The government’s filibustering held back the tabling of a report of the Standing Committee on Finance, which is critical of demonetisation. This shows the government is needlessly defensive about the scheme.

First, nobody ever disagreed that demonetisation was well-intended. Second, back then many experts believed it would work. Most felt sure that a lot of corrupt people who had trunks of currency notes would not be able to exchange them for new notes and would lose it all. The idea that the resultant extinguishing of liability would be a gain to the RBI, which could be transferred to the government as dividend, and the money would be used to, say, build houses for the poor sounded simple and neat.

But the crooks managed to win. Aided by dishonest bankers they got new notes for the old, and 99.40 per cent of the demonetised notes (₹15.44 lakh crore) came back into the system. Modi lost.

However, while demonetisation failed to deliver Benefit A, it produced Benefit B. In 2017-18, the first full year after demonetisation, 1.41 crore more personal income-tax returns were filed, of which, one crore were first-time filers. Personal income tax collections grew 18.9 per cent. Demonetisation was at least partly responsible for this. Some believe that the increase in compliance, which would rake in higher revenues year after year, is even better than the one-time bumper harvest the scheme aimed for.

Yes, the GDP took a hit because the informal sector shut down due to the currency crunch — and that’s in a way good. Though ninety-three per cent of labour force is in the informal sector, only 800,000 of the 59 million enterprises in India are registered as companies. These workers are over-worked and under-paid, and the enterprises contribute nothing to the tax kitty. Moving the economic activity from informal to formal, despite the short-term pain of transition, is desired. The government, instead of being defensive about demonetisation, should stand up and say, yes, we meant well, but though the scheme didn’t go as expected, it did have positive outcomes.

M RameshSenior Deputy Editor

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