATM. In Central (45.8%),

Northern (44.9%) and Eastern (43.1%) regions more than forty percent respondents could not draw the required

sums. The data clearly shows that a very large population was put to inconvenience and could not take out required

money from their own account.

As expected the age-wise distribution was alarming. Demonetization hit the relatively older generation more

intensely. As the age increased the amount of money which the respondent could withdraw from the bank reduced.

The required money they could reportedly withdraw from the bank reduced as the age of the respondents increased.

Of all the respondents in the age group 16-25 years, 72 percent said that they could withdraw the required amount of

cash from bank/ATM, this percentage progressively reduced to 60.1 percent at 26-35 years, to 49.4 percent at 36-45

percent and to as low as 44.5 percent at 46-55 years. Correspondingly, the percentage of those who said that they

could not access their account to withdraw the required cash increased from 27.4 percent at 16-25 years to 50.9

percent at 46-55 years of age.

Education proved to be an asset in accessing the bank accounts during the demonetization. Only 30.2 percent of

DEMONETIZATION Exorcising the “Demon”92

those who had received education till primary level could access their accounts this percentage rose to about 70

percent at graduate and postgraduate level. The curve quite clearly shows that those who had received education for

longer duration could assert themselves in banks and therefore were able to withdraw money that they required.

The analysis showed that gender did not influence the opinion of the respondents.

In response to the question, 'was the amount of cash you could withdraw from the sufficient or not', 34.6 percent

'Hindus', 41.3 percent 'Muslims', 34.8 percent 'Sikhs' and 46.3 percent 'Christians said no. Of all those who belonged

to 'General' category 67 percent reported that they could take out sufficient cash from their banks. This percentage

among SC/ST was substantially lower (59.4%) and OBC (61.3%).

Out of those respondents who reported that they use credit card, 75.6 percent said that they were able to take out

sufficient cash from the bank/ATM, still there were 24.1 percent among them who could not. Percentage of those

who said that they have never used a credit card and said that they could take out sufficient cash was substantially low,

that is 50.7 percent, and about equal percentage among them, 49.1 percent said that they faced hardship because of

insufficient cash in the ATMs or non-functioning of the ATMs.

Experience and action of others

Q10. Initially what were the comments by your friends/neighbours on demonetization?

Response Percent

No Response .2

They were counting demonetized notes 38.1

They were saying corruption will end 15.1

They were saying terrorism will end 6.3

They were saying counterfeit notes will end 7.3

They were saying it good for the country 25.1

Any other 7.9

Total 100.0

We asked a question, 'What was your first reaction when you heard the news about demonetization?' The question

was repeated with a modification, 'What was the first reaction of others in your locality?' About 38 percent reported

that they were counting their demonetized notes. That was the immediate concern. About 15 percent reported that

people thought that demonetization would eradicate corruption. About 7.3 percent of all the respondents reported

that people in their locality thought that 'it will eliminate counterfeit currency'. Curiously, only one in four (25

percent) reported that their neighbours first reaction was 'demonetization is good for the country'. 'Good for the

country' was not an immediate concern of a majority of respondents; most people were worried about converting

their old notes into new notes.

The region-wise distribution of percentage response showed that among the 'Sothern Region' population the major

immediate concerns were 'exchanging the demonetised currency' which they had (32% reported this concern among

their neighbours), and about 27 percent respondents said people were saying it will eradicate the corruption. Among

the respondents from 'Central Region' 35.4 percent ticked the first option and 33.3 percent said that people were

happy that it will end corruption. In Delhi 37.3 reported that their neighbours were worried how they would

exchange the demonetized currency notes and only 25.9 percent thought that it will eradicate corruption. Among

those respondents who were from 'Western Region' 35.2 percent said that their neighbours were in panic to

exchange the demonetized currency, about 23.9 percent said that they were saying, 'now black money will be

exposed' and about 27 percent said that black marketers will be caught. As high as 64 percent from 'Northern

DEMONETIZATION Exorcising the “Demon”93

Region' reported that people panicked and were only concerned about the demonetized cash which they had with

them. In the 'Eastern Region' the major concerns that were reported by the respondents were, personal

demonetized cash (about 29% ticked this option) and 'eradication of corruption' which about 27 percent

respondents reported.

The response that people initially thought demonetization will wipe out corruption reduced as the age of the

respondents increased, it was 37 percent among below 15 years and progressively reduced to reach 19.2 percent

among the age group 46-55 years.

Of all the respondents who reported that they were not formally educated, 47.4 percent said that people around

them were initially worried about demonetized notes of Rs 500 and Rs 1000. It was also evident from the analysis that

reporting of the initial public reaction as the first option (people were concerned about their demonetized currency

notes) had an inverse correlation with the education level. At Primary Level this option was chosen by about 40

percent which reduced to about 30 percent at Graduate and Post Graduate levels. Conversely, as the education level

increased more respondents chose the option it will eradicate 'black money'. The percentage rose from about 20

percent at lowest levels of education to 30 percent at higher levels of education. On this issue the perception of men

and women did not differ.

