The first thing that struck me while reading the Reserve Bank of India’s (RBI) annual report for 2016-17 is that it has five and half pages of a list of abbreviations upfront. That alone should disqualify about 90% of the people currently offering expert comments on it on social media. Some of them think is y-o-y (year on year) is a long lost cousin of LOL or an illegitimate child of YMMD (You made my day).
The most immediate sign that the report is a subtle spin out of the demonetization disaster is that in Part One under ‘The Economy-Review and Prospects’ it says off the bat, “Headwinds from the global slowdown and the transient impact of demonetisation notwithstanding, the Indian economy demonstrated resilience in 2016-17, marked by moderate expansion and macroeconomic stability - low inflation, and improvement in current account and fiscal deficits.” It describes the impact of demonetization as “transient” and that should tell you a story.
The report uses the word “demonetisation” 97 times which to me does not seem that “transient.” Okay, I admit that’s a cheap shot. What does it take for me to do Ctrl F and search for the term in the 224 page report?
I know I am dancing around the core point of offering you a serious analysis of whether demonetization was one epic disaster or not. So let me continue the dance. The letter of transmittal from RBI Governor Urjit Patel is dated both as August 30, 2017 as well as “Bhadrapada 8, 1939 (Saka).” I found out that the Saka calendar is the official civil calendar in use along with the Gregorian calendar. Did you know that? Now you do.
Did you know that the transmittal of documents such as the annual report is under Section 53(2) of the Reserve Bank of India Act, 1934? I am not sure why we are using an act preceding India’s independence. Of course, there would have been many amendments since to suit the demands of a new nation-state. Just saying.
As you probably suspect by now, I am not coming to the point about whether demonetization was an epic disaster or had any merit at all. The simple fact is that no one really knows. The popular social media opinion seems to suggest it has been an unmitigated disaster for the economy as well as hundreds of millions of Indians.
Former Prime Minister Manmohan Singh, also a well regarded economist who had presciently predicted a drop of 2% in the GDP, is being feted all over again for saying in parliament November 24, 2016 that demonetization was “organised loot and legalised plunder”. Dr. Singh’s much talked about reputation as a sedate, non-confrontational figure has always been overstated. People confuse his soft demeanor with his words. I have always known him to be a tough, no non-sense man reputedly given to spectacular outbursts.
Alright, can I come to the point now please? Let me see if I can continue resorting to extraneous stuff still. Did you know there is an abbreviation called PADO, which in many Indian languages means fart, used in the RBI report? It stands for “Public Administration, Defence and Other Services.”
Reading a surfeit of comments by ordinary folk about the RBI report generally and demonetization particularly, I was thinking of a public rally by President Donald Trump where he described the Iran nuclear deal as the “worst ever” and the carefully selected audience behind him nodded in vigorous agreement. I had a strong suspicion that many of them did not know what Iran was, let alone nuclear. When I read millions of people on social media hold forth on the complex details of the monetary policy spread over 224 pages of a report that contains abbreviations such as PADO, I become cynical.
My intelligent inference based on years of having operated in Delhi and interacted with finance ministry bureaucrats is that demonetization had no singular identifiable purpose. The objective behind its execution has changed so frequently that one no longer knows whether Prime Minister Narendra Modi or his cabinet members, at any rate those who might have had prior knowledge of the move, had any clue about why it was being carried out. Going by some well-reasoned analysis based on cold statistics it seems if the purpose was to destroy trillions of rupees of unaccounted wealth—black money—it has not been even remotely served because according to the RBI 99.3 % of all the old currency has been returned. If demonetization filtered out only 0.7 percent can one by any stretch of the imagination call it a success? I doubt it very much.
One passage that jumped out at me was this: “In the external sector, a slump in export growth and an increase in imports widened the trade deficit to US$ 40 billion in Q1 of 2017-18, the highest since Q2 of 2013-14. The evolution of terms of trade is likely to be largely shaped by the outlook for oil production in the US and compliance with the extended production cuts announced by the Organisation of the Petroleum Exporting Countries (OPEC). Even though the outlook among major trade partner economies entails a modest expansion, increasing recourse to protectionist measures in advanced economies could impose a challenging business environment for exports.”
The bit about “Protectionist measures in advanced economies” makes a point but unnamed reference to America where the Trump administration has been making a lot of noise about creating trade barriers.
No one expected the RBI to say candidly, “Folks, yes we fucked up on demonetization.” A quick reading of the report tells me that it does not even saying so nebulously. Calling the impact “transient” it makes clear attempt to downplay the after shocks. The statistics, however, tell a different story.