The overwhelming finance sector reforms have begun transforming the system as New Deal. Currency crunch is still a problem, digital reach and efficiency not sufficient, yet the popularity of the measure, people’s patience to make it succeed and Prime Minister’s passionate appeals have created the atmospheric for monetary reform.
Textile Minister Smt. Smriti Irani has tweeted that there has been a 300 percent spurt in digital payments. More and more people are getting attracted to the new normal. The government has announced lucky draws and rewards up to Rs one crore to incentivize digital adoption. This writer was fascinated to see even vegetable vendors in suburbs like Gurgram and grocers in remote areas like Mayang in Guawhati, Assam adopting to digital transactions. Sensex has started upward trajectory.
The political impact has imparted bonanza for the ruling party in by-polls to Lok Sabha, assembly and local bodies across the country after November 8. In the absence of any noticeable unrest or dissatisfaction, doomsday merchants have fallen silent. The critics of the monetary revolution have failed in forty days to formulate a logical economic narrative to demolish the philosophy behind scraping of high denomination currency notes.
Positive results are already visible. Contrary to reports of cash crunch affecting the sowing season more land has come under cultivation this season than last year. There is visible growth in online and mobile transactions; which means people are adapting to the new system with some nudging and some incentives. Prices of vegetables, food and consumer durables, even automobiles have started falling. Inflation is declining. Even tea garden workers are getting tempted to open bank accounts. Socially, there is a decline in money-related crime rate in the past six weeks. The incidents of stone pelting has come to a halt in Srinagar, which was being engineered using fake and black money routed through Pakistan.
Reports say that Rs 12 lakh crore of the Rs 14.6 lakh crore in high denomination notes have already been deposited in banks. Opposition naively asks so what was the big deal? “There was no black money as was being made out. Even counterfeit currency was just 2 per cent.” This is an argument of obfuscation. The very purpose of demonetization was to bring the hoarded estimated Rs 10 lakh crore back into the system. Second, to net the tax that was due to the exchequer. Both have been achieved. The extent of fake currency is debatable. What is more important is that it has been flushed out of the system and it has left underground operatives like Maoists, J&K Jehadis and hawala operators out of job. The first casualty being the Pakistani hawala operative Javed Khanani, considered the conduit of Dawood, committing suicide due to financial bankruptcy resulting from demonetization.
Will demonetization work? Will it slow down growth? Will it lead to huge job losses? Will it lead to rural poverty and farmer distress? Will it lead to price rise and inflation? Will it lead to windfall gains for RBI? Will it help government to deliver a balanced budget? Will the 2017 budget be a dream budget with less taxes and greater bonanza for the common man? These were the concerns and hopes expressed by both critics and supporters when the PM announced the demonetization on November 8. The concerns have been allied by experience. The good is in the realm of possibility. In any case the naysayers have lost the ground.
Demonetization has rebranded Shri Narendra Modi as the messiah of the poor. His connect with the dalit, shoshit,(exploited) vanchit, (deprived) peedith (oppressed) India is now complete. As has been stated by this author earlier, it could be described as Prime Minister Modi’s proud socialist moment. The move has brought him closer to the common man as never before. Politics will never be the same again. Taxes will come down. Investment and growth will become reality with job creation.
The move is expected to unlock as much as Rs ten lakh crore which was hoarded by tax evaders. The tax base is going to double, the case of too much cash chasing too few goods will disappear. Already Maoists, terrorists and criminals are on the run. Counterfeit currency will disappear. We are witnessing a bloodless coup on the monetary front. The recent raids that unearthed huge stashes of black money, gold and new currency have proved two things. That the government is committed to cleansing the system. Second, many banks and managers have been found colluding with the corrupt to fail the initiative. This shows how deep set and well-entrenched the wrong doers are. The government also will have to take care that innocent people are not harassed. The return of inspector raj will prove counterproductive. Bigger challenge to make banking and digital transactions more efficient and better spread.
This has revived hope in the poorest of the poor, getting better opportunities and financial inclusion. Access to new technology can work as a social empowering tool. It may not suddenly inverse the socio-economic pyramid in the country, but it will for a long time alter the exercise of power and the political practice that we have so far been familiar with. Here Shri Modi played the big leveler and disruptionist of the status quo.
Shri Modi’s idea of financial inclusion is comprehensive and real. All doubts regarding the gains of demonetization have been positively answered in the last twenty days. Tax collections have made most of our civic bodies plush with money, the banks have already collected Rs 12 lakh crore. The banks will have to reduce lending rates and hence in February we are likely to have a balanced dream budget. These are all pointing to the opportunities others missed and Shri Modi cashed on.
*The author is a senior Editor, regularly writes on economic issues. [email protected], Twitter @drbalashankar . These are author’s views.