In the special Demonetisation & the Global War on Cash issue of GreatGameIndia magazine we explained the historical geopolitical forces and provided an insight into the chain of events that led us to Demonetisation. How Ronald Reagan’s economic strategies born of the Cold War to counter Soviet expansion and disrupt its economy paved the way for the Financial Crisis of 2008 creating a liquidity crisis of global proportions. How to combat the crisis and bailout their bankrupt economies there began a global push by Governments, Central Banks and Multinational Companies to eliminate the use of physical cash around the world and replace it with digital money – a movement often referred to as the #WarOnCash. How this War on Cash was waged in India though Demonetisation that ravaged India’s informal economy that stood as a bulwark against the 2008 crisis. And finally how a new Central Bank is being created for the sale of Indian resources and state owned units at dirt cheap rates to the foreign banks and corporations bankrupted during the 2008 crisis.
Recently a Parliamentary Committee on Demonetisation submitted its report, which will be tabled during the Monsoon Session of Parliament. As per the report not a single objective was met, no major black money was found and that Demonetisation had no effect on terror funding. All the reasons given by the Government to implement such a scheme which until now were unsubstantiated are now rendered false by this report – mainly black money and terror funding.
The Committee informed that “as per a study conducted by the Indian Statistical Institute, the stated value of Fake Indian Currency Notes (FICN) in circulation was just Rs 400 crore only. In the year 2014 the seized/recovered value of FICN was Rs 40.58 crore, in the year 2015 it was Rs 43.83 crore and in the year 2016 upto 30.09.2016 the fake Indian currency notes seized/recovered was Rs 27.79 crore”. While Indian govt. was cracking a whip on the informal economy the actual Black Money lying in the Tax Havens was already being routed back into India legally via FDI through what is one of India’s biggest scam called Round Tripping. Whereas the saga of how the Government chose the same foreign currency printers that were the main culprits behind FICN that funded terrorism is already told in our report The Secret World Of Indian Currency Printers that kicked off a major controversy.
According to Tehelka, “media have been warned not to bring the report to light”. Below are excerpts from the Parliamentary Committee Report as presented to the Rajya Sabha on 10th April 2017.
The Committee, took into consideration its earlier recommendations as contained in its various Reports mentioned earlier and was of the considered view that the notification issued by the Ministry of Finance (Department of Economic Affairs) should have been laid before the Parliament in the Winter Session of 2016 itself.
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The Committee also takes note of reports that counterfeit notes of the New series of notes have already entered the economy and expects that the Ministry would assess the veracity of these reports immediately on a priority and take corrective measures at the earliest so that this menace is curbed effectively and financial integrity of our system is well maintained.
The Committee is of the view that the Ministry and the Reserve Bank of India should hold discussions with the affected parties and provide support as and where required so that these sectors which virtually collapsed during the demonetization process are recovered fully in due course.
The Committee realizes that inevitably, it is the low-income and rural households who have been hardest hit by the currency reform. Demonetization has weighed heavily on the country’s manufacturing sector. Though the Ministry took steps to mitigate the effects, it cannot be ignored that it created significant disruption throughout the economy and threatened economic output.
Committee feels that though Electronic payments systems are fast, convenient and easy, but India’s economy relies predominantly on cash, therefore the effects of demonetization were greater than anticipated. Our economy is heavily dependent on cash as only less than half of the population uses banking system for monetary transactions. As a result, demonetization has hit trade and level of consumption very hard.
The Committee acknowledges that corruption is a problem but in the process honest, hardworking and tax paying citizens of India were made to suffer. The Committee agrees that corruption is a major cause for the persistence of poverty and the growth of corruption in India due to the maze of regulations and the thickets of red tapism. In Committee’s view solution lies in simplification, rationalization and reduction in taxes; cutting regulations and curtailing officials’ discretionary powers; eliminating loopholes and widening the tax net along with efficient implementation. And for efficient implementation of all this, discussion on the issues at hand with people with the requisite expertise is a must rather than attack any criticism as somehow anti-national or pro-corruption.
5 Statistics that show the combined impact of Demonetisation & GST on Indian economy
The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. Below are PMI statistics that show the actual impact Demonetisation had on various segments of society in numbers. Statistics by Trading Economics.
The Nikkei Services PMI in India plunged to 45.9 in July of 2017 from 53.1 in June. It was the first contraction in services activity since January and the sharpest since September 2013 following the implementation of Demonetisation and the goods and services tax (GST). Output and new orders declined for the first time since January, with rates of reduction the fastest since September 2013. This had an adverse effect on the labour market, with employment contracting over the month.
The Nikkei Manufacturing PMI in India fell to 47.9 in July of 2017 from 50.9 in June. The reading pointed to the first contraction in factory activity since January but the deepest since February 2009 amid widespread reports that the sector has been adversely affected by the implementation of Demonetisation and the goods and services tax/GST. The reductions in output, new orders and purchasing activity were all the steepest since early-2009. Also, the downturn was widespread across the three broad areas of manufacturing, with intermediate goods producers the worst affected.
India’s industrial production although saw upward activity during the first half of 2016, since November after implementation of Demonetisation and GST it declined sharply.
Industrial Production MOM in India decreased 10.30 percent in April of 2017 over the previous month.
Manufacturing Production in India reached an all time low after the implementation of Demonetisation and has been struggling since and now again declining after introduction of GST.
Although the parliamentary committee report (and the PMI statistics) provided a fair assessment of the combined impact Demonetisation and GST had on various segments of society there is no mention of why such a step became necessary now that the reasons given were already proven false and none of its objectives met. We are yet to see a comprehensive study undertaken by any IIMs or IITs or any Indian University worth the name into the real reasons and motives behind Demonetisation and the long term impacts it will have on India along with its overlapping into various other schemes implemented under the umbrella of this global War on Cash and its impact on India’s national security.