As I was going through my morning papers and saw the news item pertaining to demonetisation in relation to the release of RBI’s Annual Report 2017, I was excited as I had penned extensively on demonetization especially my trilogy of books “Modinomics”, “Defeating Poverty:Jan Dhaan and Beyond” and “Modi’s Odyssey: Digital India Developed India” (refer: http://inclusion.skoch.in/story/839/modinomics-at-work--demonetisation-to-emonetisation-1139.html). But even after 7 months after the initial battering, I thought a common understanding would now prevail when things have started to brighten up after adverse impact which lasted for few months. On the contrary, the attention was drawn towards two things, first- 99% of the demonetised cash had come back into the banking system and second-the printing cost of new currency notes was double that of previous year. As usual brickbat followed questioning the objective, timing and outcome of the exercise called De-monetization which has withered opposition or the “old elites” and conquered the hearts of billions despite the initial hardships in terms of “discretionary spending” and “disruption in production activity” as pointed out by RBI report. If the RBI report indicated that just 1.4% to be precise of the pending currency have to be turned in, it is a healthy sign which is related to several positive outcomes and not just limited to the argument that there is no black money unearthed in demonetisation drive. In the first place, weeding black money was never the primary objective of demonetisation. To quote Arun Jaitley "Confiscation of money was not the objective of demonetisation., It needed to be seen in the context of a wider tax base, a more digitalised economy, lesser use of cash and an integration of the informal economy with the formal". I always hold the view that demonetization has to be seen in a different prism and not to be pigeon-holed with three earlier demonetization drives because 95% cash economy of India at one stroke in midnight got hugely exposed to cashless economy leading to e-Monetization.
As a reforms historian, I had seen the situation of Indian economy in the last phase of Congress Government which was engulfed with policy paralysis and stagnant economy and therefore in reassuring the peoples’ faith bestowed on him-Modi had to take several bold steps and one of it -is demonetization. But many including the opposition and various think tanks fail to absorb Modi’s vision of 2022 India. In my trilogy, I had already chronicled the path which Modi had laid down for Gujarat and how financial and social Inclusion was infused in Gujarat through digital inclusion. For example, by linking up roads and bringing e-banks to all, Modi has brought technology to empower common man and to bridge the distance between hope and opportunity. But to emulate what has worked in one state to a pan-Indian level, Modi had strengthened the PMGSY which have connected nearly 6 lakh villages and also ensured steps to boost e-kranti/Govt. Plan 2.0 to digitalize villages. Through Jan Dhaan Yojana banking to all Modi has ensured that population not into banking are being included.
Through his patronizing approach Modi had made private and corporate sector to join efforts with the Government to forge ahead a digital eco-system. But there were certain bottlenecks like how to disrupt the cash-centric and largely untaxed informal economy by getting a larger slice of the population onto the digital economic grid. The result was demonetisation. Going into the Digital payments the increase can be seen to a tune of 56 per cent from 71.27 crore transactions in October 2016 to 111.45 crore transaction in May, 2017. This is remarkable achievement which signifies that an enabling environment has been paved way for e-transaction where nearly 21 per cent reduction in currency in circulation which indicates a change in the mindset of people especially in the rural areas- that “they too” are entitled and “inclusive” to the benefits of cashless and digitalized economy. In addition, by ensuring the demonetised money into the banks led to the Velocity of money and increased circulation of money which has led to the increase in economic growth after initial stagnancy. On the other hand, the deposits in the banking system increased around Rs 3 lakh crore which has increased the liquidity of money that can be used for further lending purpose benefitting poor and in turn promote entrepreneurship as in the case of recent MUDRA scheme.
One of the other obvious benefits has been that direct tax base has expanded substantially after demonetisation and the government is trying to sustain momentum of digital transactions. To highlight some notables, 56 lakh new tax payers have been added, the Number of returns filed and Advance tax collections of personal income tax have increased by 24.7 % and 41.79 % respectively over same period of last year. Though I am not for the black money argument pertaining to demonetisation, the Government side has revealed that Black money worth Rs 16,000 crore did not return post demonetisation and undisclosed income worth Rs. 29,213 crore detected and admitted. In addition, the Government has also defended the printing cost of new currency notes by attributing to the escalation of printing costs-an after effect of demonetisation.
At this juncture I would like to strongly voice few pertinent things which need to be given utmost attention matched with sufficient funds and monitored implementation mechanisms in place to propel the impact created by demonetisation. As Jan Dhaan and subsequent demonetisation has enabled “Electronic Tagging”- to track each money transfer, it will require that Government stabilizes Cloud, Aadhaar and Mobile. This is crucial because as more and more people are getting absorbed into e-transaction or converting into digital or electronic form of payments, it requires a strong cyber security to protect data and have secure system in places which enable secured monitoring of transactions and have cost effective social transfer of payments that will contribute to the ongoing objective of inclusive growth. A SWOT has been undertaken to strengthen E-kranti/Govt. Plan 2.0 programme to digitalize every panchayat and focus on citizen centric e-Governance. Last, but not the least I would like to state that “Vision India 2022” is not a vision of an individual man but has to be a collective vision entrenching cooperative federalism with a strong common belief that India is becoming a robust economic giant and demonetization is one of the challenges which has successfully been overcome.
(Sameer Kochhar can be reached at email@example.com)
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