Assessment of Demonetization

​Though the quality of implementation can be debated (a trade-off to maintain the level of secrecy that it was intended to be), there is no second thought about the intention being right, and the implications of it on the parallel economy.

The critics are overlooking a thing, the move is being commented upon in a myopic vision (several authors did it, including Amartya Sen), and is being seen as a one-off move. If seen as a standalone measure, the cost-benefit may seem little. 
On the contrary, if you fit the “Demonetization” in a larger scheme of things and see it as a piece of cake, everything will seem to make sense.

The Jan Dhan Yojana, Direct Benefits transfer, Statutory status to Aadhar, GST, Real Estate Sector Reforms, DTAA Amendments with several tax havens, Direct Information sharing Agreement from Swiss Banks, Income Declaration Scheme (already yeilded 30000 Crores),  Demonetization, Capital Infusion for NPAs in Banks as a consequence, Direct Tax Code in the pipeline with others like Contract Enforcement reforms, Bankruptcy and Insolvency code, Taxing Agricultural Income.

There is going to be a temporary setback on the economy for sure, with money supply in huge amounts being sucked, may even have a contractionary impact on GDP, and deflation for a quarter. But the staggering numbers going to be revealed in Budget session will all be worth the pain. My rough estimates, a minimum of 1L crore of tax earnings from this drive alone (mind you, this is the most conservative estimate).  Plus additional benefit of weeding out the counterfeit notes, and a blow to the terror financing through it. 

The move also forcefully changes the habit of cash-only transactions, we may also see huge number of current accounts being opened by the small time businesses (Financial inclusion of small businesses) and TIN registrations, boost in sales of POS machines, dispersals of Credit cards, usage of e-wallets, incidentally higher financial literary among masses.

Better identification of Beneficiaries is an added benefit. With the level of financial data being collected, the savings from better implementation of welfare schemes can’t be overlooked either. Leakages will be plugged.
For having been used to getting only doles from Govt schemes. The inconveniences caused by Govt’s move may bring in despair, and it may even backfire politically in the upcoming assembly elections, but I think Modi has got it covered with the rhetoric around Patriotism and Terrorism, which usually yield more votes than rational analysis.
Though, on the face of it, this assessment may come off as extravagantly optimistic. So be it. I prefer being hopeful because as critics say Modi is autocratic leader, he sure is, and for once what an autocratic leader walks the talk, does what he says. He did promise he will bring “acche din” with drastic reforms.

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