Profession-wise distribution of response to this question showed that more than 40 percent of Drivers (66.7%),

Agricultural Workers (48.1%), Casual Labours (43.6%), Skilled Workers (41.5%) and Household Workers (44.4%)

reported that just after the news broke out their neighbours were worried about demonetized notes that they had

with them. These are sections of society who are paid their labour cost mostly in cash. To a varying degree, the

respondents in other categories of profession recollected 'panic to exchange notes' as initial reaction were less than

30 percent within their category.

Among the four religious groups about 50 percent of Muslims reported that most of the people in their

neighbourhood were talking of how to exchange the demonetized currency, on percentage scale Sikhs (39.7%)

scored the second position, 28.7 percent Christians reported that it was the main concern in their locality and

among Hindu population the percentage of those who said that people were worried about their demonetized cash-

in-hand was 34 percent.

The largest number of respondents who reported that as soon as the news spread, people around them were

worried about their personal money kept in Rs 500 and Rs 1000 denomination come from OBC (42.5%) category,

followed by General (37.8%) and SC/ST (34.3%). It was interesting to note that as the family size increased the

percentage of respondents who reported that the immediate worry of people around them was their personal

demonetized notes, increased. It increased from 25.5 percent at family size 2 to 49.8 percent at family size 8.

Trust

Q21A. Prime Minister took a good decision but there was no preparation?

Response Percent

0 .9

Correct 63.7

Incorrect 23.3

Don't know 12.1

Total 100.0

Soon after 8 November 2016, public started recovering from the initial shock and tried to adjust to the new

economic reality. And soon the managers of the ruling party realised that demonetization was going to cause havoc.

DEMONETIZATION Exorcising the “Demon”94

The enormity of the visitation was evident within a few days; the fire fighting brigade unleashed propaganda that the

intentions of the Prime Minister were good, the decision was in the right direction and would be beneficial for the

country in the long run. The only mistake committed was that he did not consult the right people. In order to save

the Prime Minister from the wrath of the people, the propaganda machinery of the right-wing organisation started

arguing that 'it was a right decision implemented without proper preparation'.

The three objectives of demonetization, which the Prime Minister's address had listed, were unearthing black money,

controlling terrorism and wiping out the counterfeit currency. A few months prior to demonetization, the Indian

military had carried out what was called 'surgical strike'. They had crossed the line of control, went into Pakistan

controlled territory, and claimed to have killed the militants who were about to cross the border and sneak into India.

The act of demonetization was also termed as 'surgical strike' by some. Ironically, it angered people, and Modi had to

request his party men and Ministers not use that term in reference to demonetization.

As it became apparent that none of the initially stated objectives were being fulfilled the right-wing discourse was

changed. It was argued that the objective of the demonetization was 'to create a cashless society'. Speeches and

statements of the Ministers were now full of assertions which listed the benefits of cashless society. Full page

advertisements of PayTM, which, as if on cue, had appeared on the morning of 9 November 2016 stared reappearing

in leading newspapers. In metropolitan towns, almost all shops and even taxis carried stickers stating that 'we accept

Paytm'.

In the aftermath of demonetization rumour mongers had a field day. One of the rumours which went viral claimed

'the Prime Minister had secret information that Pakistan had printed and was ready with huge amount of counterfeit

currency to be fed into Indian economic system'. When the adverse impact of demonetization started impacting

people, quite deliberately another rumour was floated that through demonetization black money will be recovered

and every citizen, especially the poor, will get Rs 15,000 each. In order to increase the authenticity of the rumour it

was also said that the money will be transferred to Jan Dhan account of individuals.

However, after the initial shock waves had subsided, those who opposed demonetization also became quite

vociferous. They questioned the very basis of this act. They refused to accept the logic and the methodology which

was adopted by the government. Renowned economists were at the forefront of the resistance that was building up.

Some called it 'carpet bombing'. The former Prime Minister called it 'organised loot and legalised plunder'. Their

argument was that it was an ill-conceived, illogical, irrational, unprepared and undemocratic act which will harm the

economy and people, both in long and short run. Despite the tight grip that the Modi governments has on media, and

media is willingly ready to act as 'His Master's Voice', the debate was no more one sided.

One of the objectives of the survey was to probe as to which of the ideas, propagated by the two sides, have

influenced and shaped the perceptions of citizens. Statements from various debates on TV, talks and seminars were

chosen and included in the interview schedule were included. These statements were read out during the interview

and respondents were asked to choose one out of right, wrong and don't know options.

The following statements were included in the schedule to probe the level of trust people have in the implementation

policies, government, banking system, political leadership, etc. It was evident that large percentages or majority of

the respondents across, regions, age groups, gender, levels of education did not trust the stated objectives and

implementation authorities or political leadership.

The first statement was 'even if the Prime Minister's intentions were right, there was no proper preparation'. Of all

those who responded, 12.1 percent said 'don't know', 23.3 percent said wrong, and 63.7 percent ticked right. It is

evident that those who said 'right' were dissatisfied with the way 'demonetization' was implemented. In other words,

an overwhelming majority of those who supported the move did not approve of it because it lacked necessary

DEMONETIZATION Exorcising the “Demon”95

preparations. It also indicates that people considered it an irresponsible act. Majority of respondents thought that it

was an ill-conceived project.

The next statement was 'if 68% of cash is taken away from circulation the country will naturally be pauperised'. Of all

about 47 percent of the respondents agreed with the statement, 29 percent disagreed and 24percent remained

noncommittal.

