The 8 November announcement of demonetisation took the corrupt off guard and left the ordinary people bewildered, yet the ‘disruption’ has laid the foundation for an economic future otherwise could not have been imagined.
8 November 2016 will go down in the annals of Indian economic history as the D-day that sent a wave of shock throughout the length and breadth of the country. The routine weekday grappled with sudden bewilderment, which created a euphoria as the clock struck 8 pm when the Prime Minister, through a televised address fired the missile of another big bang reform. The breaking news of demonetisation gave a massive jolt to the citizens and sent the entire nation into a panic mode.
No single political pundit would have foreseen what was made public just then. The entire cabal of corrupt politicians, policy as well as political analysts were in a state of shock, unable to make peace with the fact with what had just happened. Nevertheless, PM Modi’s peekaboo moment reminded us of the China of 1978 under Deng Xiaoping when an ambitious programme of economic reform eventually laid the foundation of tales of economic superpower that present-day China is.
Modi’s announcement of withdrawal of legal tender of high denomination, which accounted for about 86 per cent of the currency stock in value terms, was unparalleled and historic. The bold move clamped down on not just the unscrupulous economic players but transformed the social fabric of the country by setting a new precedent that corruption is no more a way of life and the state reigns supreme, and will will catch the corrupt off-guard. The policy of demonetisation was the Brahmastra for India that came up with multi-pronged benefits. However, in the battle of ideologies and political leanings, the intelligentsia of the country failed to dive deeper in the policy action, instead they held a myopic and partisan view, deliberately overlooking the economic bonanza it holds for the India of tomorrow.
Intended to unearth black money and cleanse India’s financial system of decades of decadence, demonetisation lead to multiple other positive outcomes. Out of many large deposits that were made in the aftermath of 8 November 2016, deposits exceeding Rs 80 lakh were made into 1.48 lakh accounts, with an average deposit of Rs 3.31 crore (about a third of the currency in circulation). Smaller, but still quite significant and potentially taxable, deposits in the Rs 2 lakh – Rs 80 lakh range accounted for another 5 trillion rupees.
This humongous inflow of cash was carried out under the close vigilance of intelligence agencies who exposed multiple instances of malpractice and corruption at retail banks.These figures disprove the narrative of money launderers dodging the taxation through benami transactions where during a surgical strike on shell companies, more than 3 lakh companies were struck off. Not only did demonetisation empty the coffers of the corrupt, but hit the Naxalites too, which is apparent from the reduced left-wing terrorism in the red corridor.
With the Taxation Laws (2nd Amendment) Bill, the stage got set for the tax authorities to collect big amounts from unexplained deposits andor higher reported incomes. The imposition of the bill allowed the taxmen to levy 50 per cent tax on unexplained deposits, and further immobilised 25 per cent of amounts disclosed as zero-interest deposits to fund the Pradhan Mantri Garib Kalyan Kosh, seems like PM Modi truly justified the role of Robinhood Pandey from the movie Dabang in real (all pun intended).
The gross domestic product numbers in the period of demonetisation showed only a slight dip of about one half of a percentage point contrary to the doomsday predicted by the economic veterans. The experiment of demonetisation heralded altogether a new world of digital economy. This digital era that India is leading has created fear-mongering amidst the circles of global players in financial services evident from the fact that our homegrown payments network RuPay’s rise has broken the dominance of US payment giants such as MasterCard and Visa.
Further, ironically, one of the major uphill tasks achieved by the demonetisation episode is a push for formalisation of employment which came as a shot in the arm to the Prime Minister’s swashbuckling act. Data from EPFO shows that around 1.25 crore new formal jobs have been created in the aftermath of demonetisation. Additionally, the common public reaped in multiple benefits in the form of reduced real estate price as well as bank lending rates and a hike in gross household savings.
However, the accusation of botched-up implementation of demonetisation were made by some people, but the other side of the story tells that being a covert decision taken in complete secrecy, prior preparedness and announcement to the implementing authorities would have busted the intended consequences, isn’t it? Would the left liberals still argue for the hiccups in the entire implementation procedure? In fact, just to refresh their memory, despite facing the hassles of cash crunch and long queues in banks, still these very people of the country wholeheartedly stood with their PM to defeat corruption, without complaints.
It takes immense courage to risk one’s political career and give a clarion call of “Give me fifty days and if demonetisation is proved wrong, I will take whatever punishment you insist on”, which speak volumes of the confidence and honesty in the intentions of this big bang reform. The political promise of ‘Na Khaunga, Na Khaney Dunga’ was finally brought to action with demonetisation. It is a pleasant coincidence that the second anniversary of this fight against corruption falls around the festival of Diwali, during which Goddess Lakshmi is worshipped for wealth and prosperity earned through honest means. The victory of 130 crore Indians makes demonetisation arguably one of the greatest economic experiments in modern history and PM Modi will be hailed as the architects of ‘clean India’ for years to come.