When Prime Minister Narendra Modi made his dramatic announcement of the “demonetisation” of high-value currency notes on 8 November last year, the nation was caught completely unawares and had to grapple for days to bring itself on terms with the implications of the move. Even after a lot of dissection opinion was mostly divided and sharply so. 

On one end of the spectrum were the “economists” who opined that the move was bereft of economic logic and could never be a strong antidote to the burgeoning “black economy” – its purported target. On the other hand were the “optimists” who believed that this was indeed a good beginning against the menace of the parallel economy and that no other PM in the history of independent India had shown the courage to take the bull by the horns. 

The optimists, therefore, advocated a policy of “wait and watch” for the benefits of the move to slowly unfold, even while accepting (somewhat grudgingly, though) that it would result in some hardship to a wide section of the population in the short term.

Here we are not considering the motley third and fourth groups – namely the perpetual apologists of the Prime Minister who are prone to applauding his every move in the social media or his eternal critics who tend to analyse all his moves and motives  in the shadows of the erstwhile unfortunate happenings in riot-torn Gujarat of 2002.

The first group, namely the economists who criticised the move as an unnecessary burden on the nation without any major gains, has been largely proved statistically correct already. The move has already wiped off close to 1 per cent of India’s GDP for the year 2016-17. There is a strong similarity between the estimates of Center for Monitoring Indian Economy (CMIE) and the Economic Survey published by Government of India on the economic impact of the demonetisation move, which bears out this fact. 
CMIE estimated late last year itself that the overall loss to the Indian economy would be Rs.1,28,000 crores – which means Rs.1.28 trillion crores. If we consider the size of the GDP to be Rs.143 trillion crores ( around 2016) – then it translates into a loss of approx. 0.75 to 1  per cent of the overall GDP. The Economic Survey indicated that 0.5 per cent of the GDP was the minimum loss to the economy arising out of demonetisation, thereby confirming that the estimates of CMIE and other independent analysts were not way off the mark.

The second group, which continued to put on a brave face during the utter turmoil of the demonetisation fiasco in the hope that there was a supplementary “long term” strategy to deal with black money that would be slowly unfolded by the Prime Minister, has been badly let down by the recent Union Budget. It was generally the national consensus that the fountainhead of corruption and misuse of black money in India was through the unholy nexus of banks, politicians and businessmen – whereby bank loans were channeled to the political funding system and written off as Non-performing assets (NPAs) in connivance with the authorities. 

Twelve per cent of all advances ( i.e Loans) of Public Sector banks in India constitute NPAs – a figure which keeps on rising every year, including the last two years of the Modi government. Raghuram Rajan, the former RBI Governor, had put the item on  top of his Agenda for his second term – when he was unceremoniously shown the door (the first RBI Governor since 1992 who did not get a second term).

The “holy war” against black money cannot result in a victory without a surgical strike against the twin evils of Bank NPAs and the opaque process of political funding. Modi’s acid test was to have included far reaching measures ( and not some perfunctory “small steps’) to eradicate these twin evils, and to thereby corroborate the proclamation that the demonetisation step of November 2016 was just the first step in a well thought out strategy against the entrenched system. While the Budget was as usual just paying lip service to the threat of Bank NPAs, in the matter of political funding it sought to continue to “protect” the identity of the “political donors” by proposing some strange idea of “Bonds” to be issued by banks to the would-be donor, who would then hand it over to the party of his choice for encashment. When such inane measures are compared with the deeply “surgical” nature of the demonetisation move that virtually rattled the core of the economy, one cannot but conclude that the war against black money is bereft of a genuine “long term” intention to curb the menace.

Another incident merits a mention in this context. Sometime in the last quarter of last year, it was reported in a section of the national media that the government had “argued “( read pressurized) with the International Rating Agency Moody’s to upgrade the country's rating from the lowest level of investment grade to a notch higher. Moody’s refused – and commented that India was still “some years off  from an upgrade” – the reason being the unusually high level of NPAs in the banking system and the apathy to resolve the problem as a national priority.

All said and done, this now leaves us with the undeniable fact that “demonetisation” has wiped out about close to 1 per cent of the economy, caused loss of over 100 human lives, wreaked havoc with the cash- dependent unorganized sector and did not “kill” the overall quantum of cash that it was supposed to destroy. Also that it was purely a “one-off” event, not backed by institutionalized measures to counter the black economy such as eradicating Bank NPAs or improving the political funding process.
But does this mean that the establishment loses the game ? Not necessarily so, for we are yet to conclusively understand the “political” fallout of the decision. 

Four states are going to the polls and the strategically all-important state of Uttar Pradesh is one of them. A victory for the BJP led NDA would obviously be triumphed as a victory for Modi against the “doubters”. The “marketing of an idea” takes precedence over sound economics – and our PM has often proved himself a master in this domain. However- the Indian voters too have often shown  their capability to sense the integrity (or lack of it) of political decisions and return matured verdicts. In this context, the electoral outcome of UP could indeed again be a watershed moment in Indian politics.

The writer is a Kolkata-based chartered accountant.