Climate of liberalism spread its wings to Indian borders layer than expectation and too later than circumstances compelling the scheme to uncover. The scheme envisioned to completely integrate the national economy with world economy albeit slowly and steadily. This step endorsed arrival of MNC’s and subsequent opening of borders brought some more unseen attributes. Nation embarked upon the task of improving economic per suits through entirely new route to establish economic prosperity. Therefore wide ranging policies were adopted to polish the dream. In this journey the parallel arrival and flourishing of anti economic policies started refreshing themselves. Corruption,black money/parallel economy/shadow economy and counterfeiting of currency became much more complex. The complete but complex integration of economy with world created cross border connection for such activities to flourish. At the top rung the rise of terrorist funding amplified after the ease of trade and service regulations. Tax havens and corporate corruption are buzz words in Indian economy. Herein the scope for regulation of state and its agencies is enhanced to keep rules in touch to ensure transparency and stability. Demonetisation in short appears to be manifestation of such role.
Government of India authorised by amended version of RBI act repeated the 1978 policy albeit at higher magnitude to announce 86% of valid currency as invalid from 8th November 2016 by demonetising Rs 500 and 1000 notes at midnight. It is a radical monetary measure applied to change the national currency of nation. Whatever may be the objective of governments policy the timing and the magnitude of demonetising currency made the policy adoption a serious economic debate. Initially the government termed the policy as totally economic measure meant to achieve three objectives: To tackle menace of black money/parallel economy,To counter menace of counterfeit currency and to prevent the terror funding usually done in cash. These three objectives emerged on the white paper to initiate a cumbersome procedure of demonetise and Remonetise all around year. The debate is still going on for the pros and cons of the measure took in urgent style with radical stance of government to fulfill promise of “corruption mukt bharat” and “black money back”. When the measure is analysed radically some noteworthy achievements comes to fore from deep inside the premises of “Good economics is a bad politics while as Good politics is a bad economics”. A small the objectives mentioned the menace of black was controlled to some extent for the reason that almost whole illegal generation and storage of money in legal tender was need to pass through table of Bank manager ist.The shadow economy is responsible for various untoward issues in economy like inconspicuous demand leading to inflation thus worsening real economic situation in country. It is generally held belief that REAL ESTATE MARKET serves well the heaven of black money generation. This policy in addition may streamline the property market rates in housing shortage country. This way the money supply in banks increased and the undeclared assets in cash turned the route of illegal activities towards legal route of bank deposits. It proved healthy for revenue in time to come for government due to widening of tax base. The disclosure of assets bring the tax evaders in eyes of government. The fact that the number tax filers rose by 10.1 million since note ban from modest 59 million upward.
This step as the Economic survey pointed out is expected to boost income tax 2.3 % of GDP as compared to 2% before demonisation. This figure may not bode well but it seems glacial progress in country where just 4% of adults pay personal income tax albeit government assessment expects it to be nervous 23% in actual terms. Hence the step is in tune to help better Tax to GDP ratio an abused attribute in Indian company as compared to its peers in WEST or ASEAN. The objective of terror financing do help to recover some bleak incidents as the global survey of terror related episodes puts INDIA ahead of PAKISTAN in 2016! Proxy strategy and across the border funding will be halted to some extent till the time a new effective measure shall be in place. The incidences of MAIOIST HIT AREAS facing a pause and the capture of cumulative currency in old 500 and 1000 notes worth crores of rupees is point worth of mention. Next in line is the objective to route out the menace of counterfeiting currency. This parallel route of NAKLI PIASA has made the economy face multiple problems. These activities have close nexus with illegal trafficking in drug and sexual rackets with altogether a different dystopian world. All these measures survive the policy of demonisation well in advance till the new objective of DIGITAL TRANSANCTIONS to go cashless became helping hand. The directive came through initiatives taken to lower the cash phobia in heavily cash transacted country of world. Government embarked upon the additive by concessions in digital transactions and subsequently evolved series of platforms to endorse this objective like BHIM APP etc.
As is said “the policy is as good or as bad as its implementation”. What could have been the objectives the way and the quickness of government action turned the wind towards critics for being touted as economic measure to won political leverage. The sudden withdrawal of 86 % of currency in heavily cash dependent country came nothing short of tragedy for poor and SME sector. The worst hit small and medium enterprises sector in terms of SITARAM YECHURY “broke the backbone of economy”. This sector faced lot of difficulties in credit and transactions due to large share of informal dealings in its functioning. Most of the unbiased reports and some government hobnobbing agencies also endorsed the claim albeit terming it short term loss for long term gain. The measure couldn’t augered well for small businesses like shopkeepers and daily wagers. This issue crippled the demand in rural economy due to cash shortage thus worsening the economy’s backward and forward linkages to a wide extent.since the share of informal economy is large at 40% the objective eradicating black largely held in terms of real estate and beyond borders or gold assets makes no sense. Banking Inclusion in country is minimal as the country lives in village the step took in urgency doesn’t bode well for excluded sections of society.
As the saying goes “Before you act see where did you stand”. The son’s hindsight is father’s farsight as for as the share of formal and informal economic functioning is concerned. The poorly organised SMES sector is depended on cash and is interwoven to money lender and suppliers through cash transactions. The step of demonisation is most cursed in Indian context the way it was implemented buried its limited progress in infancy. It would have served its due if taken after due deliberation and elaborate planning measures of REMONETISATION in place. The subsequent steps of recalibrating ATMS served none other than corporates through commercialisation of E COMMERCE. Here the situation of General solution fallacy or Nirvana fallacy doesn’t arises. Tax reforms and effective monitoring of suspicious transactions are indeed a better alternative for addressing the that policy makers sought to fix through phobia marquee policy of Demoetisation. It shall not be sued as step of bad economics for good politics for being sure injustice but to raise it to status of GOOD ECONOMICS IS BAD POLITIC is certainly injustice in court of economics. Let’s hope the measure leaves its imprint for succeeding policy makers to effectively analyse the policy before adoption for successful execution in line with endorsed objectives.
Shahid Majeed Mir can be reached at mirshahid363@gmail.com
