Does this demonetization really succeed in achieving these purposes? Does not it
impacted the rural, middle class people the most? The action was meant to flush out
illegal money, but it created massive cash shortages and millions of poor people with
few savings were hard hit. Now the bigger question: is this step right for Indias
economic growth and jobs creation? My answer unfortunately is not a Yes.
Several countries like Zimbabwe, Myanmar, Fiji, Singapore and Philippines among
other countries too have demonetized currency. And all failed - their economy
collapsed, food shortage, people died due to protest. Soviet Union split due to
demonetization as of the reason.
We must not forget that Indias GDP rise in last two decades has been largely
because of middle class led consumption and next twenty years are also pivoted
around the GDP growth expectations driven by the consumption. The consumption
pool is impacted because the circulating money was taken out from the system
resulting into reduced spending power. This will cause serious damage to the
consumption by the unorganized labour force and rural population who are at the
bottom of the pyramid.
Corruption is the hot topic and it is boasted that demonetization will wipeout all
corruption like corruption by cronyism, Political corruption, Bureaucratic corruption
and corruption in daily life. I dont think that it will make a big dent in the corruption
issue because the root cause is not the availability of cash. Black money is stored in
the form of real estate, gold and jewelry.
The benefits towards reduced terrorism fake currency are also at best short lived
and not worth the collateral damage.
Instead, we should have fixed the corruption in the tax department, cracked down
on tax evaders and offshore undeclared money gone after public sector banks dubious
lending to big corporates, continue to digitize government process and schemes.
Lokpal is in place
This demonetization now looks political motivated and I think it was. Forcefully
government has to change demonetization' into 'Cash less Economy to show people
that we are succeeded. It has not been able to demobilize the black cash and much less
the black income generation process. So the black economy, estimated to be 20
percent of Indias gross domestic product or $450 billion, because only a fraction of
that is held in cash, is not getting affected by this move.
I would like to end by saying that the demonetization was not the step in right
direction which is like getting your arm amputated for a severe infection in your
finger. The trick is to treat the finger without losing the arm.