One year has passed since the decision to demonetise high value currencies was announced by Indian prime minister Narendra Modi on Nov, 2016. A lot has been said both for and against demagnetisation. Nobel laureates Prof. Amartya Sen and Prof. Paul Krugman have denounced efficacy of the mechanism. On the other hand, Prof Jagdish Bhagwati had praised demonetisation as a bold move, and S. Gurumurthy, an idealogogue of RSS, has claimed demonetisation to be a paradigm shift. In the political front, former finance minister Mr. P Chidambaram has called demonitisation the biggest scam, while the current finance minister Mr. Arun Jaitley has enumerated numerous benefits of demonetization on the posterity.
As the GDP figures on second quarter of financial year 2017 -18 came out, opposition and media had attributed low GDP numbers as an adverse effect of demonetisation. Though economists have advised not to link demonetisation to low GDP growth, critics were relentless. Many of the expected deliverables of demonetisation were not achieved, for example:
- Terror funding was not affected as incidence of stone pelting in Kashmir did not come down. We know, however, that post demonetisation there had been several bank robberies in Kashmir valley. Could this not indicate there was cash crunch and terrorists ran away with cash?
- Black money was not affected by demonetisation. Not only almost all money had come back to bank, no one has been arrested and or prosecuted for holding black money. There is no doubt that people that had black money, had peddled it ingenuously. But consider this fact that 30 thousand crore has emerged as black money and 290 thousand crore of unusual transactions are under scanner. This may suggest around 320 thousand crore unaccounted money under scanner. Is that not nearly one fifth of Indian currency in circulation?
- Economy has crawled back from cashless to cash driven. Prior to demonetisation, cash to GDP ratio was more than 12. This ratio has come down to 9 one year after demonetisation. Some data suggest, there is definite increase in cashless transaction. All said and done, bringing behavioural change takes time. Government has made an effort. It must persist by giving incentive to using cashless transactions.
- Many people had to endure a lot of hardship. As many as 120 people lost their lives directly or indirectly due to demonetisation. Post demonetisation, I had visited Haryana and Assam on my personal capacity. I did not see the type of misery, and devastation being propagated by TV channels and news papers. In addition, ruling party had scored significant victory in many village panchayat, municipality and state assembly elections, most notable being landslide in Uttar Pradesh.
As I hear debates for and against demonitisation, it appears that both sides are speaking the same thing. While pro demonitisation group is putting emphasis on long term benefits, opposition is not denying exactly long term benefits, but they are focusing on short term inconveniences. Pro demonitisation groups claim hardship came with the package, and people were warned. Nature of the move did not allow great preparation. Anti demo group claim perceived benefits could have achieved by different means without causing less discomfort. Who is right? Indian people will decide, may be in 2019.
3. Demonetisation was a fundamental corrective to the economy much like liberalisation of the 1990s : https://t.co/FM77jLjX8p