The first question is, why is this Bill needed? It is needed because on the night of 8^th November the Government or rather the Prime Minister in a 48-minute address, unilaterally and unnecessarily announced that some Rs.14 lakh crore worth of 500 and 1000 rupee notes amounting to 86.4 per cent of all the currency in circulation in India would be illegal as of midnight. In fact, three hours is what he gave our country to pull 86 per cent of the country’s money out of circulation, and this in a country where cash has represented 98 per cent of all transactions by volume. Mr. Premachandran has already described why he thinks this is illegal.

Within days the real result of the Modi announcement became apparent – the severe disruption of normal economic activity. Since over 90 per cent of the financial transactions are made in cash and over 85 per cent of our workers in our country are paid in cash, the everyday economy was ground to a standstill in the last two months of the year.

The Government wants to get credit for its bold move but what inept implementation, Mr. Chairman! It made a mockery of the initial shock and awe with which the announcement was greeted, the appalling lack of elementary planning unleashed anarchy on the economy and created insecurity and anxiety amongst people. Not nearly enough new currency had been printed. So, the banks did not have even a fraction of what was enough to meet the consumer demand for new notes.

They did not have the new notes and so they restricted withdrawals to small amounts of cash that were insufficient for most people. This is also illegal, Mr. Chairman, though my friend the hon. Mr. Premachandran did not mention it. My question is, under which provision of the law can an Indian citizen be denied access to his own account? Can the Finance Minister name one country in the world that disallows people from withdrawing money from their own bank accounts?

It is clearly a mask, Mr. Chairman, for the Government’s inefficiency in not printing enough notes. Thirty days after the Prime Minister’s speech, only 30 per cent of the currency in circulation had been restored. The RBI told the Public Accounts Committee on January 18 that it was up to 60 per cent; the SBI estimates it may go up to 70 per cent by the end of February; the Economic Survey claims it will all be back by the end of March. But I do not think so because the rate of printing of Rs.500 notes has been falling well below the target, and going by the rate at which the printing presses are functioning it is going to take, I suspect, another five or six months to remonetise the entire banking system. Anyway whenever that cash system is fully restored, it is very clear that the Prime Minister’s ‘bear with me for 50 days’ was yet another jumla.  

There is even more inefficiency than that. When the Government started printing notes it did not print enough quantity of the smaller notes. So, if you we were lucky enough to get a Rs.2000 note, no one could make change for it for you. And even more inefficiency was reflected with the ATMs. It never occurred to the Government to realize that if you want to put the new notes into the existing ATMs, they should be the same size as the old notes. They made them a different size and they would not fit into the ATMs, and then they had to scramble to hire 50,000 engineers across the banking system to recalibrate the ATMs.

More seriously, Mr. Chairman, the lack of cash reduced both consumption and the demand. I feel sorry for my friend the Finance Minister because he was proud, rightly so, that we were briefly the fastest growing economy in the world. Now we can no longer say that. Because  a booming economy that boasted the highest growth rates in the world has suddenly become a cash scarce economy and the result was of course that production went down in all sectors. Small producers could not get working capital; some businesses even have had to shut down; many daily wage workers who are of course a majority of the labour force in our country lost their jobs because firms did not have the cash to pay them.

The Economic Survey, published by the Finance Ministry, itself states that demonetization is, “An aggregate demand shock, an aggregate supply shock, an uncertainty shock and a liquidity shock”. It says, “The cash crunch must have affected the informal economy”. The informal economy accounts for nearly half the overall GDP and 80 per cent of the employment economy and inevitably it runs on cash.

          Unemployment has now shot up to a five-year high.  According to the All India Manufacturers Organisation (that is AIMO), micro and small scale industries and traders have incurred 60 per cent job losses and 47 per cent revenue losses because of demonetization.  Not only are the SMEs shutting down, according to AIMO, medium and large infrastructure companies which they have surveyed have reported a 35 per cent drop in employment and 45 per cent drop in revenues.  AIMO estimates even higher losses of jobs and revenue as of the end of March.  Real estate, construction and infrastructure which provide the maximum employment in our country after agriculture are set to lose over one lakh jobs over the next year.  Rs. Eight lakh crore construction industry which employs 4.5 crore people has virtually ground to a halt with a drop of 80 to 90 per cent in revenues.  There has even been an inventory pile-up because, of course, there is no consumer demand.

