Post November 8th thanks to our PM much of the nation’s views and vocabulary has been spent on arguing the merits and demerits of this ‘monumental’ decision. While like everybody I had an urge to express my views, I held it back wondering on what grounds do I express my views on. After all you had opinions in many hues coming from the sagacious lot ranging from politicians, economists, journalists, sociologists, bankers, corporates etc .
It was indeed unprecedented that; a prime minister would directly impact my life and how I went about my daily routine. And so i felt it only appropriate that i try and make sense of this initiative as common man and how it can make our lives better
As someone who has been part of the corporate world it would be instructive to say that we have been trained to be empathetic to change and look at it positively. ‘Change is the only constant’ they say. So, I braced myself to look at this initiative with constructive ‘tinted’ if not ‘tainted’ lens to it.
The intent is noble and everyone agrees to it. On the issues with implementation, it was part of the design given the surprise element and hence the uproar while being right is not relevant and can be argued as the necessary evil. On the other hand they chose to address the black money in cash form and overlook other forms viz., property, bullion, overseas accounts, benami properties would be out of scope of this exercise. And hence irrespective of the political rhetoric from the establishment the size of targeted black economy should be far lesser than it actually is.
The other big issue has been about the changing narratives and shifting goals posts. But if one takes a closer look , certain themes are recurrent and consistent across the stakeholders who came out in support of this. I have specifically looked at the speeches/interviews of prime minister, finance minister, RSS ideologue and top bankers who have actively supported this initiative and have argued in it’s favour. I have carefully chosen to ignore other expert views that highlighted the issues or have taken a contrarian stand on demonetization.
This was to examine the performance of this initiative through the communication from the establishment to the nation. How successful it has been in terms of addressing the problems.
|Problem||Cause||Solution||Impact anticipated||Current state|
|Tax evasions by vast majority of the population leading to black money
|Make them deposit cash and tax them for the unaccounted income/cash||Collection of tax that got evaded by taxing the unaccounted money that got deposited||No formal updates on unaccounted cash or likely tax revenue|
|Cash transactions||Create a scarcity of cash and push digital transactions especially in reality, unorganized sector where cash is king||Prices to come down of real estate, essential goods||Slump in real estate sales, price of veggies came down owing to stagnation and resultant panic: No formal updates|
|High costs towards maintaining the cash economy||Growth in cash component of transactions
|Incentives for digital transactions viz., discounts, temporary scarcity of cash||Increase in the volume of digital transactions and overall de-growth of cash transactions||Increase in adoption of digital wallets viz.,PayTM
Launch of BHIM
Inconclusive whether it will become a habit :
|Spurious lending practices||Cash lending without formal documentation||Make them deposit cash and tax them for unaccounted wealth||More cash in the system to offer loans -support business||No formal announcement on money lenders in unorganised sector.
Banks offered reduced interest rates, PM announced SOPS for farmers, urban poor etc
No mentions on how it will address those who are not creditworthy-unbanked individuals
The decision brought the entire nation to it’s knees and has inflicted pain to many. The impact on poor and the underprivileged is likely to be severe as it threatens the livelihood given that they don’t have access to many privileges that we do. By some expert accounts, this can never be estimated.
While it is important to have faith in our head of state, but it equally important to be responsible and ask the right questions. I have some.
Objective one : Size of black money in cash contributing to parallel economy :
- What do we know when we started the exercise? What was the basis?
- At the end of 50 days do we have realistic assessment of this size?
- Do we know who are hoarding this ?
- Unconfirmed reports indicate black money got laundered through surrogate accounts and have been deposited in banks
- How do we understand the money trail?
- How can we ensure they are brought to justice?
- What would be the time frame?
- What is the likely size of this?
Objective Two: Inflation
- What has been the measurable impact on inflation on real estate and essential commodities (Top of mind sectors)
- The price drop seen sporadically in vegetables is more of a panic reaction and not a systemic change to inflation
- What is the road-map to tackle inflation through this demonetization? Which sectors and how?
Objective Three : Moving towards cashless economy
- Many senior bankers have been non-committal on being completely cashless and haven’t stated a timeline to this
- What is the road-map to ensure cashless economy is part of the unorganized ecosystem beyond one-off stories of chaiwallah, sabziwallah
- How do we ensure there is an adoption that is akin to Aadhar enrolment?
Objective Four : Better lending practices
- What will happen to the money deposited in the banks?
- How will they address the current stress to SMEs?
- How will they address the credit needs of those who are unbanked and belong to the unorganised sector?
More importantly is this a one-off exercise. How can a one-off exercise like this lead to a permanent change in habits that are ingrained in our society? How will this one-off exercise address all the above four objectives?
What is therefore the roadmap to ensure the impact’s remain long term and the country will remain immune to such malpractices.
I am yet to fine these answers and hoping the country gets them. Jaihind!