Interestingly, when the respondents were asked if they agreed with the statement that 'it was a political decision

taken in a hurry', again the percentage of those who agreed with the statement rose to 58.6 percent and those who

disagreed or said 'Don't Know' dropped to 23.5 percent and 17.8 percent, respectively.

The next statement included in this section was 'demonetization will not help unearth black money'. Of all the

respondents, about 47 percent of the respondents agreed with the statement, 36.2 percent disagreed and 16.4

percent were noncommittal. It is quite apparent that more than half the sampled population did not accept the first

objective stated by the Prime Minister. Majority was found to be sceptical about the claim that demonetization will

unearth black money.

The next statement was diametrically opposite. It said 'demonetization will unearth black money and this will be

distributed among the poor'. When the response was analysed, the percentage distribution showed that only 23.7

percent of the sampled population believed it to be true, they hoped that sufficient amount of black money will be

retrieved and the government will distribute this amount in poor people's accounts. Of all, about 51 percent

categorically said that no such thing will happen. They did not believe that demonetization can bring in money which

government can distribute among the poor. In other words, they had no hope that even if the money comes in, as was

being claimed, the government will ever distribute it to the poor.

In the debates that followed demonetization, on the basis of recent experience when the government had written off

large loans of some corporate sector companies, experts had argued that this is an exercise to force the poor to put

their money in banks which were on the verge of bankruptcy and then, out of this accumulated public money, give

loans to big companies. In this section, we had asked if you agree with the statement that 'demonetization will result

in accumulation of money drawn from poor in the banks which will be given to the rich'. If we leave those 23 percent

who did not want to commit either way, the rest of the house was almost vertically divided on the issue, 36 percent

believed that the money taken out of their pockets will be given to the rich, instead of poor, rest 41 percent disagreed

with the statement.

We followed the previous assertion with another statement 'black money is in fact deposited in foreign banks,

demonetization will have no impact on it'. The percentage of those who agreed with the statement jumped to about

51.0 and those who disagreed reduced to 31.0 percent. There was also a reduction in the percentage (17.9) of those

who had ticked 'don't know' option in response to the previous statement. Majority of those who were interviewed

were quite convinced that since the black money is stashed outside the geographical boundaries it is unlikely to have

much impact on the parallel black economy.

The percentage of those who thought that demonetization did not have any adverse impact on the rich was very high.

We had asked every respondent if they agreed or disagreed with the statement that 'rich did not face any problem

due to demonetization, their black money was converted into white and they also did not have to go to the banks'.

Curiously, about 65 percent agreed with the statement, the percentage of those who disagreed reduced to 22.5

percent and only 12.5 percent said 'don't know'. It was quite revealing that such a large percentage considered the act

of demonetization as pro-rich and anti-poor.

A common citizen considers all 'politicians' as corrupt, irrespective of his or her political affiliation. The phrase 'all

DEMONETIZATION Exorcising the “Demon”96

politicians are corrupt' has become part of the common consciousness in almost all developing countries. Therefore

a statement 'black money resides with politicians, yet the common man was put to the inconvenience' was included

in this section of the questionnaire. It is astonishing that about 74.0 percent of the sampled population agreed with

the statement. Only 16.7 percent disagreed and 9.6 percent ticked 'don't know'. This response makes it amply clear

that an overwhelming section of people is suspicious of the politicians, and thinks that they are inherently corrupt,

therefore cannot implement any policy against them.

Government demonetised Rs 500 and Rs 1000 notes and introduced Rs 2000 denomination. Those who opposed

the measure questioned the logic of this decision. Experts argued that introduction of Rs 2000 denomination will

help black marketers. We asked the respondents to express their opinion on the issue. About 60 percent of the

respondents agreed with the statement that 'demonetization of Rs 500 and Rs 1000 and introduction will make it

easy for black marketers to store large amounts'. One out of four (about 25 percent) disagreed and only about 14

percent refused to express their opinion.

In the second phase of the propaganda the focus was shifted from terrorism, counterfeit and corruption to building a

cashless society, which was mellowed down to less cash society. It was argued that the cashless society will not have

any corruption. Advertisements worth millions tried to convince people that they should switch to cashless

transactions. Prime Minister, Ministers, members of the ruling party and the entire network of RSS was geared up to

speak in favour of a cashless society. In this section of the schedule the statement 'we should build a cashless society, if

there is no cash there will be no corruption' was included. About 49 percent of the respondents agreed with the

statement, about 34 percent disagreed and 17 percent refused to express their opinion. However, this statement

was followed by 'cashless society will only benefit the capitalist'. The data analysis revealed that about 52 percent

respondents agreed with it. They thought that cashless society will only benefit the rich. About 31 percent disagreed

and 16.7 percent said 'Don't Know'.

When we asked the respondents to express their views on the statement that 'demonetization has brought business

to a grinding halt' about 54 percent agreed with it, about 31 percent disagreed and 15 did not express any opinion. It is

evident that six among ten respondents thought that demonetization had adversely affected business all over the

country.

When we asked respondents to agree or disagree with the assertion that 'the problems created by demonetization

are short lived and soon things will come to normal' 51 percent of those who were interviewed agreed with it.

