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Vol. 9, Issue : 9 September 2017 The Fallacy of Demonetisation At the time of demonetisation, Modi claimed that it was aimed to wipe out black money and counterfeit currency, stop terrorist financing and end corruption. Later his government told the Supreme Court that the measure was taken to promote cashless transactions that regularises the informal economy and induce tax compliance. This was also played down later to less-cash economy. His lieutenants in the cabinet called it as a master stroke that brings many benefits to the people and economy and from time to time parroted that the indictors of a good economy proved the correctness of the measure. Eight months after demonetisation, the RBI released its Annual Report 2016-17 which showed that 98.96 per cent of the RS. 500 and Rs.1000 denomination notes that were withdrawn from circulation returned to the banking system. Only the notes valued Rs.16,000 crore did not return. This means that the estimation of four to five lakh crore rupees of black money existed in the economy could be wrong. Or that the demonetisation has not resulted in wiping out black money and it flowed smoothly in to official channels. The fact of the matter is that black money does not exist in the form of cash; it constantly transforms into other assets like gold, real estate etc. Most of the black money that remained at that time as cash had found its way to banks through ingenious methods adopted by its holders. Same is the case with counterfeit currency. It was estimated that up to Rs.400 crore was in circulation. The value of detected fake notes went up to Rs.43.5 crore in 2016-17 compared to Rs.29.6 crore the previous year. Here also demonetisation failed to meet the objective. As the detected fake notes are too small to affect terrorist financing and the terrorists does not rely on money alone for their activities, the demonetisation proved to be a simplistic solution to a complex political problem. The digital transactions that grew to the value of Rs.7.4 lakh crore after demonetisation from Rs.4.3 lakh crore the previous year due to non availability of cash has come back to the previous level. Since the demonetisation, Modi repeatedly appealed to the people to bear the ‘temporary hardship’ that would be overcome in 50 days. He promised that there would be long term benefits to the people as the black money confiscated will be used to fund the welfare schemes. The people found now as it yet another empty promise that makes the people to chase mirages. Despite these undisputable facts some of the economists came out with incredible arguments. “The whole story is that to the extent the black money has come back to the banking sector and has become white money, the economy itself has become white. Now, all these people who have black money have that in bank and they will get interest and they will have to pay income tax on interest. In future if they have to pay some money they will not give cash, they will give cheque” (Business standard 4-9- 2017). And so black money will not generate again. To cap all this mindless arguments, Arun Jaitly unabashedly claimed that demonetisation along with GST “changed the structural and ethical foundations Organ of the Central Committee of CPI(ML)