The Buck Cannot Stop Here

Reams and reams have been written on the demonetisation drive being conducted by the government, but industry watchers seem to be confused on the intention of the Centre for launching such a massive exercise, and the possible consequences on the Indian economy because of this apocalyptic scheme.

Is the government shifting the goalposts while trying to deal with the demonetisation aftermath? If you have been following the events that have unfolded so far, it sure seems so. As we have commented elsewhere on these pages, the drive started with the noble intention of eradicating black money from the country. This crusade has now morphed into a drive towards promoting a digital economy.

There’s one issue that’s united the naysayers and the cheerleaders as far as demonetisation is concerned. Everyone seems to agree that the implementation of the rollout has been terrible, to say the least. The rules are being made up, as we go along. After sucking out roughly 86 per cent of the cash circulating in the country, not enough currency has been printed to plug this yawning currency hole. The new Rs 2,000 note was not fashioned to fit the country’s ATMs, half of which do not function during ænormal’ times. The litany of woes is a long one.

Initially, the move attracted rave reviews from global crystal gazers. But now the pundits are spewing venom, saying that the drive has broken the back of one of the largest growing economies of the world. Goldman Sachs has cut 1.5 per cent from its 2017 GDP forecast for India. A few unofficial estimates say that even if India’s currency presses run 24×7 to plug the shortfall, it would take almost a year for cash supply to be completely restored.

There are a quite a few who are trashing the demonetisation drive, claiming that a vast portion of India’s black money is stashed abroad in tax havens, and a considerable part of it is parked in assets like real estate and gold. Though this argument may be true, there’s one factor that most of our economists ignore ù black money as a percentage of household consumption in India is a whopping 9.2 per cent as per economist Surjit S S Bhalla. If you consider the fact that this figure is only 2.7 per cent in Pakistan, a hotbed of corruption, you will appreciate the massive problem that the demonetisa-tion drive is trying to tackle.

So what lies ahead? Next year is bound to be one of tribulations, and 2018 is when the economy (which still has strong fundamentals) will perhaps get back on its feet. Many Indians have been forced to adopt the digital economy, and a substantial number are expected to embrace cashless transactions even when monitory normalcy is restored. The short-term pain may well stretch into the next year, but the painful exercise would have been well worth it ù only if the Centre proves that it is in it for the long haul, as far as eradication of black money and corruption are concerned.