Curiously, it was more of a 'wish' than opinion based on experience. About 34 percent did not reflect that hope and

thought that things will not come to normal soon, it a long haul and the crisis will not be over in coming months or

may be years. About 14.9 percent remained noncommittal.

This hope further decreased when we asked if demonetization will result in 'job creation in large numbers and

eradication of unemployment'. About 47 percent did not think that demonetization will create jobs, only 31 percent

thought it will and 22 percent did not answer the question.

Even though the Indian economy is still considered to be quite dependent on agriculture, the impact of

demonetization on the agrarian population is the least discussed issue in media or elsewhere. This section included a

few assertions that were made during the debate.

The first in the series was 'demonetization has created opportunities for the farmers to participate in the

development of the country'. About 20.0 percent did not express any opinion, about 39 percent disagreed with the

statement and 41 percent agreed with it. The respondents were vertically divided on the issue and almost equal

number of respondents held opposing divergent views. One in four respondents did not think that demonetization

will facilitate better participation of farmers in nation building. The next question revealed far more clarity of thought

DEMONETIZATION Exorcising the “Demon”97

based on experience. Wholesale markets are spread all over India where farmers bring their produce. These markets

witness hectic activities during the harvesting season. It was harvesting season when the Prime Minister had

announced the demonetization of the currency. We had included a statement that 'due to demonetization wholesale

markets are deserted today'. About 56 percent of the respondents agreed with the statement. Only about 28

percent disagreed and 15 percent said 'don't know'.

We followed up the above assertion by asking the respondents to express their opinion on the statement that

'demonetization did not have any impact on farmers'. More than 60 percent of respondents disagreed with the

statement, only 27 percent agreed with it and 11.5 percent said 'don't know'. The next statement which was included

in this section was 'in future demonetization will bring overall development to the villages'. More than 44 percent

were sceptical and did not think that it will lead to betterment of villages, 34 percent thought that it will, and about 21

percent ticked the option 'don't know'. The ruling party was elected on the promise that it will unleash development

and implement the Gujarat model of development. It is quite natural that a majority of people will see through any

claim that invokes 'Achhe din' or good days.

However illogical it may be, the statement that 'military men stand on borders for hours, standing in bank/ATM lines

and fight a war against corruption is a trivial sacrifice, comparatively' was repeated ad nauseaum on media and in

public discourse'. Our analysis showed that 50.4 percent agreed with the statement, about 34 disagreed and 16

percent did not answer. Evidently, invoking aggressive nationalism has its impact on most people's thought process.

During the month that followed demonetization the panicked government issued orders almost every day, often

contradictory, which not only confused the public and bank employees but also caused inconvenience. According to

one estimate, the Government had passed 50 orders in the first 30 days. A statement that 'Government changes its

stands on a daily basis so people have lost trust on it' was included in this section. The data analysis revealed that

about 53 percent of the respondents agreed with the statement, which clearly shows that most people lost faith and

did not trust the Government any more. There was widespread anger due to confusing and contradictory orders.

About 33 percent disagreed with the statement and 14.3 percent did not express any opinion.

The anger was further reflected in response to the statement 'in the future elections people will teach a lesson

through their votes'. Of all about 62 percent agreed with the statement, only 19 percent disagreed and 18 percent

abstained from making any comment. The response also shows that overwhelming majority has deep respect and

hope in the election process. They consider elections as the correct method to express their anger.

During the 2012 election, Modi had promised that after coming to power, he will act on those who have deposited

their black money in foreign banks. This money once brought back to the country will be distributed among all the

citizens, as per his estimate each citizen was likely to get Rs 150000. The promise was repeated in many election

speeches and created a hope among the citizens, which helped BJP win the general elections. After winning the

elections when people started questioning Modi and BJP that it had not fulfilled its promise of bringing the black money

stashed in foreign banks, the answer given by BJP president Amit Shah was simple and direct. He said 'woh to ek Jumla

tha' (it was only a non-serious comment). This angered people across the country, everyone felt cheated and insulted.

During the period that followed demonetization there was a rumour floated that once the black money is retrieved,

everyone is likely to get the promised Rs 15000. We included a statement 'earlier there was a promise of Rs 150000

for every citizen; now they are promising Rs 15,000, some money will surely come to everyone's account'. Of all 33

percent of the respondents agreed with the comment and had hope of receiving some money. Interestingly, 41

percent disagreed, had no hope and had lost the trust. Of all 26 percent were fence sitters, had not lost all hope of

getting some money, but were sceptical.

The data had shown that most of the respondents use banking facility for transacting small sums of below Rs 5000.

DEMONETIZATION Exorcising the “Demon”98

These sums are critical for survival. When asked to express their opinion about the statement 'now we cannot

withdraw our own money, this is unjustified high handedness' a large percentage of respondents - about 55 percent -

endorsed the statement. About 29 percent said that they disagree with it and only 15 percent abstained from

expressing any opinion.

Q21B. If you take out 68% of currency then country is bound to become poor.

Response Percent

0 .4

Correct 46.8

Incorrect 28.9

Don't know 23.9

Total 100.0

Q21C. If the PM had consulted right people then preparations could have been better.

Response Percent

0 .1

Correct 58.6

Incorrect 23.5

Don't know 17.8

Total 100.0

Q21D. It was a political decision taken in a hurry.

