Adv. Govind Patwardhan

adv-govind-patwardhan

It is now almost two months that a very bold decision was taken by dynamic Prime Minister Mr. Narendra Modi. After initial shock within few days the opinion was divided vertically. Modi lovers in complimenting and Modi hater in condemning the decision were extra vocal. There was high decibel deafening debate in social media. Whether the move was really warranted? Whether the decision was politically motivated? Whether the implementation was faulty? Whether there was discontent amongst people? The media discussions for last 50 days were dominated by these issues. The entire winter session of parliament was washed out. It created lot of acrimony between the ruling party and opposition. As it happens in all such decisions that the real pains and gains are lost sight of. Now that the dust has settled down let us analyse the past (decision), the present (response of public) and future (effect on economy)

Long queues before Banks and ATM are enough testimony that the common citizen has undergone lot of hardships in last two months. While hearing petitions against the demonatisation the Supreme Court expressed the fear that if Government is not able to provide enough cash immediately it may invite large scale looting and riots. The situation may go out of control. The common citizen has belied the fear of Judiciary and many economic pundits. The critics are bewildered and opposition political parties are disappointed by the reaction of common citizen. Prime Minister’s credibility with common citizen is apparent. Most see him as person of integrity and determination. They may not know the economic therories, but they believe that what PM is doing is good for the country. And if it is good for the country we are ready to suffer little pain today for better tomorrow. This was also apparent from the election results at various places across the country.

There was parallel economy estimated at 20% to 30% is not disputed. The agriculture sector and small scale informal sector thrives mostly on cash transactions. It is parallel but not black economy. Absence of cash has definitely resulted into loss of business and unemployment in this sector. But hopefully it is transitional suffering, a temporary phenomena. Small businesses have inherent capacity to sustain and overcome such situations. The sector will bounce back sooner than later.

The other part of parallel economy is bribe money, large scale unaccounted transactions. They hurt the genuine businesses is uncontroverted. There is no quick and credible solution to stop it. Black money is used in many ways. Investment in real estate, gold, stocks etc are common means and are not easy to either detect or prove. The excess of black money is stored in high denomination notes. It is useful in elections and for getting big business deals. By demonetizing what the Government instantly achieved is that most out of that idle money, now stands accounted by depositing it in banks. Thus those who have chosen to deposit it have either to explain the source of income or pay tax on it. As per latest report over 1.5 lakh crores of notes have not been deposited in banks. Thus it has gone out of circulation. That is certainly a gain to economy.

The real estate and construction activity which already was going downhill has come to halt. The sector gives large scale employment to unskilled labour. Though there was excitement in air but the general business sentiment was dull for two months. It has resulted in loss of employment and it will take much longer to recover. The effect may be felt for months.

Large amount of cash in formal economy, cashless transactions which are recorded will result into greater tax collection. It augers well for the economy. As response to PMs message to nation on 31′ December 2016 some banks have reduced the lending rates and others will follow. It is positive development but will take at least three to six months to boost the business sentiments and demand. Unless the money supply comes to normal there will be less demand and till that time most Industries will suffer.

There is an explanation why the long queues lasted for so many days and why there were no riots as was predicted by many. Many local dons/goons, political bosses who need and hoard large amount of cash engaged their employees, supporters to convert demonetized notes into new notes. The employees/supporters were paid for their services of allowing the use of their identity and for standing in queue. Crores of rupees is already been again converted into black money in new notes as is evident from cash recovered in raids conducted. Cash so recovered is tip of iceberg. This is also failure of the demonetisation to an extent.

There is no visible indication that there is change in mind set of Government employees. There is no change in rules and power structure. The root causes, which breed corruption are not touched. There is not only apprehension but conviction that bribes in revenue, tax, land records, police, PWD, electricity, building permission departments and even in judiciary will continue unabated. The economy will again be in the grip of parallel economy. If that happens, euphoria generated due to demonetisation will be short lived.

The only hope against hope is that probably our Prime Minister is aware of it and has up the sleeve some concrete steps so that the parallel economy does not raise its ugly head again.

(Author can be reached at gypatwardhan@gmail.com)

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9 responses to “Demonetization – Pains and Gains”

  1. DEEPAK DANG says:

    A GOOD SWOT ANALYSIS. IN MY VIEW, IT WAS A BOLD STEP & DEAD MONEY HAS COME INTO CIRCULATION. NOW, EVERYBODY, EVEN IF ESCAPED NOW, WILL LOOK FOR BETTER OPTIONS, WHICH ARE EITHER MONEY LAUNDERING (VERY RISKY) OR INVESTMENT IN ASSETS (CREATES EMPLOYMENT ALSO). FURTHER, A START OF CASHLESS BUSINESS WILL ALSO WORK & REQUIREMENT OF MONEY WILL BE REDUCED.

