Demonetization

Last year this time, the Prime minister announced demonetization with immediate effect. At that time I thought that the drastic step was a game changer. It all depended on how well the government was going to implement it. It soon became clear they had not done their homework, they had not done proper planning to take such a huge step which upset such a large part of the economy. They obviously did not fully understand the enormity of the task, did not understand the obvious problems which will come out. To be fair this kind of step, one cannot be fully prepared and some surprises were expected, but continuous missteps which caused innumerable pains for the common man were inexcusable.

The cash drought dragged on from days to weeks, only after a couple of months things started to get back to normal. In the meantime, many businesses slow down, some even shut down.The ripple effect was huge, workers were not paid or started to find that they were out of a job. Farmers had no cash to put into their crops and had to sell existing crops at a much more lower rate, marriages were postponed or severely scaled down. Numerous deaths were accounted for which directly/indirectly related to demonetization. Most people were not willing to spend, so economy came to a grinding halt. At that point, I was increasingly getting frustrated at the state of affair but I also noted that it was not the right time to judge if this exercise was worth it. We needed to wait for probably 6 more months before we see the full effect.

A year now, my opinion is that by most accounts economy has been hit badly, it has still not recovered yet, not sure it will anytime soon. Growth had slowed down. The push to get people to be less dependent on cash and more on the digital transactions worked initially but once people had cash again, most still prefer cash. There is still a long way before we become a mostly cashless society(note less cash means less likelihood of black money). The initial opinion was that a good portion of the black money which people stored in the banned 500 and 1000 notes would not be allowed back in the system as these were ill-gotten/unaccounted money so those people would be reluctant to expose themselves, so a loss for black money hoarders. Recently RBI has said more than 98% of the demonetized cash had come back to the system that means people were able to dupe the system and convert their black money. There is a famous word in Hindi, which is one of my favorite called ‘jugaad’, the government underestimated the people, they always find some way out.

Though my opinion is mostly negative, there were some positives, more people have started to use banks and other digital options. There was a surge in tax filings, the government was able to collect a lot. (The more the people get into the tax system the better it is for the whole country.) I have to give it to the government also, though there were many negatives, in many ways this was a loss for the economy but they were able to score high politically. They won the perception battle. People like me are in the minority, most people still view this exercise as a positive. For any politician that is what eventually matters most, if people agree with your policy then they will vote for you.

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