Black money · Demonetisation · Indian economy

The Demonetisation Analogy

cartoon nov 12On the Eve of 8th Nov’16 , Honorable PM of India kick started an event, what i would like to call a Mega Economic Experiment.
I call it an experiment because, it was thought about within a premise that Indians had enormous amount of black wealth in form of “cash”. Mega because the whole population of 134 crores was taken to be the sample size.
I make this analogy almost 5 months after the Experiment ended. I find this moment apt to criticise the event because the effects have sedimented and the economy is almost back to its normal functioning.
On the realistic front, it was no where close to being prudent to shoot off the currency that amounted close to 83% of the Circulation with a mere announcement. It needed a lot more than just a notification. When you are aware that your workforce has around 60% of its portion been employed in unorganised sector (agriculture, construction etc) which gets its income mostly or Only in Cash mode, such a radical decision was not welcomed.
So with almost 0 realistic approach to the sample size and effects they could have possibly calculated easily on paper. It Failed to get it on my checklist.
The administration failed to realise a broad spectrum of possibilities for converting black “money” into black “wealth”. Which meant a person who has income from unrecognised sources would not necessarily keep it stashed under his bed or in the ceiling. He could always convert it in the form of bullion, gold, properties etc. Data suggested that only Rs 1.33 lakh crore, which was about only 4.9 per cent of what was in circulation (Rs 27.15 lakh crore), was black money.So the net figure of black money left with people is just the tip of an iceberg. There’s a lot more than just tracing out the cash.
Though they were dynamic enough to change their their norms every other day, but it was after the damage had already been done, and all that was left was a pondering commoner amidst the new ratifications bewildered and clueless.The administration held a bird’s eye view to their Gigantic prey. Had they kept a broader perspective, they would have got a bigger catch.
P.s.: the black wealth hoarder are now more aware of their risks which makes them difficult to catch.
The Hard ground reality was, the economy where cash transactions are its blood streams, had got blocked. It did wither in pain. The unorganised sector/the daily wage earners, all went to bed without a proper one course meal, such was the situation.Even when the common masses rejoiced that now the rich will suffer with all his hoarded money, they failed to see a single rich guy in a queue for exchange of notes.
The figures have a different story to say.
The GDP remained pegged at 7% and the indirect tax ( excise, customs,service tax, VAT) collections soared to all time high.
With factories facing going away with shut downs and farmers selling their produce for peanuts, such a figure was achieved.Moreover, when more than half of your labour force was standing outside the banks to collect a basic amount of cash needed for survival, how was such a demand generated?That too soo strong that it ousted all the negative effects of the Experiment.
The most apt answer to this is— there was no such demand, they were just papers being transferred.
Faulty bills drawn, Unreaslitic stock figures maintained by industires started changing hands only on paper.People tried to get as much money into circulation with minimum risk of being caught, hence when such fake yet genuine bills were drawn, sales was registered and the tax collections increased.More Production was shown in books than in reality, hence excise collections rose steeply. People ended up paying advance utility bills and taxes just to clear up their coffers.
Hence, i would like to say, the Experiment was a total failure with no preparedness, it brought in considerable amount of uncertainty in the economy. A very naive Step taken by an administration of any country.
– oori baba

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