Response Percent

0 .1

Correct 53.2

Incorrect 32.2

Don't know 14.5

Total 100.0

Q21E. Demonetization will have no effect on black money.

Response Percent

0 .1

Correct 47.3

Incorrect 36.2

Don't know 16.4

Total 100.0

Q21F. The black money will come back and will be distributed among the poor.

Response Percent

0 .1

Correct 23.7

Incorrect 51.1

Don't know 25.1

Total 100.0

DEMONETIZATION Exorcising the “Demon”99

Q21G. Now poor man's money will be deposited in banks and will be given to the rich.

Response Percent

0 .2

Correct 35.9

Incorrect 41.0

Don't know 22.8

Total 100.0

Q21H. Black money is stashed abroad and demonetization will have no impact on it.

Response Percent

0 .2

Correct 50.9

Incorrect 31.0

Don't know 17.9

Total 100.0

Q21I. Rich converted their black money to white and they did not have to go to banks.

Response Percent

0 .2

Correct 64.8

Incorrect 22.5

Don't know 12.5

Total 100.0

Q21J. Politicians have black money, demonetization affected only common citizens.

Response Percent

0 .2

Correct 73.7

Incorrect 16.5

Don't know 9.6

Total 100.0

Q21K. Rs 2000 note instead of Rs 500/1000 will make it easy to hide black money.

Response Percent

0 .2

Correct 59.7

Incorrect 25.7

Don't know 14.4

Total 100.0

DEMONETIZATION Exorcising the “Demon”100

Q21L. We must go cashless, if there are no notes there will be no black money.

Response Percent

0 .2

Correct 48.8

Incorrect 34.0

Don't know 16.9

Total 100.0

Q21M. Cashless economy will only benefit the rich.

Response Percent

0 .3

Correct 52.2

Incorrect 30.7

Don't know 16.7

Total 100.0

Q21N. Demonetization has brought economy/karobar to a grinding halt.

Response Percent

0 .3

Correct 53.8

Incorrect 31.1

Don't know 14.8

Total 100.0

Q21O. It is a problem of a few days, everything will come back to normal in a few days.

Response Percent

0 .3

Correct 51.0

Incorrect 33.8

Don't know 14.9

Total 100.0

Q21P. Demonetization will generate employment there will be lots of jobs in the future.

Response Percent

0 .2

Correct 30.8

Incorrect 46.7

Don't know 22.3

Total 100.0

DEMONETIZATION Exorcising the “Demon”101

Q21Q. Demonetization will let farmers participate in the Indian economy.

Respnce Percent

0 .4

Correct 38.9

Incorrect 40.6

Don't know 20.2

Total 100.0

Q21R. Demonetization has adversely affected wholesale market, there are no buyers.

Response Percent

0 .4

Correct 56.5

Incorrect 28.4

Don't know 14.8

Total 100.0

Q21S. Demonetization has not affected farmers.

Response Percent

0 .4

Correct 27.4

Incorrect 60.7

Don't know 11.5

Total 100.0

Q21T: Demonetization will bring wealth in all the villages

Response Percent

0 .3

Correct 34.1

Incorrect 44.4

Don't know 21.2

Total 100.0

Q21U. Jawans stand on borders for hours. In a war against corruption if we have to stand in line for

some me, it does not matter.

Response Percent

0 .2

Correct 50.4

Incorrect 33.6

Don't know 15.7

Total 100.0

DEMONETIZATION Exorcising the “Demon”102

Q21V. This government changes it orders every day, we don't trust it any more.

Percent

0 .2

Correct 52.6

Incorrect 32.8

Don't know 14.3

Total 100.0

21W. In the coming elections, people will show strength of their vote.

Response Percent

0 .3

Correct 62.2

Incorrect 19.2

Don't know 18.3

Total 100.0

Q21X. First they promised 15 Lakh in every account, now it's 15 thousand, do you believe some money

will come in your bank account?

Response Percent

0 .5

Correct 32.6

Incorrect 40.9

Don't know 25.9

Total 100.0

Q21Y. We cannot withdraw our money, this is not acceptable, should not be tolerated.

Response Percent

0 .7

Correct 55.4

Incorrect 29.2

Don't know 14.6

Total 100.0

Q22. On the issues of demonetization, are people

Response Percent

No response .2

Happy with the Govt 30.2

Angry with the Govt 40.8

Laughing at the Govt 5.3

Supporting the Govt 9.3

Earlier supportive now angry 14.1

Total 100.0

DEMONETIZATION Exorcising the “Demon”103

In order to probe the opinion of the respondents about people's attitude towards the Modi Government we asked

them if people around them are, 1. happy, 2. angry, 3.laughing, 4. supportive, 5. were earlier supportive but now angry

with the government.

The data analysis showed that 30 percent said people are happy, about 41 percent categorically said that they were

angry, 5 percent said they were laughing at the act of demonetization, 9 percent said that they still support

demonetization and 14 percent said that people earlier supported the move and now are angry. It is evident that

those who expressed that people in general are dissatisfied and angry, put together were 60 percent of all those who

were interviewed, only one third of the sample population said the public is happy and one in ten said despite

hardship they support the move.

