While there are constant debates and arguments on the credibility of Modi’s decision to de-legalize Rs 500 and Rs 1000 notes, economists, journalists, critics, and of course the public have in an open-mined fashion narrated their takes on the demonetization economic decision. The analytics and critiquing part of the decision is seen to be highly polarized. Everybody seems to be having different opinions with few citing pros and some highlighting the cons of demonetization. The unfortunate and sad part is that the total estimation of black money in the economy has always seen changes and no figures are stipulated to be precise.
A brief overview
2016 is not the first time that India’s policymakers decided to introduce demonetization as a strategy to track down black money and make India’s economy as cashless as possible. 1946 and 1978 were the two years when demonetization was first implemented and tested.
The loopholes of implementing demonetization lies with the fact that it remains ineffective in dealing with those people who have the actual black money and still find ways to convert into white despite the implementation of de-legalizing currency notes. Black money is stacked not just in the form of cash, but that money is invested in a number of things such as into real estate and buying jewellery especially gold. Opening bank accounts in their CAs and clients’ accounts to avoid coming under scrutiny from the government and income tax department and other regulatory bodies is also a tactical move to avoid being caught and once the decision is upholded by the government these people start withdrawing money from those accounts to get back their money.
Moreover, one of the worst outcomes has been the plight of the common man who has undergone intense physical exhaustion and has had to deal with the immense mental pressure to constantly think about how they can manage their day to day lives without any change in hand. For this, waiting at the long queues at the banks is a common phenomenon.
The black money holders
There is no doubt that as soon as the implementation started and banks and ATMs were asked to close down for 2 days, black money holders had already started planning to find ways to get away with all their black money. Some decided to dispose their black money by burning it or immediately discard it off in dustbins and in other trash materials. Those who are clever enough are already roaming scoot free as they have adopted ways like transferring Rs 2.5 lakh, the bank rule to deposit amount maximum to this level, into different accounts, coercing poor people into standing into lines to get change for their part of money, etc. This way there is no control and monitoring on such activities and, therefore, the rich are having a good time securing their money while the middle class and the poor class segments face the real brunt of this decision.
Adding a personal experience, I was one of the attendees of NDTV’s debate on ‘Demonetization- A vote getter?’ which was held in Sophia College (Mumbai) on 5 December 2016. The panelists were Sanjay Shah representing Congress, Shaina NC the BJP spokesperson, Kiran Nagarkar a renowned author and political activist and Dr. Sangeeta Dubey the Economics HOD of Sophia College. Sunetra Choudhary was the host and the moderator. The most contentious issue raised by both Mr.Nagarkar and Mr. Shah was about the rural economy being the worse hit and the unavoidable death of more than 50 people. Ms. Shaina though defended by arguing that it was Modi the only PM, after the 1978 demonetization move, to have taken such a bold move against black money, counterfeiting and terror funding and that there were bound to be some mistakes in the implementation. In my view, the death of so many people is sad and something that could have been avoided provided the banks and hospitals took greater degree of control and care. The agriculture sector is also believed to be facing the ramifications with farmers finding it difficult to sell their crops and unable to carry out daily transactions. Millions in India still possess no bank accounts and I think for them it’s the hardest battle. Moreover, small vendors and small scale industries are also reeling under the effects of demonetization.
What the UPA government couldn’t think of acting on the whole black money issue in its last 8 years tenure in India from 2004 to 2014, Modi can at least be appreciated for his initiative to make India as cashless as possible and curb the black money business. However, this will not be an overnight result and can take years and still not see a complete eradication because that would be impossible.
Two sides of the same coin
Looking at both sides of the impact of the decision, we cannot afford to pick only the negative effects or the possible positive impacts, which are yet to come. On the negative side, there are more than 20 people who have died due repercussions of this decision. But can all of us at this stage settle for analyzing only the negative aspects of demonetization or possibly understand that Modi has just started his fight against black money, tax evasion, crony capitalism and many more. Demonetization seems to be the first step in his list of strategies to cur black money flowing in the Indian economy. Modi would have deserved flak only if he ended at merely de-legalizing currency notes to counter issues mentioned above. He has the backing of the RBI and let’s not forget that it is not an overnight work of extracting black money from a country’s economy. What has taken years but has only exponentially increased for the past many years will take considerable time before we can start identifying the positive impacts.
The emphasis of this article is not on critiquing Modi’s and the RBI’s decision to come up with this plan. Tackling any sort of problem that grippes the entire country’s political, economic or social structure, takes a great deal of planning to achieve the end result. Similarly, my point is that perhaps we shouldn’t form harsh judgments at such an early stage especially when Modi has already hinted that he is going to enforce a string of operations and series of strategies to combat black money economy.
What Mr. Rajan said
Raghuram Rajan is right when he says that demonetization is not the only way to tackle these problems. Other crucial problems like tax evasion and crony capitalism will need other economic plans to curb them. He neither dismissed the idea of demonetization as completely futile nor did he praise it to claim its total effectiveness. Similarly, it would be wise to wait and see what the upcoming plans of the NDA government have in store for India. Interestingly, two prominent economists Raghuram Rajan and Subramanian Swamy were noticed ventilating on the demonetization issue by being on the same wavelength. Both of them indicated there are other methods that would be efficacious in eradicating and flushing out the black money from economy.
If it would be fair to say that there is a dearth of economic understanding and knowledge among many Indians and maybe we could blame our ignorance or the presence of the mediocre state of education in India, thus, this raises the need to realize how everyone can be educated on the merits and demerits of de-legalization. Before people formalize their opinions on this issue, and any issue for that matter, it is of vital importance that they know all aspects of the story. Though the government wants to spread awareness about the positive effects of demonetization in the long run, if at all it has positive results, it would be worthwhile for them to be cognizant of how they can do this. It is difficult to state what the benefits will be in the long run. The 2008 recession was predicted by a sizeable number of people and there were warnings conveyed but they fell on deaf ears and 2008 proved to be a disastrous year for America. Trump defied the predictions of most opinion polls and of other analytics; and he still won by a thumping majority. In the near future, there is a hope that the government might start taking more stringent measures to counter the issue and at that time let’s hope that the real perpetrators face the retribution.
The demonetization move cannot be reduced to a political rhetoric. Yes, the UP elections is seeing big political leaders playing their party cards and Modi apparently wants UP to get a taste of the BJP governance, it would be hard to say how the vote banks will be affected. But if our prime minister manages to put some thousands of rupees in all the Jan Dhan accounts, as he promised in his election campaign of 2014, he would definitely see those people supporting him whole heartedly in the next 2019 general elections. Modi declared that more than 80% Indians were with him on his decision and were ready to bear the struggle for few more days. But with possible predictions of worse scenarios how will peoples’ perception change about Modi and BJP will be an ensuing phenomenon in the near future.
According to some sources, the country’s GDP is most likely to see a major hit and India could probably face a mini-recession. Probably if Modi has a vision and did not take the decision just to leave a legacy behind or revolutionize his image not just in Indian politics but in the International frontier as well, it would be good to learn how he and his government would plan to tackle other serious concerns such as crony capitalism, tax evasion etc. Targeting the bigger fishes should be on the priority lists and of those who have records of breaching the tax laws in our country for years. The big players who are indulging in bribery, funding for various notorious and malpractices across many activities, holding black money should be the main targets and if Modi has plans in place, next time with a better implementation, India could see a changing economic and a political situation altogether.
But if his measures turn into a failure, the criticisms, negativity and loss of faith put aside, the biggest disaster would be India landing in a very bad situation which we cannot afford to see especially after India has slowly made its way to the list of countries that are shaping the world’s political infrastructure and International relations.
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