          Hon. Chairperson, please have a look at the indicators of the economy.  Sales, cash flow, trader’s income, production, employment were all down in November and December 2016.  That is why our former Prime Minister Dr. Manmohan Singh estimated that the GDP of our country will shrink by 1 to 2 per cent for the fiscal year.  Local industries, like footwear in Agra, garments in Tirupur, rubber in Kerala and transport everywhere, absolutely slowed down and in many cases work had to be suspended for lack of money. 

The informal financial sector-the rural moneylenders who provide loans amount for 40 per cent of our total lending, that infrastructure has almost collapsed.  In fact, rural India is in bad shape.  The fishing industry depending entirely on cash sales of freshly caught fish is deeply affected.  This is even affecting coastal security as I pointed out during Question Hour this morning because the number of boats going out to sea has been so severely reduced because of demonetization that we have fewer eyes and ears looking for suspicious activities in our maritime waters.  Traders are losing perishable stocks; farmers are dumping their produce.  There was another question today in Question Hour about that.  In fact, there has been a study by economists at the Indira Gandhi Institute for Development Research which in late November established that the deliveries of rice to rural wholesale mandiswere 61 per cent below usual levels; soyabeans were down by 77 per cent; maize was down by 30 per cent; the winter crop could not be sown on time because no one had cash for seeds and therefore the harvest may well be 25 per cent lower. 

          As I said, hon. Chairperson, we have another crisis when it comes to my own State of Kerala because rural banking has been severely affected.  The distinct character of our rural banking sector is the major role of the cooperative sector, particularly primary cooperative societies which are much more vibrant in Kerala than elsewhere.  It is because over 70 per cent of the deposits in primary agriculture cooperatives in India come from Kerala.  Over 70 per cent of the non-agricultural loans and advances made in India are made in Kerala; over 15 per cent of the agricultural loans and advances in India are disbursed in Kerala.  But the Reserve Bank of India prevented all the 370 Central District Cooperative Banks and 93,000 primary agriculture credit societies in the country from depositing or converting old notes after November 8 and the result has been particularly damaging for my State.  I want to say that it is not just the question of one State, but it shows certain thoughtlessness towards the realities of our rural economy.  Dairy, agriculture and as I said, fishing have all been severely affected.

          Tourism may not seem very important to some people but for us in Kerala it is a huge contributor to our GDP.  It is also vital for employment across the country.  But foreigners were given a lot of inconvenience because of demonetization; tourists were returning from Agra without seeing the Taj because their notes were not accepted at the ticket window; travel plans had to be curtailed.  Tourism prevails by word of mouth.  How will you bring back the trust of foreigners who spread the word of their harrowing ordeals in demonetizing India?

          The Economic Survey has already lowered the growth rate projection to 6.5 per cent; the IMF has come down from 7.6 to 6.6 per cent; the CMIE says it will be only 6 per cent for the next five years.  I know the Finance Minister has made a lot of claims about India’s growth.  I would say he and the Prime Minister have belied the expectations of the people of India.

          What is interesting is that the Modi Sarkar itself has accepted that demonetisation has had a severe negative economic impact because in the list of achievements mentioned in The Economic Survey released on the 31^st January by the Chief Economic Adviser, they have mentioned Aadhar, GST, FDI, UPI, but there is no mention of demonetisation. In fact, Aadhar, GST, and FDI are all Congress initiated programmes. So, I want to accept the Prime Minister’s invitation this morning that we will happily take credit for the few good achievements of this Government.

          The Modi Sarkar also accepts – and I am quoting from Chapter III of The Economic Survey – that demonetisation resulted in slowing growth; demonetisation reduced demand, cash, and private wealth; it reduced supply, liquidity and working capital, disrupted supply chain, increased uncertainty – and I am still quoting – job losses; decline in farm income; social disruption, especially in cash incentive sectors. So, I would commend to the Finance Minister Chapter III of his Economic Survey as my indictment of his Government.