Q23. What is your opinion about Government on demonetization? Are you

Response Percent

No response .2

Happy with the Govt 31.4

Angry with the Govt 37.4

Laughing at the Govt 7.2

Supporting the Govt 12.7

Earlier supportive now angry 11.1

Total 100.0

The above question was repeated with slight modification. We asked the respondents to express their own opinion.

The percentage response to each option by and large remained the same. However, there were interesting small

changes in percentages as compared to the previous distribution. Percentage of those who supported remained the

same, that is, 31 percent. Percentage of those who said they are angry reduced to 37 percent, those who said it is

laughable act increased by one percent (7%). Those who said they support the government were 13 percent and

those who said they had switched their opinion from 'supporting demonetization' to 'anger against it' were 11

percent. Though put together those who self-reportedly supported the demonetization increased by 4 percent, the

majority 56 percent were found to be angry.

Q24. TV Channels/Newspapers and Media

Response Percent

0 .4

Completely sold out 25.5

Some are sold our some are not 39.2

No empathy with poor 21.0

I don't trust them 13.9

Total 100.0

Q25A. People are fools, and anyone can make them a fool

Response Percent

0 6.7

Correct 35.9

Incorrect 54.0

DEMONETIZATION Exorcising the “Demon”104

Don't know 3.3

Total 100.0

Public is stupid, fool and naive may appear to be a comment often made in casual conversations, so we may believe

that individuals do consider collective wisdom as important but the data revealed otherwise. When asked if they

agree with the statement that 'public is stupid, anyone can cheat them' about 36 percent agreed and 54 percent

disagreed, about 10 percent either did not respond or said 'don't know'. It was heartening to know that people still

have collective wisdom. This conclusion was further reinforced when we asked the next question.

Q25B. People are strong; they will teach a lesson.

Response Percent

0 6.5

Correct 71.9

Incorrect 18.5

Don't know 3.1

Total 100.0

When we asked if they agree with the statement that 'people of India are powerful and will teach a lesson', of all those

who were interviewed more than 71.9 percent said that they agree with the statement. Only 19 percent disagreed

and 9 percent abstained from expressing any opinion. This question was followed by a statement that 'public is happy

and stands by the government'. The analysis showed that 14 percent of respondents did not want to express their

opinion, rest of the respondents were equally divided on the issue. 43 percent agreed with the statement and again

43 percent disagreed.

Q25C. People are happy and support Government.

Response Percent

0 8.9

Correct 42.8

Incorrect 42.7

Don't know 5.7

Total 100.0

Q25D. People's memory is short, will forget everything.

Response Percent

0 8.2

Correct 43.1

Incorrect 45.1

Don't know 3.7

Total 100.0

It is often said that the public memory is short. In this section, we included this statement and asked respondents to

express their opinion about it. About 11 percent did not answer the question, almost 45 percent disagreed and 43

percent believed that public memory is short and they are likely to forget everything soon.

DEMONETIZATION Exorcising the “Demon”105

Q32. People should not keep money at home, who knows when government will demonetize.

Response Percent

0 .5

Correct 55.9

Incorrect 27.9

Don't know 15.7

Total 100.0

The announcement of demonetization of currency was sudden and dramatic; it was unsettling and came to people as

a visitation. There was also a rumour that the government is going to withdraw even Rs 2000 denomination. We

asked a question 'now no one should keep currency at home, who knows when the government will demonetise

them?' The fear of demonetization was intense and thus about 56 percent of the respondents agreed with the

proposition. About 28 percent disagreed and 15.7 percent remained noncommittal.

Q33. Now it is necessary to keep small currency at home? We don't trust Banks/ATMs any more.

Percent

0 .5

Correct 51.0

Incorrect 37.8

Don't know 10.7

Total 100.0

The next statement was also related to the loss of trust in government agencies. We asked the respondents to agree

or disagree with the proposition that 'now citizens have to store small denominations, who knows when we will not

be able to take out our own money from bank or ATM, in future'. About 51 percent of the respondents agreed with

the proposition and expressed fear due to lack of trust, 38 percent disagreed and 10.7 percent said 'don't know. It

clearly shows that in future a majority of people would keep sufficient amount of smaller denomination notes for

emergencies, which may keep these notes out of circulation for long.

Q34. We don't trust banks after demonetization.

Response Percent

0 .4

Correct 46.5

Incorrect 41.5

Don't know 11.6

Total 100.0

When we asked 'Has demonetization resulted in loss of trust in banks?', about 47 percent of the respondents agreed

with the statement. 42 percent disagreed and 11 percent did not answer the question. When we slightly modified the

question and asked 'if demonetization has resulted in loss of trust in the government' the percentage of respondents

who agreed with the statement increased to more than 50 percent and those who disagreed marginally reduced, it

was 40 percent. About 10 percent did not answer the question.

DEMONETIZATION Exorcising the “Demon”106

Q35. We don't trust Government after demonetization.

Response Percent

0 .4

Correct 50.1

Incorrect 39.6

Don't know 9.8

Total 100.0

Q39. Should all political parties make their accounts public?

