Since November 8, 2016, India has seen a sudden spurt in the number of emotional economists. These economists either support or oppose demonetization based on emotions rather than facts.
If the BJP and its supporters thought that ‘notebandi’ would be a tremendous success, people’s experience of its implementation in the first few weeks would have left them nervous and agitated.
The long queues, the cash crunch, the collapse in economic activity were not good tidings especially if you are going to fight elections in the country’s largest state in a few months. Political condemnation of the move was to be expected.
A day after the Reserve Bank of India (RBI) published its annual report, disclosing that 99 per cent of Rs 500 and 1,000 currency notes, which were withdrawn from circulation on November 8, has returned back to the bank, Arthakranti Pratishthan — the Pune-based think tank that is often credited with having originally proposed the idea of not ban to the government — stoutly defended the move.
But, the bigger questions still remains – “Was Demonetization really a success?”
Well, the stats and the political effects suggest so.
When Modi Government came into power in 2014, it was largely because of the contribution from floating voters. The win would have been called a ‘fluke’ if Modi Government would have failed to convert those floating voters into a strong committed support base.
Demonetization served the purpose and established Modi as a politician whose political acumen is far sharper than most politicians both within and outside his party.
Critics of demonetization argue that it did not root out black money and the move has failed since all the money has come back.
Looking at the bigger picture provides a mouth shutting argument. Demonetization is just one of all the initiatives to root out all the black money. The drive against benami property, GST, and the push towards a less-cash economy are some of the other initiatives and hence, the black money crackdown can’t be analyzed by only focusing on ‘demonetization’.
PM Modi’s move to give a short window of four hours on November 8 was a master stroke. It ensured that the guilty could not escape and had to show themselves. The main reason for the money coming back was that people with ill-gotten wealth did not know what to do.
They were forced to deposit with banks and now have to face the music from the tax guys. Is this not a major move against black money? Demonetization economic benefits are only beginning to tell.
The rise in digital transactions, the transparency and reduced corruption caused by less use of cash and the widening of the tax base all means that India is in the midst of a major clean-up. The corrupt will no longer be able to hide.
It will take some time before people would start appreciating this master-stroke played by the Modi Government and it won’t be long before the positive effects of Demonetization would start to show up.
– with inputs from the ‘Economic Times’