Aneela Nike Post: Demonetisation

A lot has been said and written about demonetization. This is the third demonetization of higher currency undertaken by the Indian authorities, if we include the one done just before independence in 1946. The move by the government to ban Rs 500 and 1000 notes has been praised and criticized. In elected democracies major economic decisions have a political dimension. No politician would willingly risk growth, commerce and jobs if he did not know there would be political gains at the end of the tunnel. Whether it is a 2% GDP growth loss, a deceleration is unavoidable.

Many say, it’s a brave move by the government; majority agree, the intent is good but the implementation has been adhoc and shoddy. But the fact is, it has crippled the nation. There are long queues in front of banks and a reduction in trade and business. It is bound to impact on the GDP of the country. It is very rare to remove 86 per cent of the currency in one go. The logistics of such an operation is mammoth one. The government has been accused of being reactive to the situation with adhoc decisions. The withdrawal of Rs 500 and Rs 1000 notes has created havoc for families with marriages and other ceremonies scheduled, has also hit business and trade. There is a slowdown in the manufacturing industry, small scale units and unorganized sectors have been hit hard. The rural economy too has been crippled.

The benefits if any of demonization, only time will tell. The only short term benefits of it would result in people shifting towards the use of debit cards and digital transactions in the urban areas. In rural areas, illiterate farmers may be exploited as they are only used to cash transactions, and very few number of banks in remote areas are accessible to them. The real estate will definitely be affected by demonetization exercise, as traditionally seen a very high involvement of black money and cash transactions.

Whatever the misgivings about the long term impact on the economy, no one can predict what is likely to unfold. We will have to wait and watch. But one major factor will undoubtedly remain as a legacy of this unprecedented move is the return of the government in our lives in an irritatingly permanent way. The role of the authorities in our lives is bound to go up substantially. The fear being, somebody is watching.

The move, if it will meet the objectives of curbing corruption, counterfeit currencies and black money as spelt out by Prime Minister, is to be seen in the coming months. Many feel the real impact of demonetization will be felt in about six months time affecting agriculture, small scale industry and the unorganized sector. And also trade, business and commerce in general. It is still too early to accurately gauge the depth of the shakeup this has caused. Demonetisation may whiten the economy, but for now it has blackened the mood!

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