Response Percent

0 .4

Correct 69.2

Incorrect 18.3

Don't know 12.0

Total 100.0

The debate that money received and spent by the political parties should be made public has been going on in India

for a few years. There is a sizable segment of political leadership and people who believe that the political parties

should also be brought under right to information act, so that their function is made transparent. There have been

charges and counter charges of political leaders and parties indulging the corrupt practices. Arvind Kejriwal, the chief

Minister of Delhi, and Rahul Gandhi, Vice President of Indian National Congress has recently accused the Prime

Minister of receiving unaccounted money from industrial houses. After demonetization, there were rumours that

the news was leaked to some leaders of ruling Bhartiya Janata Party (BJP) and they bought property worth crores of

rupees, just before the declaration.

However, in the midst of this debate after the demonetization all political parties were exempted from the limits of

exchange that were prescribed for the public. This move further angered the public. To find out prevalent opinion on

this issue among the public, we included a question 'should all political parties make their accounts public?' In

response to this question about 70 of the respondents said 'yes', about 8 percent said 'No' and 12 percent abstained

from answering the question. It is quite clear that an overwhelming majority has very little trust on political parties

and think that the political parties must make their accounts public. The response shows that firstly, people think that

political parties indulge in corrupt practices and accept black money in large quantities, and are easy conduits to

launder money, they also believe that political leaders are bought over by the corporate sectors by giving large

donations without public knowledge, and thirdly they trust that the system will be able to put restrictions on corrupt

practices if the accounts are made public.

DEMONETIZATION Exorcising the “Demon”107

Indian Media at its Worstby Subodh Mohanty - Director, Vigyan Prasar ( Retd)

THE media, which mounted a sustained campaign against the previous government's alleged scams, allowed the

present government to go unscathed even after such a worse blunder called demonetization that plunged the

country's economy into turmoil, forced the entire population (barring a minor section of the rich and powerful) into

queuing for hours before banks to get their own hard-earned money, forced lakhs of labourers to migrate from their

work places in cities back to their villages, compelled parents to postpone marriages of their daughters/sons, forced

many people to beg for cremation of their own near and dear ones in spite of the fact that they had money in their

banks.

The media not only allowed the government to go unquestioned on some of the basic issues related to

demonetization but also created a halo around the move – a masterstroke, a decision taken by a strong leader, a

panacea for ending the black money menace, the entire country is behind Modi and his move, common people are

ready to suffer for the country, only the corrupt and unpatriotic people are opposing the move (these days anyone

who opposes Modi Government's decision is either 'unpatriotic' or 'anti-national') and so on.

However, it did not take much beyond ordinary common sense to see the hollowness of these claims. There were

people including experts and political leaders who not only opposed these claims but also tried to explain what havoc

demonetization had caused in terms of destruction of the country's economy and untold suffering of people. But

their voices did not rise beyond the noise level created by the media hype in favour of demonetization. There were

serious articles discussing various implications of demonetization in English newspapers and blogs but they were not

accessible to the common people.

Some TV channels organized open-house or public debates ostensibly to gauge the public support for

demonetization. But most of these discussions were one-sided. This was because the audience gathered for the

purpose consisted mostly of those who subscribed to the views of the government. This was obvious from the high-

pitched clapping heard whenever someone talked in favour of the move. It was projected as if the audience came on

their own and so it must be a mix of all views. Such public debates shown in TV channels certainly helped to shape

public perception in favour of the move.

During discussions on demonetization like any other discussions involving government policies a special kind of

experts were seen who were called 'independent' experts. But in reality often such experts were more loyal to the

cause of the government than the spokespersons of the government. In many cases anchors themselves took the side

of the government and took it upon themselves to demolish the opponent's views.

TV channels often interviewed central ministers and senior bureaucrats ostensibly to quiz them on the negative

implications of demonetization. However, they avoided addressing any real issue and ended up giving lectures on the

virtues of demonetization and on the wisdom of the Prime Minister who took such a bold step even at the risk of

being unpopular. Time and again they insisted that the opponents had no moral right to question the move. In fact

they told the viewers that those who opposed the move were not only against the government but were also against

the country itself or in other words they were desh dhrohi (Anti-national).

4

At times prominent experts' opinions supporting demonetization were given undue prominence. For example, in a

channel the comment of the noted economist Jagdish Bhagawati, 'Why I am still with Modi on demonetization' was

shown again and again. But no channel focused on the views of Nobel Prize winning economist Amartya Sen on

demonetization.

The immediate visible effect of the demonetization move was long queues at banks. People were forced to line up to

deposit or exchange old currencies or to withdraw new currencies.

TV reporters interviewed people standing in queues for their turn to enter the banks or ATM to know their views on

the effects of demonetization on their lives but in reality it appeared that the whole objective behind these interviews

was to highlight the fact that in spite of difficulty they were facing, they are solidly behind Modi's decision. They are

ready to sacrifice for the country. There were exceptions, as well, some reporters projected the sufferings of the

people but such programmes were few. Occasionally the TV cameras focused on people who were the real sufferers

and raised their voice against the move.

Daily wage earners had to forego their daily earnings if they stood in queues. So they were forced to sell old notes of

500 and 1000 denominations at 20-40 percent discount to unscrupulous dealers. The result was that they went half

starved. They had no other options because their employers were paying them in old currencies only. This aspect was

not given due coverage.

It was a common sight that there were poor people, especially women, with old notes moving from shop to shop to

buy wheat flour/rice without any success. These women who were often accompanied by their hungry children

would occasionally beg people on the street to change their notes so that they could buy wheat flour/rice to feed to

their hungry children. None of the channels covered any such incidents. Nobody questioned what right the

government had to deny the people the right to buy food with their own hard-earned money.

