Demonetization – Deeper InsightsMahesh Panigrahy
You can like him, love him, dislike him or hate him, but surely from now on you cannot ignore him. Yes it is NaMo again in the news.
Whether one likes Modi as a reformist, or finds him an intolerant right winged hawk - one has to stand up and applaud for the courage he has shown in discontinuing 500/1000 notes in a notice period of mere 3 hours.
As a child, I have heard of stories of "money barns" where chunk loads of black money was stored and pesticide sprayed on it regularly to prevent insects from eating it away. We all have visualized politicians or business tycoons stashing money in fake ceilings, overhead storages, attics and other unimaginable places. Now no more hide and seek with money. Its black and white, no more shades of grey would be available.
This step is a game changer in considering the three aspects:
1. India would be seen as a courageous nation who has the authority to implement change when it wants to and at the same time undergo what it takes to implement the bold decision. This is perhaps the most important decision of our lifetime - only second to the LPG itself (bigger than opening economy, bank nationalization, land ceiling or GST, etc.)
2. With this single decision, our PM has become a common enemy for one and all. All power centers and tycoons who are adversely affected by this move have become branded enemies by natural selection.
3. The timing, speed and secrecy of this project implementation showed the inherent strength of the Indian institutions - something we have rarely witnessed earlier and now something that we ought to be proud of.
The conviction and boldness behind this audacious step is unfathomable. Few leaders would have the courage to take an apparently self-proclaimed socialist economy on the paths of excellence and supremacy.
Was this a sudden move, or a knee jerk reaction? The answer is NO. Although this was designed to be a secret mission, considering the sensitivity of the mission, the roots of this was placed since the inception of the Modi rule. The first move was requesting BPL masses and middle class citizens to open bank accounts. As a part of financial inclusion our PM introduced the Pradhan Mantri Jan-Dhan Yojana. Other incentives such as Pradhan Mantri Krishi Vikas Yojna, Pradhan Mantri Fasal Bima Yojna and Pradhan Mantri Krishi Sanchai Yojna were all other positive re-enforcement methods to encourage financial inclusion in the country in a mass scale. By June 01, 2016, more than 22 crore bank accounts were opened and ₹384.11 billion were deposited under the scheme.
The next step was financial consolidation using the Voluntary Disclosure of Income which was announced earlier this year. This would enable the afloat black money to come to the government sights by taking a natural course. 65,000 crores was deposited as tax under this scheme which ended 30th September 2016.
Post September 30, 2016 till November 8, 2016 the inaction was just to cool off the anticipation and urgency of people who has not yet disclosed the incomes and were yet in possession of high cash. And here came the negative re-enforcement. Now it was time to catch the bull by its horn. Not alerting it or giving minimum or no time for it to find shelter. Thus the move to ban the 500 / 1000 Rs. notes from the economy overnight. Now with daily withdrawal and deposit limits, high transactions would be under deep scanner. Now it’s the actual time for a fiscal consolidation.
Who knows the next step would be planned audits and vigilance raids to UHNIs, politicians, business tycoons or the uncommon common man who under the pretense of a commoner was sitting under a huge pile of cash. This would be the final blow to the corruption monster prevailing in each and every segment of the society.
Will this end all black money? Hell NO. This would definitely help to reduce it. Also this would discourage from black money usage henceforth. This step can reduce the black money in circulation, not eliminate it. The smarter the system gets, people would try to get one step ahead and find out some loopholes in the system. But temporarily, yes black money would be under serious pressure. For all those who crib about the money lying in foreign banks or destinations of tax free heaven, well this is just the beginning. Once the bull is caught by its horns, riding on it would be easier. What, when, how – hold your horses, that times would surely come.
Will it affect the economy? Of course!!! Liquidity is at stake. Stock markets, forex markets, commodity markets will have ripple effects. We can surely expect a short term sluggish growth. For next few months or even a year, economy will have signs of stagnation. But this change is a welcome change for a brighter dawn. Real estate market being another victim would show signs of demand supply mismatch.
Will I lose anything? NO ways. You have ample time to convert your legitimate currencies into equivalent amounts using legal channels. Yes it might cause you inconvenience for a couple of days / weeks. If you are having illegitimate money, stars are not too bright for you.
Will the poor suffer and the rich prosper? NO and that is the whole agenda of this mission. The poor might have initial hiccups and teething problems in the beginning for next 2-3 weeks till the reality seeps in institutionally and organizations implement the change operationally and functionally.
Could this be planned in a better way with more information and informed cool off period? NO. The entire agenda of this exercise was to give a blow to the black money before it finds would an illegitimate but permissible route out of the economy. The suddenness and the secrecy of this exercise were the cornerstones of this venture and hence this move at this pace was mandated.
Like any change management exercise, this program also would have initial hiccups and transitioning problems. Amidst the black notes, we find ourselves at cross roads now. The path to take further cannot be told by the Prime Minister, or RBI or anyone else but ourselves. As responsible citizens we should co-operate and try to wake up in the new dawn where black money would be minimized or if I think of a Utopian world, it would be curtailed.
It is rare that a country is given us opportunity to shrug history and embrace bright future. It is once in a lifetime we get a chance to restore dignity to integrity. That opportunity is yours, mine and ours.
Jai hind !!!