Narendra Modi government failing to achieve the much touted goals from demonetisation. The RBI annual report for 2016-17 is bound to be disappointing for the government. 

The Reserve Bank of India has been bold in acknowledging that the Narendra Modi government has not been able to achieve the much touted goals in the wake of demonetisation launched with much fanfare on November eighth last year. 

This measure was seen as a war aimed at weeding out at least Rupees three lakh crores of black money stashed away in the country along with containing terrorist financing. The RBI annual report for 2016-17 is bound to have been highly disappointing for the government. 

The GDP has dipped from 7.9 per cent to 5.7 per cent in the last five quarters. The silence from the government in this regard needs no elaboration as demonetisation caused a lot of pain and hardship to the people at large. What is worse is that more than a hundred people died all over the country waiting in serpentine queues to withdraw their money from the ATMs. 

And the damage caused to the economy thanks to demonetisation is now coming to the fore. The Congress as the main opposition party blamed the Modi government for not having wider consultations about demonetisation before implementing it. 

Discriminating observers believe demonetisation was unleashed at a time when the economy was beginning to contract. The country’s economy continues to decelerate and the reasons for the slowdown are many. 

The uncertainty connected with the July one adoption of the GST adversely affected economic activity. There is still doubt whether demand for industrial output is going to attain any meaningful strength.  

Union Finance minister Arun Jaitley has expressed concern about slower than expected expansion while acknowledging that the challenge before the government is to work out both policy and investment measures to boost momentum. 

The risks of fiscal loosening are manifold when state governments have announced farm loan waivers which can push up interest rates and block fresh lending. The perception gaining ground is that the much trumpeted demonetisation has proved to be a damp squib in the wake of the RBI’s fresh disclosure of the drop in GDP in the 13th quarter of Modi’s term. 

Modi’s tall claims at the time of demonetisation have been belied. At the same time the government believes it is nobody’s case that black money has been totally eliminated. While there is no cause for euphoria on the outcome of demonetisation, there are some positive aspects. 

These pertain to almost 99 per cent of the black money having come into the banking system. All those who held their wealth in the form of currency earlier can no longer escape the tax net. Another positive aspect is the increasing shift to digital transactions. 

There has been a small percentage of increase in the number of counterfeit notes that have been detected. As those having counterfeit notes are unlikely to surrender them to banks for being caught, it is not possible to know the percentage of those dealing in such notes. 

The chief statistician T C A Anant put the issue in perspective observing it is impossible to isolate the impact of any one measure of demonetisation as its ramifications are still unfolding on the economic activity. Resolving the banks bad debt problem is a pre-requisite for a generalised revival in private investment. 

Global experience shows that a cleaning up can be prolonged and painful involving loss of jobs and output. The government will be tested when it comes to reviving demand and investment.

(The views are personal.)