The move, which was to strike a deathblow to black money, as the Prime Minister Modi claimed, became a source of

generation of huge black money. It was not only the poor labourers who were forced to exchange their daily earning

at a discount but there were many rich people who exchanged their unaccounted cash at high discounts. The media

did not throw any light on this black side of demonetization. It is obvious that today there is more black money

compared to what was before demonetization.

When the government realized that people could not be fooled any longer by pointing out that demonetization had

dealt a severe blow to black money, they said it was just the beginning. The government has plans to go in a big way

after benami sampatti (illegitimate property), but nothing has happened so far. The media is totally silent on the issue.

There were no reports on how people were humiliated by bank guards or other employees. The media particularly

the electronic media played an instrumental role in undermining the real impacts of demonetization. The media

helped to reinforce and legitimize the government's misleading and false pronouncements on the supposed benefits

of the demonetization move.

The partisan campaign of the media projected the following:

i) Everyone welcomed demonetization and since the decision is 'highly popular' it must be good for the

country.

ii) People suffered or were put to inconvenience but in spite of such sufferings or inconveniences they were

solidly behind the decision.

iii) The liquidity crunch will be overcome shortly. The government was taking all necessary steps to restore the

liquidity.

DEMONETIZATION Exorcising the “Demon”109

iv) The opponents unnecessarily exaggerated the negative impacts of the demonetization move. The decision

was not as pessimistic as they tended to project it.

v) It will have no impact or smaller impact on the poor. In fact they will be benefitted once the unaccounted

money came back to the banking system. It was argued the cash earnings of the poor were small and they

hardly had any cash savings. This is in spite of the fact that with little understanding of the financial and

economic lives of the poor one could realize the harsh impact of demonetization on the poor.

vi) The demonetization move dealt a severe blow to the black money menace.

vii) The move will expedite the process of making India a 'cashless economy'.

viii) Those who are opposing the move are in fact supporters of the corrupt system.

ix) The move was the result of careful consideration of relevant issues.

x) The autonomy of the Reserve Bank of India is not compromised and even the argument was stretched to the

extent that it enhanced the autonomy.

To prove the so-called popularity of the cashless economy innumerable advertisements were issued by the

government. The media also started eulogizing the virtues of cashless economy in the Indian context. These brought

out the views of brand ambassadors of Modi's demonetization move on cashless economy. However, it was not

highlighted that cashless economy was the objective of the demonetization move. It was also not highlighted that to

establish cashless economy in the country a momentous decision like demonetization which affected the entire

population and pushed the economy backwards, was not necessary.

The fact that cashless economy was not one of the original objectives is obvious as there is no evidence of such

preparation on the part of the government. If this was one of the objectives of the demonetization move then much

preparation should have gone in before the announcement of demonetization on 8 November 2016. There was a

certain increase in cashless transaction. This happened because suddenly people had no other alternative. But

immediately after cash availability became near-normal the cashless transactions reduced drastically.

The media has not raised this fact because for them the relevance of demonetization in the sense of newsworthiness

is no longer there or in other words the media no longer thinks talking about effects of demonetization will help

them raise TRPs. There is a long way to go to achieve cashless economy in a meaningful way. This is because the

majority of Indians have no credit cards or are unfamiliar with other means for engaging in cashless transactions. A

large percentage of those, who have credit cards or are familiar with other devices of cashless transaction, hardly

make use of them. A significant section of the Indian population has no access to bank facilities.

The most important point is that lakhs of daily-wage earners engaged in informal sectors have no need for banking

facility, as they have no money to deposit. They earn and spend it on a daily basis and are constantly under debt of

some kind or the other. Talking about virtues of cashless economy to these people tantamounts to making fun of

their existence. It is a well-known fact that some of the advanced countries have not done away with cash transaction.

Even one cannot say with certainty that the superiority of electronic payments over cash as a medium of transaction

is a proven fact. The shift towards cashless economy should be through careful and detailed policy work and not

through such unplanned and hurriedly implemented moves.

In today's world the media particularly the electronic media plays an important role in shaping perception of the

common people. The media is supposed to be one of the four pillars of democracy. Thus the media is expected to act

impartially and objectively. It should behave responsively.

DEMONETIZATION Exorcising the “Demon”110

However, the anchors, who should coordinate the discussion involving different views and try to establish a balance

between opposing views, take a particular route to channelize the discussion. This was often seen when the

discussant accused the anchors of being partisan. And in such cases the typical answer given by the anchors is 'aap

hamara/ri prashn puchne ka adhikar ko chin nahi sakte' (you cannot take away our right to question). But the irony is

that the questions asked only served to propagate a particular view.

There were exceptions. There were few anchors who tried to depict both the sides of demonetization. It is true such

anchors/channels initially welcomed the decision. In fact initially they also believed it was a 'bold' decision with the

right intention but gradually they realized the reality, the devastating impact of demonetization and tried to project

the hard realities including the helplessness, humiliation, pain and suffering of the common people. However, such

programmes could not change the dominant narrative of the media praising the 'bold' decision.

DEMONETIZATION Exorcising the “Demon”111

Note