The first purpose was to disable party’s that were contesting the UP election by blocking their cash and creating mayhem in political circles.
The second purpose was to exchange unofficial cash through manipulation of the banking system. For this the governor was changed and direct new currency supply lines were established. Cash was exchanged at a discount ranging from 5% to as high as 50% and then eventually tapering to 5% towards the end of the program.
Temples and Trusts that receive cash also opened discount windows to exchange the money.
Midway during the program, Congress found some explosive material on Modi and threatened to expose him through an earthquake but this was prevented after a meeting between Rahul Gandhi and Modi and issuing of executive order that all political party’s could deposit cash into their own bank accounts.
After this all political party’s got busy with opening similar discount windows through which old currency was deposited and later withdrawn.
As no political party comes under RTI or under Income Tax and as all their deposits and expenses are away from public glare, everybody made money at the expense of those who had accumulated large amounts of money.
The big businessmen were already kept in the loop and they were not affected at all.
What went wrong in the calculation was the RBI’s ability to handle the cash crisis and refilling of the cash.
Thus Digital Indian was promoted but that too worked for a short time and is now more or less is dead. Very few people are using digital payment methods. Cash use level is back to what it was before November 8, 2016.
And the 45% Indians who did not have bank accounts and could not exchange their money and the poor got shafted but they were sold patriotism and soldier standing on the border kind of stories, queues outside Reliance Jio stores and Cold Play concert ticket lines were used to shame most Indians who dared to speak against the Modi move to kill black money.
No black money got killed. The sudden withdrawal of cash from the economy however killed the informal economy, which anyway is the bulk of our economy. Small and Medium enterprises got badly mauled, job losses were all around and as a consequence the GDP fell. Although government claimed a fall to 5.7% but considering that the formula had been tweaked earlier, actually it has fallen to 3.7%.
Now in the press conference of yesterday, Jaitley showed a graph of IMF based forecast which shows the economy going into decline till 3rd Quarter of 2019, which is two years of continuous decline from today before it comes back to level off at pre November 8, 2016 levels in 2023.
The governments hope that people will not be able to deposit all the money and their childish attempts to prevent deposits including threats issued by Modi himself and 60 rule changes in 50 days showed that the government is of the uneducated and in its zeal to keep the move secret it had shot itself in the foot and indeed shot the country down.
But all political party’s made money while the sun shone.
This is the long and short of demonetization. An experiment by IMF to test what happens to a country when all cash is withdrawn and our joker allowed the country to become the IMF laboratory.
If you notice, there is only one institution that is praising Modi and that is IMF.
By the way, it was not a scam to recapitalize the banks. That would have only happened if Indians had failed to deposit all the cash. But most of the cash was with the big guns who were anyway unaffected and the small guys managed to push in all their cash through proxy accounts. Thus 98.97% cash came back.
Yes the consequent fall in economy and the destruction of banking credit ensured that the interest rates went down, this benefited large borrowers at the expense of small depositors and retired people. For the first time in India’s independent history bank credit growth went into negative territory.
It is a long road to recovery as business confidence lies shattered and the economy has been sent to the cleaners.
In any other country the government would have been deposed and the leader lynched, but we are only good at lynching those who attack cows and we make such leaders into holy cows.
(The following article is taken from Sanjiv Bhatt’s Facebook wall)