One Year of Demonitization M ODI GOVT GAVE INDIA ACHHE DIN WITH A BROKEN GST AND FAILED DEMONETISATION T HE PM' S TWO BIGGEST GAMBITS HAVE DONE NOTHING TO REVITALISE THE ECONOMY . Courtesy: Kamal Mitra Chenoy
could be done, as the ex- treme step had been taken. Before the economy could recover, months later, there was a new gambit: GST. More than 150 countries across the world have some form of GST. But they have just two-three slabs of taxes at most. The Modi model has as many as six. No wonder there is confusion and despair among the trading community. The confusion has been com-
Prime Minister Naren- dra Modi, after his election victory in 2014, promised India a booming economy. After waiting for months, people still hoped for the good times, the "achhe din. ” Finally, as the econ- omy moved up or down depending on the world and regional economies and internal markets, it be- came clear that some new boost was in order. Finally, PM Modi decided to play his strongest gambit: de-
In the urban areas, from Delhi to Kolkata to Mumbai, sales were down. Even the legality of the move was ques- tioned by senior lawyers, who pointed out that the RBI Act, 1934 (updated to 2017) had been violated. In the underbanked rural economy, the return of cash was painfully slow. In the underbanked rural economy, the return of cash was painfully slow. Section 24(2) of the RBI specifically laid down that demonetisation had to be recommended by the central board of the RBI to its authorities. Since PM Modi announced demonetisation (planned with great secrecy) on No- vember 8, 2016, the central board would have had no time for any such motion. Senior counsel appealed to the Supreme Court, but since this was post- demonetisation, there was little that
monetisation in November 2016. It failed. Only one per cent of the demon- etised currency notes came back to the Reserve Bank of India (RBI). The fond belief that "demo" would bring in thousands of crores of black money to recharge the economy turned out to be a nightmare. The poor, who had been promised as much as Rs 15 lakh in their bank accounts from the ex- pected black money returning to the system, had their hopes dashed. With 86 per cent of the currency de- monetised, cash flows dropped sharply. The underbanked rural economy with relatively few banks, whose cash re- plenishments came in slowly as in the case of scattered ATMs, meant low availability of currency for the farmers and rural labour.
pounded by the drama over the inclu- sion of petrol and diesel, which was rejected by the GST Council. Negative perceptions of two major economic interventions by the Naren- dra Modi government have had an im- pact on the economy. This has expectedly hit foreign trade. Sample few figures: exports increased by 10.3 per cent to $23.8 billion and imports by 21 per cent to $35.5 billion in August 2017 against $21.6 billion and $29.3 bil- lion, respectively, in August 2016. Therefore, oil imports rose by 14.2 per cent to $7.8 billion and non-oil imports by 23.1 per cent to $ 27.7 billion in Au- gust 2017, compared to $6.8 billion and $22.5 billion a year ago. The trade deficit figures and rising cost of oil imports are bad news for the economy. The costs of fuel have been
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November 2017
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