One Year of Demonetization

Nov 8th, 2017 marks the 1st anniversary of the now controversial demonetization.  While some have heralded demonetization as the first ever massive war against black money in our country, our opposition parties have described it as a 'monumental blunder' which has killed almost all small businesses.

Prime Minister Modiji's sudden announcement of demonetization on that most remembered night of Nov 8th, 2016 took the entire country by shock. It was described as a surgical strike on black money by the ruling party.  Even the opposition parties went on back foot before recovering from the shock.  As the events unfolded it was full of confusion and hardship for the common man.

• People stood in the mile long queues in front of Banks and ATMs to exchange their money.
• People were irritated by the small limits fixed per exchange.
• Moreover people witnessed cashless Banks and ATMs on most of the occasions.
• Many deaths were reported in those serpentine queues.  Although all those deaths could not be attributed to the queue hardships, opposition parties were quick to take advantage. At least one pregnant lady delivered a girl child (named 'Kazana') while being in the queue. 
• People suffered without enough cash for marriages, medical treatments and funerals.
• Anti-social elements took advantage by exchanging crores of money for hefty commission much to the disappointment of common men.
• Small businesses and daily earners like rickshaw-operators had the worst hit of substantial business losses.
• Cash based MSMEs like leather industries and construction sector too registered worst shocks.
• Real estate witnessed the worst slump.

Soon the opposition parties lead by Congress, economic experts and even some intellectuals became most aggressive critics of the entire process. Even the Government became scared and did many panic acts.

• Government made innumerable changes in the money exchange rules.
• Planes/Helicopters and even military was pressed in to service in order to ensure supply of currency all over country.
• Even the P.M. himself came once again on T.V. and requested people to bear with the hardship for 50 days after which he promised that the things would return to normal. Also P.M. claimed that 3-5 lakh crores of black money will not come back resulting in bounty for the Government which will be used for welfare schemes of people.

Majority of our people showed exemplary patience.  They believed that the war against black money is really on and their hardship will not go waste.  But opposition parties continued to attack the Government relentlessly.

As further drama unfolded, RBI confirmed that  99% of the Rs.15.4 lakh crores of currency have been exchanged by people.  Opposition parties described the entire exercise as disastrous.  It was further alleged that all black money holders and big people have never suffered  and they have conveniently exchanged all their ill-gotten wealth. 

Looking back, demonetization is certainly not without gains for our Country.

• Yes, it is our Country's first ever massive and honest war against black money. It was never done for gaining  monetary or political gains for the ruling party
• It has neutralized our enemy country's machinery which was allegedly printing  fake currency to spoil our economy.
• Money with terrorists and anti-socials also stood substantially neutralized. This is evidenced by notable improvement in Jammu & Kashmir situation.
• As per RBI report entire black money is now deposited with banks which is a welcome process. Huge deposits in many accounts are under IT investigation. This has also made our banks cash rich resulting in reducing of lending rates.
• Demonetization has certainly created fear element in the minds of black money holders.  This is well supported by the fact that the number of those who are filing IT returns has registered a substantial increase since 8th November 2016.  
• Demonetization has given a great boost to the process of 'digitization' of the country's economy.  There is substantial increase in digital transactions.  Number of Bank ATMs has registered a small decrease too.
• Many rich people have probably exchanged  money through their poorer conduits.  This has resulted in some money in to the hands of poor people.  A sort of social justice indeed!

• Loss of business and hardship to people seem to be exaggerated.  This is supported by the fact that Rabi sowing during Nov-Dec 2016  witnessed notable increase.  Remember sowing operations are predominantly cash based.
• Real estate prices in the country have come down considerably as the role of black money has seen a dip.  Sales seem to be picking up now in the recent quarters.
• In my personal view, coming back of 99% of estimated currency is unbelievable.  Even big black money holders may not want to exchange 99% for fear of being caught. Also the seizure of high volumes of old notes subsequent to demo also is surprising. This gives rise to a thought that there might have been more physical currency than estimated.  If so, even all that amount of black money now stands neutralized.

Our people have taken the hardship of demonetization in their stride.  This was amply substantiated by the fact that people gave a massive mandate to the ruling party in the U.P. assembly elections that followed.

Nobel award winner for Economics - 2017, Robert Thaler has hailed demonetization in India as a brave fight against black money. Even former RBI Governor Mr.Raghuram Rajan who has acknowledged that he too was kept in the loop before, has conceded that it takes some more time to count the benefits of demonetization.  In cricketing terms, some experts have termed that demonetization is not like T-20, but it is more like Test cricket and calls for patience.

In the hindsight it may be easy to analyse wisely.  But demo had its own challenges of keeping utmost secrecy.  Obviously Government could not plan it well.  But the same benefit of doubt can not be given to the Government in the matter of GST implementation.  It was well known to the

Government that implementation of GST is a problematic exercise.  More than 150 countries have rolled out GST  already and all those countries have witnessed first year problems.  In a few countries the Governments who implemented GST have even lost the immediate next elections.  Therefore Government should have been careful while giving effect.

Present GST is said to be complicated with 4 different slabs.  Moreover the registration, filing of returns and seeking refunds too seem to be complicated, especially for small businessmen.  Also the faulty GST Network designed by the vendor (said to be Infosys) has also not helped.

It could have been implemented in phases after taking in to consideration the interest of small businesses.  Further the rate of GDP growth falling down to 5.7%  for the latest quarter has left the ruling party itself red-faced. Once again Government is forced to make a series of amends and the business world and the opposition are shouting not enough.

Congress leader Mr. Rahul Gandhi has even termed GST as Gabbar Singh Tax. Gabbar Singh is the

ferocious villain from the mega hit film 'Sholay' which was released during 15th August 1975. A couple of months earlier, i.e. on 25th June 1975, the then Congress Prime Minister Smt.Indira Gandhi had imposed 'emergency' in the country which is now remembered as a 'black period' in the history of Indian democracy.  Those were the days when Income Tax was as high as 95% and since then our country has witnessed many reforms.

Coming back to Gabbar Singh and  Sholay, during initial days of release the film was not received well.  It took about two weeks for the film to pick up the tempo.  Even in case of GST, it may become true. Although the initial reactions are adverse, GST may turn out to be a blockbuster event  in our country's economic history.

However our country has received a shot in the arm last week.  World bank in its report has

rated India at '100' in the ladder of ease of doing business, giving us the huge jump of '30 places' which is the highest ever.  This is the result of a series of reforms including GST,  that the Government has implemented during last 3 years as follows.

• Insolvency Act
• Real Estate (Regulation and Development) Act - RERA
• Massive Pradhan Mantri Fasal Bima Yojna
• Direct benefit transfers
• Substantial increase in FDI in Insurance, Defense, Railways, Construction, multi-brand retail and e commerce
• Transparency in Coal and Telecom auctions
• One stop clearance for new businesses
• Bank mergers
• Demonetization
• G.S.T.

Lastly both demonetization and GST are ambitious economic reforms of the present Government.  Both of them were known risky steps. GST process is now irreversible and has come to stay.  Our Prime Minister Mr. Narendra Modiji has shown vision and boldness in taking these historic steps.  To the credit of our Prime Minister it must be said that it was never initiated for gaining monetary or political benefits for self or the ruling party. Let us hope that the system of GST settles down well, bringing all the desired benefits to our people.

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