With the demonetization of 500 and 1000 rupee notes, approximately 14 trillion rupees went out of circulation. The honest hard working Indian was happy and upbeat about the move against black money. He thought that days for black money hoarders and corrupt people were over. But just in a month’s time, the neo-rich and black money hoarders invented new ways to exchange old currency without sweating in the unending queues in the banks, while the cheerleaders were running from one ATM to another to get a few thousand rupees.
Lakhs of people engaged in the informal or unorganised sector, micro or small industries, for them cash lubricated their business and employment. As the cash supply chain was broken, people lost their jobs.
The banks which had the most pivotal role in successful implementation of demonetization betrayed Mr Modi’s vision. First and foremost, the lack of service delivery has been the bone of contention between the people and bank officials. People have been deprived of their hard earned money despite standing in the waiting lines for hours. On the other, few elite customers have been offering services out of the way in a corrupt manner through the agencies of middlemen, over and above the limit decided by the government. Recently there has been reports of several tax raids on banks and arrests by the Enforcement Directorate, which has created uncertainties in mind of people against the banking system in India.
Virtually all of the Rs 15 lakh crore cash in denominations of Rs 500 and Rs 1,000 came back into the formal banking system. A major reason for most of the money coming back into the legitimate banking system is that currency is only a small portion of the black economy. Stacks of unaccounted-for money, in fact, would have been very little compared to other forms in which black assets are held in gold, real estate or in secret accounts abroad.
People were willing to suffer for a few days with a hope that black money hoarders and corrupts will be caught and punished, but everyone can watch around them how easily the corrupt and black money hoarders have secured their money courtesy corrupt bank officials and loopholes in the implementation.
Looking merely at the economy, the country will move towards a low interest regime as a result of a rise in the money supply due to high deposits. The country has certainly moved a step closer to a cashless economy due to the motion. Cashless economy will benefit the middle class and the poor as it will lead to effective service delivery to beneficiaries and less leakage in subsidy, but that’s a long term achievement and could have been achieved gradually without such a dramatic move. Demonetization looked more political than an economical move and it won’t require an economist to say that it has backfired.
There is some truth in the words said by Dr. Manmohan Singh that the preparation that should have been done to minimize the discomfort to the people as well as economy. Even while maintaining the secrecy, better preparations could have been there to save the GDP loss.
– Abhishek Nisal, Correspondent (Politics)