          The Prime Minister has been talking about the surgical strike on black money, corruption, terrorism, and counterfeiting but it is very clear that these objectives have not been met. A surgical strike is always precisely targeted but here the collateral damage is so extreme that the pain inflicted has outweighed any tangible gain. But what was the gain? Let us take black money for example. The estimate was that many people – rather than attract the attention of the law enforcement authorities and the tax authorities – would not return their money but would destroy their black money. Various agencies estimated that around 25 per cent to 30 per cent of the specified bank notes would not be deposited by the stipulated date. On November 23^rd, the Attorney-General of India – no less – told the Supreme Court that the Government expected that SBN worth Rs. 4 lakh crore to Rs. 5 lakh crore would be rendered worthless on account of not being deposited. But what happened?

          It seems that our black money holders have found creative ways of laundering their money and the result is that most of the estimated black money in circulation – these Rs. 4 lakh crore to Rs. 5 lakh crore – that the Attorney-General mentioned has flooded into the banks.  It seems that some well placed friends of the Ruling Party may well have been allegedly tipped off because the well-connected were clearly able to unload their money; none of them seemed terribly troubled by the November 8^th announcement. We do not know, of course, how much has come in because the Reserve Bank has not given official figures but it has been widely reported that by the end of December, 95 per cent to 97 per cent of the money in circulation has already reached the banking system. If that is so, after leaving out the small amount being held by the Central Banks of Nepal and Bhutan and by NRIs, it looks like utmost you would have two per cent or three per cent of all the demonetised specified bank notes undeposited. We can forget about the primary objective of cleansing the economy of black money. In fact, the RBI Governor has himself conceded that there is no impact at all of demonetisation on the RBI’s balance-sheet and there may be no liability write-off at all. The Bill’s purpose is to extinguish the liabilities of the RBI but none have been reduced.

          As we all know, all cash is not black money and all black money is not cash; most of it has been invested in real estate and other property, gold and jewellery, investments abroad, and round-tripping that has seen the money return to India’s stock market as foreign investment from countries like Mauritius. The Prime Minister, this morning asked, ‘Yes, that is true but when did you know it?’ Let me say that we have always known it. This Party and the UPA Government have openly said it. I have myself said that in two different black money debates in this very House in the last six years. So, the fact is that the Government should also have known it. So, why did they make a scheme that only touches such a small proportion of the black money assets that those people are holding?

          Worse, in the six weeks after demonetisation, the Income Tax Department announced that it had seized Rs. 500 crore in unaccounted cash; strikingly, Rs. 92 crore of that black money happened to be in new notes! So, what is going on? We are finding cases of corrupt officials including bank managers being caught red-handed in illegal transactions. Some bank managers were sitting in their banks from nine a.m. to five p.m., telling people they had no money; but from five p.m. to 9 a.m., they were giving money out the back door, to those who could launder it. I want to say that though I am by no means tarnishing all the bank managers for the sins of a few, the fact is, Mr. Finance Minister, that in your drive against corruption, you have created new forms of corruption.

          Black money continues to be generated clearly; it has merely changed colour and shape. Black money has become white by way of pink. And  of course Rs. 2,000 notes will take up less space in the launderer’s brief-case than the Rs. 1,000 notes did. We all know that we can withdraw notes, we have withdrawn in the past series of notes saying that those before 2005 were made illegal in 2014.  You do not need to demonetise for such an exercise.  You print new notes and phase out the old.  If you are going to print new notes then you have to have strong security features enmeshed with the design in order to prevent counterfeiting.  But it seems the Government has missed the opportunity to put indelible security features in the new notes it has launched post-demonetisation because there is no new water mark, no new security thread or fibre, no new latent image and certainly no nano-chip as BJP supporters were boasting on whatsapp.  So, will a mere change of colour and size make them safe? 

Shockingly, RBI has admitted that three different versions of the 500 rupee note had been printed in haste.  If all the three versions are authentic, is that not going to confuse the public and make it easier for counterfeiters to get away with their own fake versions?

