Demonetisation, One Year Later

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.

References:

 

  1. The-poor-have-embraced-modi-and-the-vote-merchants-still-dont-get-it

http://timesofindia.indiatimes.com/home/sunday-times/all-that-matters/the-poor-have-embraced-modi-and-the-vote-merchants-still-dont-get-it/articleshow/57597948.cms

2. From-harvard-to-house-how-notebandi-naysayers-got-it-so-wrong

http://blogs.timesofindia.indiatimes.com/right-and-wrong/from-harvard-to-house-how-notebandi-naysayers-got-it-so-wrong/ http://blogs.timesofindia.indiatimes.com/right-and-wrong/from-harvard-to-house-how-notebandi-naysayers-got-it-so-wrong/

3. Demonetisation was a fundamental corrective to the economy much like liberalisation of the 1990s : https://t.co/FM77jLjX8p

4. Why DeMo, GST are not to blame for slowdown – Times of India Blogs

5. Modi’s Mission 2022: Government is methodically shattering the glass ceilings that trap Indians in poverty

 

 

 

 

7 thoughts on “Demonetisation, One Year Later

Add yours

  1. There’re various aspects to examine the demonetisation drive.
    However the projected objectives of govn to introduce this demonetisation drive were a) eradicate the accumulated black money and to unearthen it.
    b) curb terror funding.
    c) wipe out counterfeit currency.
    Evidently we have miserably been failed at most of fronts.

    Like

    1. As is being said there was a spurt in bank robbery at J&K Bank. We can surmise where cash was going. As per govt around 300 – 400 thousand crore money transaction under scanner. So we are onto something.

      Liked by 1 person

  2. Nonetheless, we cannot afford to forget the unportrayed aspects as well.
    1) according to PIB, The government added 9.1 million new taxpayers in 2016-17, an 80% increase over the typical yearly rise- A substantial hike in no.
    2) CBDT says the number of individuals filing income tax returns has jumped to 2.79 crore this year.
    3)Debit card transactions rose to more than 1billion in January from 817 million last year. While ATM transactions have remained constant at around 700 million, the incremental growth has been driven mostly by card swipes at PoS terminals.
    This may alludes to mindset transformation.

    Like

  3. Card transactions at point of sale terminals at merchant locations have surged, reflecting a positive for the economy as more people start using their debit cards for payments rather than for withdrawing cash at ATMs.

    Liked by 1 person

  4. True long benefits and behavioural changes if any will be apparent only in the long term. There is no way to know the effectiveness of a concept without trying it out, and the govt did that both for Demon & GST. However, the preparedness could have been better, so that people would not have been inconvenienced so much.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Blog at WordPress.com.

Up ↑

%d bloggers like this: