A month into demonetisation there are some hard facts about the assault on the parallel economy that are far from comforting. That the implementation of the reform was ill-planned comes out starkly. There is little point in the government not acknowledging that because it would enhance its credibility if it did.
The mitigating factor is that such a measure had to be shrouded in secrecy and while the intent of the Modi government was good, there was just no way the experts could be called into a possible debate on the likely consequences, given the requirement for secrecy.
However, the government should have known that withdrawing 86 per cent of the total currency in circulation in the higher denominations of Rs 500 and Rs 1,000 in one go would be hard on the common man. That there were several policy changes in the aftermath of demonetisation should not be grudged because these were meant to bring succour all around as an essential learning from the practical experience.
With regard to people at large there was the fact that while their resilience was put to test and they were severely inconvenienced, they stood by the reform and endured the hardship in the hope that it was for their ultimate good. In that Prime Minister Narendra Modi’s personal credibility came in extremely handy. This is not to say that such hardship did not drive the teeming millions to frustration and despair. But it remained within limits without the unhappiness spilling on to the streets. Modi’s appeal to the people to bear with them for 50 days struck a supportive chord primarily because the people believed that the means to the end may be tough but the end itself — putting a lid on corruption and black money — was good and worth the while. The antics of most Opposition parties — condemning the reform wholesale without waiting to see how the events played out — won no plaudits from the masses who were inclined to give the government a fair chance. The fulminations of the likes of Rahul Gandhi and Arvind Kejriwal and the shrill rantings of Mamata Banerjee in fact soiled the pitch for the detractors. Hitting the Prime Minister below the belt evoked derision and scorn. Even former Prime Minister Manmohan Singh, who is otherwise seen by people as a voice of moderation and good sense, evoked poor vibes when he hit out at the Modi government for ‘organised loot’ and ‘legalised plunder.’
There is no mistaking the fact that the masses have been extraordinarily patient. But when a person is hungry his patience can well run out especially when a solemn assurance like the 50-day gestation is not kept. One can only hope that by the time this period ends there would be considerable easing of the cash situation in banks.
A distinct silver lining is the government’s smart move to promote digitisation. They say necessity is the mother of invention and that has been amply borne out by the manner in which people have taken to credit cards/debit cards, e-wallets like Paytm and many other means of e-payment to avoid cash transactions. That this is being adopted even by small traders like vegetable and fruit sellers, milk vendors and retail provision stores, though on a limited scale, is a happy sign. The mechanism needs to be tightened so that cyber thefts and fraudulent transactions do not negate the positive effects of this. In principle, however, this is a great blessing in disguise in so far as it hastens the process of conversion to a modern method of money-dealings.
For the Opposition to paint this black is not only unfortunate but displays the inability to see what amounts to a genuine forward movement in the country’s modernisation process. There are bound to be some initial hiccups but those can always be sorted out.
However, former Finance Minister P. Chidambaram deserves to be heeded when he wonders how some individuals manage to get bundles of crores of rupees of new Rs 2000 currency notes while the masses struggle to withdraw their money. “I can’t get a Rs 2000 note, yet crores in Rs 2000 notes found their way to individuals being raided all over the country. The government has ordered the IT to investigate. It is a major crime and there must be a criminal investigation into this,” he points out.
Current Finance Minister Arun Jaitley is also on target when he says that high denomination notes, as percentage of total currency in circulation, increased from a mere 36 per cent to over 80 per cent during the UPA regime. This was in oblique reference to ill-gotten money usually being hoarded in high denominations.
On the advantages of the demonetisation move, Jaitley said in a TV interview that a large volume of cash has come into the banking system and taxes will be recovered wherever they are not paid.
“Future transactions would be substantially digital and once they are substantially digital they get caught in the tax net. Therefore the future taxation level would be much higher than what is currently being collected,” he added. Also, the banking system will have lot more cash, which will boost its ability to support the economy with low cost lending. “Obviously with all these advantages the social cost also on the system will go down. Therefore, the cash used for bribery, for counterfeit currency, for terrorism, for evading taxes itself will go down,” he said.
All in all, it is yet too early to predict Doomsday on account of demonetisation. If the right moves are made, the measure could still prove efficacious for the economy in the foreseeable future.