  2. CA. M. Lakshmanan says:

    We read from Newspapers that many Petrol Pumps have deposited in old Rs. 500 & Rs. 1000 more than there actual sales; It is sufficient this part alone is checked by the authorities.

  3. V J Sreenivasraghavan says:

    Kindly enroll my name is detailed as below:

  4. Adv.Sudarshan Dargad says:

    Nicely written and balanced approach. Demonetization resulted in some immediate gains like 4250 cr seized/under scanner of ED and IT. Around 1.5 lac cr didnt returned in banks and economy which will be a biggest benefit for Govt.. peace in kashmir and other parts as the terrorists and their feeders have been suffered a lot with demonetization.Fake currency went out of economy in one go (value of Which can not be determined).Cores of rupees deposited in banks will ultimately fetch handsome tax to Govt and will come in circulation with white tag. The Demonetization move should be understood as move towards curbing black money and its not directly aimed to curb corruption. The govt should come up with strict laws to fight with corruption and its eradication.

  5. CH.TRIPATI PATRA says:

    Dear Friends,

    We all know that Central Government had allowed to all petrol pumps to accept old currency till 02.12.2016. Now the Investigation Wing of Income Tax Department has been issuing Summons u/s. 131 of I.T.Act to the petrol pump dealers with huge number of questionnaires which more than the scrutiny assessment. Asking the assesse to comply within short time. So it is very hardship for the assesse.

  6. CA. M. Lakshmanan says:

    Unless corruption is stopped especially in Govt. sector the rise of the Black Money can not be curtailed. Whether is it possible?

  7. Deepak Soni says:

    Every stupid step is not a dynamic step and person taking such a step is a stupid person and not a dynamic person.This was a step out of ego and not wisdom. corruption and black wealth can not be eradicated by demonetisation.One has to demonetise the stupid laws and the politicaians abd the bureacrats who are full of powers and arbitrariness.

  8. dr. guru Balakrishnan says:

    true , pains are extreme, even now All ATMs don’t work; some give out only rs2000 notes, a few rs.500s too; a few with rs 100s ; over all situation not very bright.

    Actually any one attempts ‘cleansing’ need know whether ‘cleansing at all possible’ ; if not don’t give ‘pains to common man’ after t receiving end is the common man only; rich get away with anything.

    Modi in fact not answered his pwn conscience; when so how can he be called man of integrity, one needs to ponder over.

    see ms Jayalitha’s death is shrouded in mystery so madras high court issued notices to all concerned; possibly her dead body may be exhumed to conduct ‘forensics’ ;

    see shashikala wants to be like JJ in power but certainly she is not like JJ in her perceptions; her attempt to hold both CM and gen sec position of the party would just ruin the party , as she doesn’t know the art of governance; so she is vulnerable to many issues; yes may be soon hom SC revisit DA case and outcome is going to be dangerous for her – as she was the very architect of DA issues – besides her CM cum Gen secy position has some sinister purpose that might back fire; none knows what she might face, with her the very party is just mush roomed with all kinds of ‘yes-men/women’ in power; sans JJ she and the party is just big ZERO. yet her greed takes her head on.

    similarly in BJP there are a lot of yes-men’ to PM Modi, yes-men’ is always most dangerous to PM Modi, he may not realize now; if one is correctly responding and honoring one’s own ‘Conscience’ , then he or she succeed is the word known fact;

    just pulpit talks do not answer one.

    People are generous; not power mongering politicians are not is obvious;

    Besides hon SC rightly said in ts latest judgement on religion, caste based politics obviously against ‘secular credentials’ of the indian constitution, so it correctly delivered its verdict – if any politician wants to cash on on religion or caste and the like even of elected his election would end into cancellation of his election results by the election commission. though EC works on Rep Act 1951, yet being subservient to constitution and the new verdict arms it to debar such elected persons to to get into the legislature;

    so when i saw justice Dananjajay view and 2 other men as justices dissent is untenable just because legislatures never in 70 years of governance proved their worth – after all ‘proof of the pudding ‘ is in the eating; so dissent has lost its merits.

    though mr Dhananjay got educated in law by his JDS degree from USA has not got grip of American constitution fundamentals, as indian constitution has got the same emphasis as in the Am.Constitution in the indian constitution too; so he needs to understand; USSC several times upheld the constitution at the cost of the very American governments – why there is better accountability to
    very ‘conscience’ of very self. though most judges were from very political parties – when they change roles, they accept new role very sincerely – but in india it is not possible, as whatever role they don, they are basically play politics that is ‘politics has no conscience’ is obvious fact. so rightly National judiciary act has become ultra vires constitution of india. hats off for such hon SC decision, accountability in politician lacks is obvious; so we cannot trust any politician, we have almost nil ‘Mahatma Gandhis’ or JJs.

    Life is like that. let us accept reality;

  9. CA Paras M Bafna says:

    This article is a superbly written article. The gains and pains of demonetisation are still not measurable.

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