 Still, Mr. Chairman, how big a problem is this counterfeiting, the Prime Minister mentioned it on November 8 but if you look at the statistical facts of the Indian Statistical Institute Kolkata under the supervision of the Government’s own National Investigation Agency, the estimate of fake currency notes in circulation is only 400 crores or roughly 0.03 per cent of the currency withdrawn.  It also indicated that the ability of banks to prevent these notes being deposited was limited because of sudden deadlines, sudden announcements, short deadline, lots of money flooding in, the bank tellers had to do it manually.  They did not have the time.  So, the result, it seems according to anecdote anyway, is that there has been a lot of fake currency slipping through into the banking system and becoming legitimised.  So, far from hurting counterfeiters, demonetisation may have helped fake currency by being exchanged for new notes.  That is the consequence on counterfeiting.

            On terrorism, let me just say, there are a lot of studies; A number of  studies show that there is no causal relationship between the number of terrorist strikes on Indian soil and the absolute levels of currency in circulation.  In any case, we are all seeing reports about terrorists being caught, arrested or shot in Kashmir possessing brand new currency notes.  So, how  are the terrorists are being affected?  Instead who has the Government hit?  Housewives! Housewives who have salted away their savings in biscuit orattatins, are the ones whose money had to come out and be put in the bank when even their husbands did not necessarily know how much they have saved.  Then the stories of individual tragedies have been mentioned in this House; hospitals turning away patients who only had old notes, children suffering, middle-class wage earners unable to buy medicines for the sick.   Sir, 115 people reportedly dying after collapsing in bank queues, committing suicides, hitting each other, murdering each other, and other demonetization-related events.  There is even a report in one of today’s papers that demonetization has led to an increase in domestic violence cases.  So, the people at the bottom of the economic pyramid have been the real victims of this policy.  I do want to say, Mr. Chairman, we have been restricting weddings in the wedding season to Rs.2.5 lakh each, but it seems if you were a BJP leader you have no difficulty in celebrating a lavish wedding even after demonetization. 

The goal posts have been shifting.  Reserve Bank has issued 138 notifications in the first 70 days.  Then I stopped counting.  Even the Reserve Bank employees and officers have complained about operational mismanagement which has dented the RBI’s autonomy and reputation beyond repair.  The Governor of the RBI has been reduced to a lamb and he is silent.  It is the silence of the lambs.

 I just want to stress finally, Mr. Chairman, the goal posts are shifting and we are getting new objectives.  The Finance Minister talks about expanding the tax net but look at the cost at which this tax net is going to be expanded.  The Prime Minister talked about cashless economy; no cash in the banks, no cash in the ATMs, no cash with the people.  That is the kind of cashless economy we have.

The fact is, he has shifted the definition to less cash economy, I agree.  Over 90 per cent of our retail outlets do not have card reader.… (Interruptions) The facts are very clear.  Only 6 per cent of the Indian merchants and retail outlets accept digital payments.  We are not a society in which unfortunately digital transactions can be done without impediments.  The problem is, therefore, we need a very-very significant digital infrastructure before we can do all this.  Our Prime Minister and Finance Minister are trying to build the penthouse without  building the foundations first… (Interruptions)

HON. CHAIRPERSON: Before Prof. Saugata Roy speaks, a reference which was made by Dr. Shashi Tharoor regarding the Marshall may be expunged. He referred something about Marshall, which should be expunged.

The illegality of the entire exercise has been raised by my colleague, Shri Premachandran. The fact is that the Gazette Notification No.2652 by the Joint Secretary under Section 26(2) of the Reserve Bank of India Act,1934, nowhere gives the Government power to freeze bank accounts through limits on cash withdrawals; nowhere gives the Government power to disrupt normal banking operations and impose mandatory disclosure requirements, such as, identity cards. So, the fact is that there is a real question as to whether the contract, “I promise to pay the bearer” can be legally repudiated by the Government in this way. I must say that the hon. Finance Minister, who is also a lawyer, should explain to us as to why this is being done and on what legal basis it is being done. I would also like to know as to why the minutes of the RBI decision on 8^th November, 2016 have not been placed in the public domain. I would also like to know as to why only four independent Directors attended the meeting out of 21 Directors in the RBI. I think officials took the decision.